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.