Carbon and Inequality II
Ryan Avent writes,
The rich don’t consume fewer non-durables than the poor, they just consume less as a share of their income. In practice, and unsurprisingly, the rich consume much, much more than the poor. They also consume a lot of carbon-intensive durable goods, like big houses and big cars. They fly more. They’re less likely to take public transit, and so on. According to the Carbon Tax Center, households in the richest income quintile in America spent over $3,000 on gas in 2005, while the poorest spent under $900. The rich are not greener.
That’s a good point, which is why I used the slippery “in some sense” — their consumption is less carbon-intensive. But Ryan’s point stands. In absolute terms, the rich are less green because they consume more. It’s funny: I just wrote a Current about the imperative to reduce our carbon-intensive consumption, including the size of our homes, etc. (It’ll go up on Monday.) So I definitely should have made this explicit. We agree that the domestic poor will bear a heavy burden, though Ryan is optimistic about third and fourth order effects. I hope he’s right.
Noah, incidentally, makes a good point about Baumol’s cost disease. But I don’t think it contradicts my broader point about uneven impacts — the rich are feeling squeezed due to their relatively high reliance on in-person services. That’s a discussion for another post.
But Reihan misunderstands Prasad (odd given that he’s provided counter-evidence to his position in the very quote he uses). She doesn’t say that an effective carbon tax never generates revenue, or that revenue generated should never be returned to taxpayers. She simply suggests that in order to be effective, a carbon tax must continually be increased above the revenue maximizing rate–something politicians who commit tax revenue to long-term purposes are likely to avoid doing.
When Prasad wrote the following:
if reducing emissions is the goal, then a carbon tax is a tax you want to impose but never collect.
She meant to suggest that the revenue would need to be channeled towards industry, e.g.,
Instead, if we want to reduce carbon emissions, then we should follow Denmark’s example: tax the industrial emission of carbon and return the revenue to industry through subsidies for research and investment in alternative energy sources, cleaner-burning fuel, carbon-capture technologies and other environmental innovations.
Now, this could be a matter of boiling down a complex argument to op-ed length. Perhaps some of the (declining) revenue can be dedicated to compensating taxpayers to ease the transition. She does not, in praising the Danish approach, identify this as a possibility, though it’s entirely possible that she’s done this elsewhere. But again, what will happen — in the political process — as these taxpayer sweeteners diminish over time? I’m suggesting that the Prasad approach is the most coherent one for carbon tax advocates, and that it cuts against returning the revenue to taxpayers.
Ryan goes on:
But Reihan basically says that carbon pricing is insane, extremely costly, and regressive, which tells me that he’s probably not spent much time exploring the relevant arguments.
I don’t think I’ve ever suggested that carbon pricing is “insane,” particularly since I was a forceful advocate of carbon pricing very recently. And I don’t think all regressive taxes are necessarily bad, provided they are paying for services that disproportionately benefit the less-well-off (e.g., a VAT that pays for universal healthcare or universal pensions). I just think we should be wary of them. VATs are, in my view, superior to income taxes. I do think carbon pricing is extremely costly, and that my understanding of political economy suggests that we won’t do a very good job of implementing carbon pricing.
It seems to me that conservatives have learned nothing politically from the climate change debate to date. Facts on the ground are forcing them to abandon the denialist position, and facts on the ground will ultimately force them to abandon the do-nothing position. Rather than get ahead of the curve and offer a reasonable critique of the liberal approach, they’ve opted to stick their fingers in their ears and hope for the best. That’s bad policy, and it’s bad politics.
Leaving aside the substantive issue, I think that the politics of carbon pricing are clear — as long as conservatives are denialists, they allow Democrats to make promises on which they can’t deliver: we would take action, we care about the environment, etc. By recognizing that climate change is real, and by proposing modest, low-cost strategies to deal with the downside risks, conservatives will call the bluff of Democrats who advocate a sweeping transformation of the economy, one that will cause a lot of economic dislocation.
That said, I am open to lots of different approaches to tackling this issue. I just think that a single-country approach will do little good, that the uneven impact of carbon pricing will sharply increase the likelihood of regulatory capture, and that technological solutions are a better long-term bet. Why does technology matter? We need to give the developing world a better reason to decarbonize their economies than, “But we’re taking the lead!”
