A tax, but delivered gently

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Evening Post & Mail
On the UN General Assembly, all-you-can-eat buffets, and how to tackle the problem of climate change in a very American way

The appeal of the all-you-can-eat buffet isn’t necessarily the abundance of available choices, but rather the suspension of any need to consider trade-offs. Life is full of trade-offs which force us to make small decisions every day, and being liberated from the need to make them can be like a vacation unto itself – hence, the appeal of the all-inclusive resort.
■ Trade-offs remain both natural and unavoidable in the real world, though, and the failure to properly account for them in their totality is one of the main reasons that economics needs the concept of externalities. All things come with a balance of good and bad, which requires us to think about both. The indirect or unintentional consequences of our choices usually deserve accounting.
■ Pollution is perhaps the most notorious of the negative externalities. While progress has been made towards addressing the conventional pollution of the air, water, and soil, one of the most vexing problems is how to deal with the deposition of excess carbon dioxide into the atmosphere.
■ The consumption of carbon – in particular, via the burning of fossil fuels – has been treated like an all-you-can-eat buffet since the dawn of the industrial age. That liberation from choices has meant that people simply haven’t been forced to reckon with the negative externalities. And thus we get climate change.
■ It is one matter to decide whether or not this excess carbon is really a problem. It is another to decide whether to do something about it. And it is still another to decide how best to go about doing it.
■ The evidence suggests that it is a real problem (and even if not, the costs of guessing wrong appear devastatingly high). Thus, many of the advanced industrial countries have decided in the affirmative on the second question – to do something about it.
■ Even those who may not agree that it is a problem, or that action is worth taking, still ought to engage in deliberation about the best way to “do something”: Even if you’re trapped in a vehicle going to a destination not of your choosing, you would still want to have input on what plays on the stereo, how the temperature should be set, and whether the driver stays between the lines.
■ If we really want to reduce the deposition of excess carbon into the atmosphere, then instead of introducing vexing new regulations or imposing massively expensive and command-style plans from above, the most prudent strategy is probably to impose a tax on the release of carbon into the atmosphere.
■ New taxes, of course, are unpopular by default. The way to introduce the least amount of pain in association with such a tax is to rebate back the preponderance of it directly back to the public. If the funds raised through a carbon tax where overwhelmingly returned back to the public on a per-capita basis, the tax would be progressive (in the sense of raising more from the wealthy than from the poor) by default. Consumption taxes tied to a rebate system tend to do well at making those who consume the most shoulder the biggest part of the burden. Those earning the least income would benefit relatively the most from a rebate.
■ A truly wise tax design, if functioning like a “sin” tax, would impose some kind of deterrent effect. One would not want to rebate all of the revenues from a carbon tax back to the people being taxed – perhaps most, but not all. With a portion of the tax revenues raised, the government could subsidize research and development, using inducement or innovation prizes.
■ A tax imposed on carbon consumption could mostly non-coercively nudge people away from the behaviors that cause carbon-related pollution, while minimizing the amount of decision-making required along the way. Instead of complex regulatory impositions, a carbon tax would put the most useful information in the easiest-to-understand terms: Prices. Choices resulting in more carbon pollution would come with higher price tags, all else being equal.
■ And if a small portion of funds raised through such a tax were devoted to inducement prizes – prizes that only be pay out upon demonstrated performance – the government would only have to pay when the job is done, making for a highly accountable form of public spending. Structured correctly, those prizes could reward high-priority technological innovations (like, for instance, better battery technology or improved small-engine efficiency), and the terms of accepting the very large reward could include turning over the innovation to the public domain for immediate royalty-free use by the private sector.
■ Climate change proposals (and no small amount of grandstanding) will remain on display for the full week of general debate at the United Nations. The scale of the problems may be global, but the answers will come from national decisions suitable to the people living under them. For the United States, at least, moving away from the buffet table and towards a simple pricing-based mechanism likely makes the most sense of all.
Carbon can be pretty when it's captured
Carbon can be pretty when it's captured
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Brian Gongol
Brian Gongol @briangongol

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