Is a Carbon Tax a Conservative Idea Whose Time Has Come? Thoughts on the R Street – Heartland Debate

On Thursday, the R Street Institute and the Heartland Institute held a debate in a Washington, D.C. auditorium on the proposition: “Resolved: Under no circumstances should conservatives support a tax on carbon emissions.” About 150 people attended.

Arguing for the proposition were James Taylor of Heartland and David Kreutzer of the Heritage Foundation. Arguing against were Andrew Moylan of R Street and former Rep. Bob Inglis (R-S.C.) of the Energy and Enterprise Institute.

After the debate, moderator and Reason Foundation science correspondent Ron Bailey called for a division of the house. A majority of the audience opposed the proposition. The next day Bailey reported on Reason’s blog that “About 60% of Conservatives Support a Carbon Tax.” When this headline provoked the ire of some conservatives, Bailey said it was meant to be somewhat tongue in cheek.

Whether offered in jest or not, Bailey’s headline is false. Had he put the question to the 150 or so movement conservatives who attend Grover Norquist’s Wednesday Meeting, the head count might have been 148-2 — with only Moylan and Eli Lehrer of R Street standing in favor of a carbon tax.

Most people who attend carbon tax events in D.C. are ‘progressives.’ I suspect many who came to the debate were staunch carbon taxers and would not have stood for the proposition even if Taylor and Kreutzer dazzled with the oratory of Abe Lincoln and Dan’l Webster.

An unfortunate word choice may also have tilted the straw poll against the proposition. Prudence counsels us never to say never. In some circumtances, bad choices are the only way to avoid even greater evils. The categorical formulation (“under no circumstances”) made the proposition literally unreasonable.

Here’s what the debate was really about: “Resolved, a carbon tax is a conservative idea whose time has come.” That proposition is almost farsical on its face. Even some greenies in the room might have had to swallow hard before standing up for it.

Let’s review some of the back and forth.

Do carbon taxes pick winners and losers?

Inglis led off by arguing that a conservative energy policy does not “pick winners and losers.” What conservatives want is an “impartial cop on the beat.” That’s a carbon tax, which applies equally to all forms of energy and then lets the “free market” decide. Not so — not even close.

A carbon tax discriminates against carbon-based (fossil) fuels. That’s its core function! Inglis might as well say that a nuclear tax applies equally to all forms of energy and lets the free market decide. Just because the market sorts out the effects of a discriminatory tax does not make the tax non-discriminatory.

When Inglis says he opposes picking winners and losers, he presumably refers to narrowly-targeted market-rigging schemes such as renewable energy production tax credits, stimulus loans to Solyndra, or biofuel set-asides. A carbon tax rigs energy markets too — but throughout the economy. Retail intervention bad, wholesale intervention good — that’s Inglis’s “free market” philosophy.

Inglis mentioned that he voted against the Waxman-Markey cap-and-trade bill. However, the economic function of a carbon tax is identical to that of cap-and-trade. Both policies put an explicit price on carbon. In so doing, they aim to handicap fossil fuels and thereby “finally make renewable energy the profitable kind of energy in America,” as President Obama put it. The purpose of pricing carbon, former Energy Secy. Steven Chu wrote in congressional testimony, is to “drive investment decisions towards clean energy.” A carbon tax is all about picking winners and losers.

Maybe what Inglis means by an “impartial cop” is a tax on all forms of environmental damage. Later in the debate he acknowledged that wind farms kill lots of birds including endangered species. But to date, the only environmental externalities he and other carbon-tax proponents express any desire to tax are those attributed to fossil fuels.

Do R Street and Inglis believe in “pixie dust”?

Moylan argued that conservatives complain a lot about income taxes and the EPA’s greenhouse gas regulations but have no plan to reduce tax and regulatory burdens. Actually, we do. It’s to keep making the moral, economic, and constitutional case for market-driven energy, win legislative seats in the 2014 elections, and win a clean sweep in 2016. Andrew confuses not having a plan with not seeking a deal that assumes conservative victory is impossible. More on this topic below.

A revenue-neutral carbon tax, Moylan continued, could simultaneously reduce income taxes and replace EPA’s command-and-control regulations with a market-based climate change policy.

Kreutzer and Taylor responded that Inglis and Moylan believe in “pixie dust” if they think Congress would enact a revenue-neutral, regulation-repealing carbon tax. I concur.

The green movement has zero interest in swapping a carbon tax for the litigation-driven EPA regulatory system they have worked decades to build and practically own. They want carbon taxes plus carbon regulation.

Note that neither the carbon tax bill sponsored by Sens. Barbara Boxer (D-Calif.) and Bernie Sanders (I.-Vt.) nor that sponsored by Rep. Henry Waxman (D-Calif.) and Sen. Sheldon Whitehouse (D-R.I.) would remove one iota of the EPA’s authority to regulate greenhouse gases. Boxer-Sanders would impose new EPA regulations on hydraulic fracturing. Waxman-Whitehouse preemptively safeguards the EPA’s regulatory turf, stating: “Nothing in this Act shall affect the application of any other provision of law to a covered entity, or the responsibility for a covered entity to comply with any such provision of law.”