I would be happy to spend vast sums on an approach designed to spur technological innovation in this space, funded out of VATs and income taxes and other broad-based taxes. It’s not even the cost that bothers me, though it’s certainly not trivial. I just think carbon pricing will be made to work for GE and the NAM. Ryan believes that political will can prevent this from happening. I don’t.
Re: your previous post: “[we need to support research] that can devise a cost-effective means of scrubbing the atmosphere of carbon emissions.”
Is this feasible? I don’t follow issues with carbon-related tech pipeline that closely, but is it reasonable to expect breakthroughs that aren’t marginal (large or small) reductions to current carbon emissions (a better washing machine or car)? Everything I know of that is still in the theory stage is too small or expensive or risky to work on a large scale. It seems risky to put so much of the future of human welfare on something that isn’t even prototyped.
It may be the more cynical side of me, but when people talk about technology saving a situation it has a vaguely inverse-apocalyptic feel to it – some force outside us will bail us out, saving us from having to make sacrifices in the here and now. Sometimes that works – sometimes it doesn’t.
— Mike · Jun 6, 12:44 AM · #
“I just think carbon pricing will be made to work for GE and the NAM. Ryan believes that political will can prevent this from happening. I don’t.”
I agree that this is true for a cap-and-trade system. Warner-Lieberman is a mess, and it’s hard to imagine that the environment will change so drastically that lawmakers will avoid special breaks for existing polluters.
At the same time, it is very hard to imagine anything so awful happening with a carbon tax. Any exceptions to a carbon tax would be far more visible than the opaque, complicated-sounding “permit allocations” that constitute giveaways in the cap-and-trade model. Perhaps lawmakers would be tempted to use the tax revenue for “transitional assistance” or other rent-seeking, but advocates could respond by insisting that all revenue be automatically rebated to the taxpayers.
Don’t underestimate the power of this position: voters can easily grasp the difference between rebating all the revenue and rebating whatever withered chunk is left after special interests take their cut.
— Matt Rognlie · Jun 6, 01:53 AM · #
“We’re doing little”— still better than “we’re doing nothing”.
— Lifafa Das · Jun 6, 03:19 AM · #
Hello, I’m coming in from Ryan Avent’s posts. I wanted to ask something directly, or maybe pass along a koan, wrapped in what sounds like a series of rhetorical questions.
First, a review of the exciting planetary time in which we live.
Greenhouse gases and changes in weather stability and in the balance of critical ecosystems are by no means our only resource challenge.
* We have severe problems with the health and productivity of both oceans and arable land;
* we have climate- and pollution-related surface water shortages combining with groundwater depletion;
* we have become an urban civilization, which would probably be fine if it were not intensely inequitable;
* we have increasingly expensive oil, natural gas, and uranium;
* and coal, which is scientifically proven to be the most dangerous fuel on which we’ve ever depended at scale, is also rising in delivery cost.
Second, the timeframe for eliminating human greenhouse gas emissions is shortening by the month. The most recent estimate by James Hansen, the United States’ in-house expert on the subject, is that, by his team’s assessment of distant-past results, the atmosphere has already crossed the safe threshold of GHG content. Their best guess is that it is at or below 350 ppm of CO2 (not CO2e); Current level is 387 ppm.
Given that we are, as a world civilization, contributing significantly to the current rate of increase of ~2.4ppm/year, and rising, Hansen’s team, estimating that we can capture about 50ppm of carbon dioxide from the air using forestry and soil sequestration, has recommended a peak of much less than 450ppm, so that we can remain within reach of 350.
From this, follows Hansen’s recent call for a complete phase-out of coal CO2 emissions by 2025 in the developed world and 2030 in the developing world. (Well outside a nuclear power program’s ramp up time.)
My opinion may not mean much, but I am not an incautious person; nevertheless I believe stabilizing the atmosphere at <=350 Is likely to be the widely-held target only a few years from now. It certainly represents a drastic change from today’s actuarial debates, doesn’t it.
Third, the timeframe for action on the other sustainability challenges in the first item is generally thought to be in the next dozen years. The 350 goal puts climate change mitigation within that same timeframe. (This book is a good discussion of the combined issues and also a thorough program of action.)
Why am I saying all this. I think it’s because I need people who are better than I am with economics to understand the full job we’re looking at. I need for them — you! — not to be thinking of global warming as something similar to Social Security — some kind of pension plan for fossil fuels.
The conversion will largely be done by 2030. One way or the other. Or we will be in terrible trouble.
— hapa · Jun 9, 06:16 AM · #