Niskanen Center / by Jerry Taylor
[The Niskanen Center has] released a study I wrote arguing that Congressional Republicans should put forward a carbon tax and conservatives should throw themselves into getting it passed. Better to let market actors decide (in response to price signals) where, when, and how greenhouse gas emissions are controlled than have government bureaucrats do the same via regulation. The carbon tax bill I have in mind would:
- Levy the carbon taxes at the point of production;
- Use tax proceeds to offset revenue losses from tax cuts so as to ensure revenue neutrality;
- Impose charges on imported goods the equivalent of what they would have had to pay had the imported goods been produced in the United States;
- Rebate some portion of the tax to poor households to mitigate against the regressively of the tax;
- Eliminate EPA’s regulatory authority over greenhouse gas emissions;
- Eliminate green energy subsidies and tax preferences;
- Eliminate energy efficiency standards;
- Repeal the Corporate Average Fuel Economy Standards (CAFE); and
- Preempt state renewable energy portfolio standards.
Many conservatives, like my friend Jeffrey Miron, have argued that no matter how compelling the case for a carbon tax might be, it will be rendered intolerable by the time it emerges from the legislature. Politics, not economics, will dictate the tax rate. Exceptions and favors for politically popular industries will litter the code. And despite promises to the contrary, the inefficient regulations will never die.
Economist Tom Tietenberg of Colby College examined the literature pertaining to the 15 major pollution tax and fee programs instituted worldwide and found that while concerns about the translating of economic theory into political practice are not baseless, they are overstated.
The cost savings from moving to these market-based measures are considerable, but less than would have been achieved if the final outcome were fully cost-effective. In other words while both taxes and emissions trading are fully cost effective in principle, in practice they fall somewhat short of that ideal in part because actual designs, fashioned in the crucible of politics, deviate from the dictates of optimality…