Carbon Taxes

Xi’s recent declaration that China would be carbon neutral by 2060 prompted me to read a few pieces on environmental politics I thought I would share.

Carbon taxes have been a central objective of the environment movement for many years. Success implementing them has been decidedly disappointing. Where they have not been outright rejected or rolled back, as in Australia, they operate in watered down forms.

The dial has been shifting slowly. US Republicans and major oil companies lined up in 2018 – along with over 400 economists – to advocate for a $40 carbon tax. Too good to be true? Yes. Alongside the tax, they also want to repeal the environmental legislation that allows the government to regulate carbon emitters and immunity from all future climate related lawsuits. You might be familiar with this image, from the famous ‘Big Tobacco’ trial? Big Oil would like to avoid the same. This NYT op-ed from 2018 is a nice overview of the politics.

Cancer? What cancer?

Carbon taxes are so universally supported by experts that they sometimes appear like miracle cures; simple market-based mechanisms that will gradually transition economies while stimulating research in green technology. This piece in the Boston Review dissects this hope to reveal a grimmer reality. The central problem today is that any politically viable price on carbon would be environmentally impotent.

Even when prices do exist, they are quite low. According to the World Bank, countries need policies between $40 to $80 per tonne to meet the Paris Agreement targets. Yet half of the world’s carbon prices are less than $10 per tonne, while only five countries—Sweden, Norway, Liechtenstein, Switzerland and France—are in the target range. Even the prices in these countries are probably too low.

New Zealand’s cap-and-trade system exempts agriculture, even though agriculture is responsible for over half of the nation’s emissions. Mexico has a small carbon tax on fossil fuel production that excludes fossil gas completely. And in the United States, 11 out of 12 states with any carbon price only apply it to the power sector.

They advocate a mix of “large-scale industrial policy,” legal attacks on the fossil fuel industry (similar to Big Tobacco), and government regulations and timelines for decarbonization to encourage private sector planning and investment.

It is a familiar policy mix, which to my mind is only a good thing. Market-based mechanisms like carbon taxes will be necessary but not sufficient to combat climate change and there is no stronger evidence than the fact that the companies who would be subject to them are getting on board.

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