Carbon and Inequality
For the last few weeks, Congress has been debating the Lieberman-Warner Climate Security Act. I haven’t written about this, as I think Jim Manzi has already made the case against cap-and-trade pretty effectively, but I’d just like to emphasize one minor point. Environmentalists fret that the Lieberman-Warner measure doesn’t go far enough, but they it as a dry run for future environmental legislation. It’s worth thinking through the impact such legislation will have on American families.
Christian Broda and John Romalis, economists at the University of Chicago’s Graduate School of Business, have just released a fascinating working paper on consumption in America. They argue that America’s poor are the overwhelming beneficiaries of freer trade — because a higher share of their income is spent on non-durable goods as opposed to services, the proliferation of Chinese-made non-durable goods has been a tremendous boon. It has made money earned by the poor go further. More affluent Americans, in contrast, are more likely to purchase in-person services, the prices of which have been steadily increasing. And so the money earned by the rich is, counterintuitively, going less far. Once you factor in the carbon impact of shipping manufactured goods U.S., you see that the lifestyle of the rich really is in some sense greener. Massage therapy emits very little carbon into the atmosphere. So pricing carbon will have a disproportionate impact on the poor. But wait, wait about abatements for lower income Americans? I urge you to check out Monica Prasad’s excellent op-ed on carbon taxes that work vs. carbon taxes that fail.
Carbon tax discussions always seem to devolve into gleeful suggestions for ways to spend the revenue. Reduce the income tax? Give the money to low-income consumers? Use it to pay for health care? Everyone seems to forget that the amount of revenue is directly tied to the amount of pollution that is still going on.
Denmark avoids the temptation to maximize the tax revenue by giving the proceeds back to industry, earmarking much of it to subsidize environmental innovation.
So yes, we could use carbon tax revenue to soften the impact on less affluent Americans. But this will undermine the measure’s environmental impact.
What we need is a $100 billion prize or set of prizes to the person or firm or non-profit entity that can devise a cost-effective means of scrubbing the atmosphere of carbon emissions. This sounds insane, I realize. It is less insane than the far costlier, far less egalitarian regulatory alternative.
I don’t think you want to go in the direction of saying “regressivity rules out carbon taxes.” What happens, then, to the VAT we both favor?
Saying the lifestyle of the rich is “greener” is really just another way of saying that rich people are richer. After all, you’re not saying that the average carbon footprint of the rich is lower, or that they spend less per capita on goods as opposed to in-person services. They just spend less as a percentage of their income. In other words: they have lots more income, and a disproportionate amount of the excess gets spent on services.
Separate point: Baumel’s cost disease drives inequality, not equality. A lot of in-person services are kind of vital: maybe only the relatively affluent need masseurs and cab-drivers, but we all need teachers, nurses, garbage collectors, etc. As in-person services get more expensive, it gets more expensive to provide these services on a universal basis. Which strains public finance on the one hand and drives down the quality of services to the poor on the other hand.
I find all the discussion of needing to do something about carbon mystifying. The price of oil has skyrocketed. There is no conceivable world in which we could have raised the gasoline tax to anything like a level that would have given us today’s gas prices five years ago. If higher prices drive innovation to a non-carbon-based energy economy, we’re in heaven already. All we need to do is make sure prices don’t go down. Bombing Iran should do just the trick.
— Noah Millman · Jun 4, 07:39 PM · #
What we need is a $100 billion prize or set of prizes to the person or firm or non-profit entity that can devise a cost-effective means of scrubbing the atmosphere of carbon emissions. This sounds insane, I realize.
It’s not insane; lots of people are working on it. More people would get into it if it were better funded. Question, though: okay, you’ve just moved enough CO2 out of the atmosphere to drop levels by a ppm or two. That is a huge, huge, HUGE pile of CO2 — where you going to put it?
— Klug · Jun 4, 08:26 PM · #
Given the quantity of American carbon emissions that come from transportation, I wonder if the rich really are greener. Consuming services may often involve spending money to move someone else from place to place.
Probably more important is that it’s easy to have more than half of your carbon footprint coming from plane travel. A friend of mine says that most of the poor kids she teaches have never been outside of New York City, perhaps not even outside of Brooklyn.
— Justin · Jun 5, 05:19 AM · #
Wait, if you are actually committing yourself to cheap fuel and energy as a social justice issue, that seems to compel not just an avoidance of carbon or fuel taxes, but huge public investments in research to find cheap, reliable sources of energy in the future.
— Consumatopia · Jun 5, 05:51 PM · #
Polluted air and water doesn’t hurt the poor? C’mon! If we auctioned off these rights or adopted a Pigouvian tax, we could use the proceeds to reduce taxes on the poor. Seriously, the businessmen who are opposing this legislation are not exactly destitute.
— pgl · Jun 6, 03:29 PM · #