Economists like to talk about “efficiency.” What does that mean? It means using the power of the free market to obtain results that are socially desirable. The alternative is mandating outcomes by government regulation. So-called conservatives love to carry on about the curse of regulations, and they have a point. Economic alternatives such as carbon fees are much more efficient.
The regulatory process, as it has developed in the United States, is hugely complex and complicated. It takes years to work, always involves compromises that detract from the original goal, and often gets tangled up in court challenges that can drag on for years if not decades. By the time the whole thing gets resolved, no one remembers what the original purpose of the regulation was in the first place.
The solution economists prefer is to make certain that all the costs of a decision are factored in, and then let people decide what the best way is to spend their money. Take fuel economy, for example. The federal government has been telling manufacturers for decades how many miles per gallon the cars and trucks they manufacture should get. That has led to a huge fight between some states like California that want a higher standard and those that don’t.
Wouldn’t it be more efficient, in economic terms, if the price of a gallon of gas included all the costs associated with burning fossil fuels? That way, if someone wanted to drive a Hummer that gets 6 mpg going downhill with a tailwind, so be it. People would vote with their wallets and guide themselves accordingly.
Picking Winners And Losers
The current mantra among political leaders in the US is that government should not be picking winners and losers. Let market forces operate unfettered by the heavy hand of government and the most competitive businesses will succeed while other will fail. That would be a perfectly rational and economically efficient approach if only the people who advocate for it didn’t distort the process to favor their biggest campaign donors — fossil fuel companies.
The fossil fuel crowd claims their products have no impact on the environment. None. We all know that’s a lie. Even if we acknowledge that some greenhouse gases emanate from the stomachs of cows, it is sophistry to argue carbon emissions from fossil fuels are blameless in melting the polar ice caps, altering the Earth’s climate patterns, and raising sea levels.
To date, fossil fuel companies have been allowed to use the land, the sea, and the sky as their own personal garbage dump, free of charge. If your neighbor decided to pipe the effluent from his septic system onto your property, you would expect him to clean up the mess, wouldn’t you? Why should fossil fuel companies get a free pass?
Initiative 1631 In Washington
In the state of Washington, voters will have an opportunity to approve a plan that would put a price on carbon emissions, albeit a fairly modest one of $15 per ton starting in 2020. The fee would ratchet up $2 a year until the state’s 2035 carbon reduction goals are met. According to the New York Times, the measure — known as Initiative 1631 — would generate $2.2 billion in revenue in the first 5 years. It would raise the price of a gallon of gasoline by about 13 cents, an increase that would cost the average motorist in Washington $10 a month.
The money raised would be used to help the state transition to a low carbon economy. It would pay for more electric buses and promote renewable energy initiatives. Part of the money would also be used to shield low income residents from increases in their utility bills.
The fossil fuel industry is foaming at the mouth over this proposal. Although the actual money involved is modest, big oil companies like Chevron and BP have poured more than $25 million into opposing the initiative. They are scared that it might set a precedent for other states to follow, and hopefully it will. Initiative 1631 is nothing more than an attempt to level the playing field by correcting a distortion in the current economic equation.
Canada Enacts A Carbon Fee
Last week, Canada also imposed a fee on carbon emissions. It starts at $20 a ton in 2019 and goes up $10 a year until it reaches $50 a ton. (Many economists put the social cost of carbon at around $130 a ton.) Canadian provinces are split on emissions policy, with British Columbia being strongly in favor and Alberta — home to the infamous tar sands — being strongly opposed.
According to The Guardian, the plan will hike gasoline prices by 42 cents a gallon, double the price of coal, and raise the price of natural gas by 75%. Those increases should exert leverage on the choices Canadians make when it comes time to purchase a new car. They will also strongly influence the decision’s Canada’s utility companies make when it comes to keeping existing generating plants in operation or investing in new generation facilities. The new government policy is expected to give a significant boost to renewable energy.
Fossil fuel advocates are screaming that the new policy is too expensive, but the government insists the costs of doing nothing are even higher. According to the preamble to its new carbon fee policy, it says, “Climate change has already had financial impacts on Canada, and these costs will only continue to grow. In 2016, it was estimated that larger and more intense weather events will cost the federal Disaster Financial Assistance Arrangements program around $902 million each year. The health costs of extreme weather are estimated to be over $1.6 billion a year. The cost of property damages from climate change averaged $405 million per year between 1983 and 2008, but have risen dramatically to $1.8 billion a year since 2009. That number is expected to grow as high as $43 billion by 2050.”
It’s Not A Tax. It’s An Adjustment
Reactionaries like to harp on the word “tax” when opposing carbon fees. But their preferred method of addressing a warmer planet is to do nothing. They are steadfastly opposed to paying any of the costs of doing business they have been foisting off onto the shoulders of the people of the world for generations. They don’t want a level playing field. They don’t want fair competition. They want to protect their own self interest even if it leads to the extinction of every species on Earth, including humanity.
When looked at that way, it’s hard to feel much sympathy for those who have made enormous fortunes at the expense of ordinary people. It’s time they paid their fair share. It’s not about taxes, it’s about survival. Carbon fees are the most economically efficient way to balance the competing interests of the fossil fuel industry and consumers without the heavy hand of government regulation.
As Canada and the state of Washington point the way to the future, other nations and other states will be more likely to adopt sensible policies of their own. The world is running out of time. It’s long past time to start the hard work of dramatically reducing global carbon emissions.
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