DALLAS — Taxing carbon emissions has long been supported by environmentalists and the political left, but recently it has found support among some establishment Republicans. And perhaps even President Donald Trump.
Taxing carbon raises the price of using energy. Supporters hope the country would, therefore, emit less carbon, reducing our impact on climate change. However, they are ignoring several problems.
There is no viable alternative to carbon-based fuels. In economics the “elasticity of demand” is the idea that if the price of one product such as coffee goes up significantly, consumers will look for substitutes, perhaps tea.
A product is considered “elastic” when there are lots of substitutes and “inelastic” when there aren’t.
A carbon tax is meant to force people and companies to embrace energy substitutes, but fossil fuels are one of the most inelastic products. There just aren’t any viable and scalable alternatives.
If gasoline prices rise because of a carbon tax, some people would carpool or take public transportation, others might buy smaller and often less safe cars, but most would just have to pay the higher price.
The price of everything would rise. Economic theory says corporations don’t pay taxes, people do. Companies pass along taxes to consumers in the form of higher prices.
Because we would still have to use fossil fuels for the vast majority of our manufacturing, transportation and power generation, companies would simply price that tax into virtually every product and service they sell.
Food must be harvested, processed and transported to grocery stores. Clothes and consumer goods must be manufactured and transported to retail outlets or to consumers’ homes. Planes, trains and long-haul trucks cannot run on solar or wind power. Neither can our military.
While many power generating plants use renewable energy from wind and solar power, those two provide only about 7 percent of power generation — and that’s after spending hundreds of billions of taxpayer dollars subsidizing them.
Thus a carbon tax would have little impact on carbon use and a big impact on what we pay for everything.
Just ask Norway, which passed a carbon tax in 1991. Researchers from Statistics Norway assessed the results of a carbon tax they describe as “among the highest in the world.”
They concluded, “despite significant price increases for some fuel types, the carbon tax effect on emissions was modest.” The taxes contributed to a reduction in onshore emissions of only 1.5 percent and total emissions of 2.3 percent.
This surprisingly small effect relates to the extensive tax exemptions and relatively inelastic demand in the sectors in which the tax is actually implemented.
Australia became the first country to repeal its carbon tax, even though it was considered model legislation. When the 2014 repeal passed, Prime Minister Tony Abbott called the tax “a useless destructive tax which damaged jobs, which hurt families’ cost of living and which didn’t actually help the environment.”
We live in a global economy where U.S. companies must be competitive in order to sell to other countries.
That’s why corporate income tax reform that lowers rates along the lines of that proposed by President Trump or House Speaker Paul Ryan is so important.
A carbon tax that raises the cost of production across the economy would have the opposite effect, making it harder for businesses to compete globally.
The good news is that the U.S. has been reducing energy-related carbon emissions — to their lowest level since 1991 — in large part because fracking has made natural gas a cleaner and more affordable option than coal for power generation.
The country needs policies that help it become more competitive, not less so. Lowering the tax burden, not raising it with a carbon tax, is the best way to achieve that goal.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in metropolitan Dallas. He holds a doctorate in Humanities from the University of Texas at Dallas. Readers may write him at IPI, 1320 Greenway Drive, Irving, TX 75038
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