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Taxes cost-effective energy solution

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Also by Nathan Braun:

Few controversial issues clearly right; but gay rights one of them (November 1, 2007)
Nuclear power worth risks (October 18, 2007)
Humans must evolve, realize climate change is real (October 4, 2007)
Life after Bush: Holding candidates to a higher standard of rhetoric (September 20, 2007)
Taxes cost-effective energy solution (September 12, 2007)

by Nathan Braun

Wednesday, September 12, 2007

Last month Russia — seriously, but somewhat ironically — used a mini-submarine to plant a flag beneath the North Pole in hopes that global warming will eventually provide access to valuable, greenhouse-gas-emitting reserves of fossil fuels.

With Russia's example, it may be tempting to give up on effectively addressing global warming. Reducing emissions of carbon dioxide and other greenhouse gases here in the United States is not going to be easy or cheap. But there is a way we can assure that cutting back emissions won't cost us more than it has to, and that is by instituting a carbon tax.

A carbon tax, which has been touted by everyone from Al Gore to Alan Greenspan, deals with the classic problems pollution presents. It's important to realize that greenhouse gas emissions shouldn't be taxed simply because they're bad, but because the costs and benefits of emitting them are captured by the people outside of the market.

If I buy a meal at Taco Bell and eat it, I am capturing all of the benefits — the meal — and all of the costs — the dollar amount of the meal, risk of getting sick — of the transaction.

On the other hand, when I fill up my Hummer, I capture the benefits — transportation, impressing girls — and pay a portion of the costs — the dollar amount of the gasoline — but not all of them. There are several other costs associated with driving that neither I nor the gasoline station will ever have to pay no matter what kind of car I drive, such as additional road congestion for everyone else and emission of greenhouse gases. It is no surprise these negative externalities occur at a higher level then they should because consumers aren't paying the actual costs to society.

Ideally, the tax per unit of pollution emitted would be equal to the external costs no one except polar bears are currently paying. With the right level of tax, each person and corporation would have to take into account the true costs and benefits of any action that would lead to an increase in global warming.

Working to fix global warming isn't going to be easy, especially the longer we wait. A carbon tax would involve sacrifice, especially in the short run. The price of gasoline would go up, and consumers would have to pay more money for goods that involve a lot of greenhouse gas emissions in their production. But a carbon tax still assures the cost of doing anything about global warming will be as low as possible. That's because it harnesses the power of the market; firms that can innovate and are able to reduce emissions in the cheapest manner would be rewarded. As Congressman John Dingell points out, "Between 1980 and 1981, the fuel economy of the vehicles Americans purchased increased 16 percent. That wasn’t because of a technological breakthrough or a regulatory requirement. It was because the price of gas had risen to the point where consumers made fuel economy a priority."

As always, there are players in the system that benefit from the status quo. Oil and energy companies are understandably uneasy about the prospect of shifting toward more friendly fuels. Many politicians, perhaps underestimating their constituents, believe they'd be run out of town if they explicitly voted to increase gas taxes. Time and time again a carbon tax is dismissed as "politically unfeasible." To many people who care about our planet, this kind of talk is frustrating. The bottom line is that a carbon tax, with some caveats to help those hardest affected adjust, is the most efficient solution we're going to come up with.

What are our alternatives? We can wait until the problem gets so bad we're forced to address it out of sheer necessity. By then we run the risk of "politically unfeasible" solutions today becoming completely unfeasible tomorrow.

Scientists are concerned that global warming appears to be triggering feedback mechanisms, which contribute to global warming on their own. For example, warming appears to be melting frozen peat bogs in the sub-artic region, which if thawed, would begin to decompose and add to the amount of greenhouse gases already into the atmosphere. The new gases could contribute to warming that would thaw the bogs further, releasing even more greenhouse gases and creating a vicious cycle.

Our other option? We can spend more money than we need to on other less efficient options to address global warming such as increased fuel economy standards for automobiles and the subsidy of ethanol. My guess is that our eventual course will fall somewhere between not doing enough and spending more money than we need to, which is unfortunate. Nonetheless, recent congressional proposals indicate Washington may finally be starting to take the problem seriously.

It may be too early to, like the Russians, give up hope, but it is becoming increasingly apparent we've already waited far too long in addressing global warming in any meaningful way.

Nathan Braun (nbraun@wisc.edu) is a junior majoring in economics.

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Anonymous (September 12, 2007 @ 8:06am):

You must have not heard the retraction from all the media outlets:

"News agency Reuters has been forced to admit that footage it released last week purportedly showing Russian submersibles on the seabed of the North Pole actually came from the movie Titanic."

http://media.guardian.co.uk/site/story/0,,2146373,00.html?gusrc=rss&feed=networkfront

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