Curing Climate Change: The Case for a Carbon Tax

Published by PolisPandit on November 28, 2014

There is an easy short and long term cure to climate change: a global carbon tax. Before you gasp at the thought of making businesses pay for the metric tons of carbon (and carbon equivalent emissions like CH4) they emit, and before you rebut this argument by stating that the cost of carbon will only be unfairly passed to the consumer, watch this video of the conservative Nobel laureate economist, Milton Friedman:

[youtube https://www.youtube.com/watch?v=E1lWk4TCe4U]

There is no question that Friedman comes from the conservative Chicago economics school of thought based on laissez-faire principles and Adam Smith’s philosophy. But many do not realize that a number of conservative thinkers like Friedman, typically opposed to government intervention in any facet of life, are in favor of taxing carbon. This is due to the fundamental principal that carbon emissions affect third parties. Unlike Friedman’s example of airbags where consumers have a choice if they want to purchase a car containing them, third parties have next to no say on how often someone chooses to drive their Hummer. When third parties are detrimentally impacted, there is a strong case for the government to step in and regulate the area of impact. A strong case exists in these situations because third parties cannot protect themselves from the intended or unintended consequences created by the actions of contracting parties. Sure, third parties can choose to boycott the Exxons and BPs of the world, or any company for that matter who uses fossil fuels, but they cannot control the behavior of other consumers. While third parties may choose to purchase products that only use renewable energy sources or which emit almost no carbon, other consumers may act very differently. A third party involved in a car accident with a consumer who decided not to purchase airbags is unlikely to be affected or harmed by that choice. It would not make their injuries any worse (although their personal decision not to have airbags may). However, a third party will undoubtedly be detrimentally affected by another who purchases excessive amounts of fossil fuels and emits its CO2 and its CO2 equivalents into the atmosphere. An overwhelming majority of scientists agree that these types of emissions are having a significant and devastating impact on our planet and the humans who inhabit it.

While environmental concerns are important and noble, businesses still need to be able to make money in order for the global economy to thrive. Corporations are incentivized to enhance their bottom lines and act in the best interests of their shareholders. For energy companies, these incentives often come at the cost of causing a negative environmental impact. If there is a strong market demand for crude or natural gas, corporations will take any (hopefully legal) means necessary to extract, produce, or supply the product consumers desire. Given the current legal and regulatory treatment of carbon and fossil fuel emissions, these corporate incentives are understandable.

A carbon tax would serve as a countervailing force against these current market incentives. In the interest of preserving our environment and securing our economic future, each party on the commercial chain, from the producers to the end users, would be taxed on a quarterly and / or annual basis on the metric tons of carbon dioxide equivalent emissions they emit. The tax would probably have to come in the form of credits, where a covered entity would have to purchase carbon credits based on the metric tons of carbon they emit. Conversely, those who produce, supply, or purchase renewable energy should be rewarded with the generation of credits that they can then sell to the oil majors and carbon dioxide emitters. A carbon tax could go even further and enforce a cap on emitters, preventing the emission of additional carbon dioxide equivalent metric tons above a predetermined level. Many states, namely California, are already implementing these types of taxes and programs, and they have proven to be effective. However, the only effective tax or cap-and-trade program would apply to the global community as a whole in order to force countries like China to change their behavior.

Regardless of the specific regulatory controls with a carbon tax or a cap and trade program, something needs to be done to fix the current incentives that stationary sources, refiners, producers, suppliers, and end uses have when it comes to carbon dioxide emissions. In a previous post I detailed the detrimental impact carbon dioxide is having on our oceans – https://polispandit.com/2014/09/08/death-to-the-oceans/. And ocean acidification only covers the surface of problems caused by carbon dioxide emissions on our biosphere. Whether it’s increasing temperatures, rising sea levels, mass extinctions, food shortages, souring seas, or the host of other terrifying possibilities if climate change continues to intensify, one conclusion is clear – something needs to be done to save our environment and preserve our economic future.

A carbon tax, once strongly advocated for by renowned conservative economists like Milton Friedman, would be an easily enforceable and effective solution to mitigate the effects of climate change. Not only would it reduce the amount of carbon emitted into the atmosphere, it would incentivize the creation of new technology in the renewable energy space, relieve our dependence on fossil fuels, and help to improve the prospects of future generations. While we may enjoy profiting in the present, our children will definitely not appreciate suffering in an inhospitable future. When a solution like a global carbon tax or cap-and-trade program could be so easily implemented, humanity would be irresponsible and negligent not to act accordingly.