There is an old saying that in theory, theory and practice should be the same; in practice they are not. That saying should be kept in mind in thinking about a carbon tax.
Bill Nordhaus’ winning the Nobel Prize has given a boost to proponents for a carbon tax. But the problems with implementing a carbon tax are large and complicated. The problems with what is usually made out to be a clear and simple proposal are politics, uncertainty and giving too much credibility to models.
Nordhaus in earlier work has indicated that the range for his price on carbon is $6 to $93. Given that range, how do you pick the right number? Climate models use the high estimate of climate sensitivity while global temperatures tend to confirm the low estimate. If you could trade anti-carbon regulations for a reasonable and clean carbon tax, that might be a good trade. But politics undermines that possibility.
Politicians would seek to give special treatment to some and tilt against others. Remember the first carbon tax? It was called the BTU tax and it was biased in favor of coal to get West Virginia senator Robert Byrd’s support and that of other coal state Democrats.
A carbon tax is a revenue machine, and politicians always in search of more would not be able to resist tweaking it to produce more. It takes a giant leap of faith to believe that politicians would use science to make subsequent adjustments, up or down, and would send everyone a dividend check.
Although climate change advocates assert that the science is settled, the Intergovernmental Panel on Climate Change readily acknowledges that natural variability, climate sensitivity, solar impacts, cloud formation and ocean impacts are not well understood. The effects of these uncertainties are not small. John Christy has demonstrated that climate models containing assumptions about these processes significantly over estimate the effect of increases in carbon dioxide on temperature. Empirical data showing that the effects of carbon dioxide are smaller undermine the case for a carbon tax.
None of this means that nothing should be done to address the impacts of climate change, independent of its cause. The United States has been reducing carbon-dioxide emissions and carbon intensity since 2005, according to the Energy Information Administration. This is in line with research by Jesse Ausubel of Rockefeller University showing a long-term trend in decarbonization. And, there should be little doubt that advances in technology will ensure that that trend continues.
In view of that, can a solid case be made for politicians meddling with market forces and market incentives that drive technology? History shows that when politicians meddle, the results are negative.
So, what additional actions can be justified in place of a carbon tax. First, research should be focused on reducing the uncertainties, especially climate sensitivity. That would allow for a better definition of the extent of the climate problem.
Professor Richard Lindzen in a paper published by the National Academy of Science — Constraining Possibilities Versus Signal Detection — showed that the relationship between carbon dioxide and warming is logarithmic and with a lower sensitivity, it would take more than a century for increased carbon dioxide to increase temperatures by an additional 1 degree Celsius. That timeframe actually defuses any sense of an immediate crisis.
Second, adopt strategies shown by the Dutch to be effective countermeasures to flooding and extreme weather events. And, abolish the National Flood Insurance Program so that market forces can more accurately price insurance on homes built in flood zones. Abolish the ethanol mandate that is counterproductive and adds carbon-dioxide emissions to the atmosphere. Since droughts and periods of extended rain are not unusual, we should increase research on crops that can grow in those conditions.
Finally, adopt a policy strategy that closely ties actions to our state of knowledge while investing in new knowledge. Research has demonstrated that as uncertainty increases, planning horizons should be shorter. Planning on the basis of projections to 2100 are useless because it is impossible to capture all of the cultural, economic and technological changes that will take place over the next 70 years and that will determine the characteristics of the future.