As for revenue-neutrality, it’s a pipedream. The main attraction of carbon taxes for most politicians is the prospect of raking in $100-200 billion in new revenues annually. Congress’s big spenders and deficit hawks (often the same people) have no interest in “tax reform” that does not “enhance” revenues. Kreutzer aptly described as delusional the belief that $200 billion in new revenues could “walk across town in DC without being molested.”

Even if, per impossibile, Congress did use every dollar of carbon tax revenue to cut income taxes, the scheme would still be economically damaging, Taylor and Kreutzer argued. A carbon tax is like the mythical creature that eats its own tail. To the extent it works as intended, it taxes away the base on which it is levied. Over time, it would generate less and less revenue to offset other taxes while making America increasingly dependent on wind turbines, solar panels, and biofuels, which are not up to the task of powering a modern economy.

When asked by Bailey for a response to the “pixie dust” criticism, Inglis said it amounted to denying the capacity for self-government — as if it were impossible to replace inefficient taxes and regulations with a better policy unless we have a king. Kreutzer countered that Inglis has lost confidence in self-government if he thinks it’s impossible to reduce taxes by cutting spending. Kreutzer cited a report Moylan had authored outlining more than a trillion dollars in spending cuts over ten years. Why not make that the basis for a plan to cut income taxes rather than an economically-damaging energy tax?

What is the conservative energy agenda?

Moylan argued that conservatives complain alot about the EPA but propose no market-based alternative to command-and-control; just saying no won’t work. Here I will offer my own response.

Granted, negativity gets you only so far. However, conservatives have an inspiring, positive energy agenda to offer the American people based on what’s happening in dozens of states around the country. In just a few short years, advances in unconventional oil and gas production have upended the gloomy green paradigm of inevitable depletion, dependency, and decline. “Unleashing” what Manhattan Institute scholar Mark Mills calls the “North American energy colossus” could revive the economy, create millions of new jobs, and generate hundreds of billions of dollars in new federal and state revenues without raising taxes. That’s the winning energy agenda conservatives should talk up and rally around.

Inglis and Moylan noted their support for the Keystone XL pipeline and hydraulic fracturing, but they can’t sell the positive vision required for conservative victory while stumping for a carbon tax. Politicians want to be all things to all people, so it’s not suprising Inglis sees nothing problematic about trying to slam on the brakes and put pedal to the metal at the same time. But my friend Andrew Moylan, a talented and sober analyst, should know better. The carbon mitigation agenda, whether implemented via taxes, regulations, or export restrictions, imperils domestic energy development and would move public policy in exactly the wrong direction.

Over the next four years conservatives should be uncompromising champions of the freedom of Americans to develop and export domestic energy resources. To advance our agenda, we cannot entirely avoid nay-saying. We must, for example, continually rebut alarmist narratives about climate change, coal power plants, and hydraulic fracturing. If we deliver a consistent message of growth, opportunity, and renewal to the American people, we have a real shot at reining in the EPA and enacting a 21st century energy program in 2016. This path is a much more robust affirmation of the capacity for self-government than the pursuit of a compromising and defeatist inside-the-beltway deal.

Is a carbon tax an efficient climate policy?

Thursday night’s debate put arguments about climate science off limits. That is odd, since the leading rationale for a carbon tax is the alleged need to mitigate anthropogenic climate change. The ostensible reason for not debating climate science was to focus on R Street and Inglis’s areas of expertise — the politics and economics of tax reform. A tactical calculation may also have been at work. A debate on climate science would have exposed how much Inglis agrees with Al Gore — an instant turnoff for conservatives.

In any event, one can stipulate for purposes of discussion that “consensus” climatology is correct and still conclude that a carbon tax is an inefficient climate mitigation policy. Bailey as moderator did not raise the issue, but I will address it here.

Whatever carbon dioxide (CO2) reductions a carbon tax might induce in the U.S. would be swamped by emission increases in China, India, and other industrializing nations. Although the tax might be an expensive drag on the economy, it would have no discernible impact on climate-related risks.

Using IPCC assumptions, Cato Institute climatologist Chip Knappenberger calculates that even if the U.S. stops emitting CO2 immediately, “the ultimate impact on projected global temperature rise would be a reduction, or a ‘savings,’ of approximately 0.08°C by the year 2050 and 0.17°C by the year 2100—amounts that are, for all intents and purposes, negligible.” A carbon tax would achieve even less. It is an exercise in futility.

Bjorn Lomborg makes a related criticism. A carbon tax tries to ‘solve’ the ‘climate problem’ by making hydrocarbon energy more costly than renewable energy. In this crucial respect, a carbon tax is identical to cap-and-trade, which Inglis and Moylan oppose. Handicapping hydrocarbons doesn’t work because renewable energies still have severe deficiencies in terms of cost and performance, and what is not commercially viable is not politically sustainable. Thus, argues Lomborg, if you worry about climate change, your top priority should be to make non-carbon energies cheaper than fossil fuels. Only then would nations deploy low- and non-emitting energies on the scale required to meet the IPCC’s CO2 stabilization targets.

Lomborg is more confident than I that government-directed R&D can midwife major breakthroughs enabling green energy to out-compete fossil fuels. But he is spot on in arguing that climate change is not an emergency requiring immediate action to reduce emissions, and that the Kyoto-carbon tax path is a dead end.

Is a carbon tax an efficient air pollution policy?

Responding to the “pixie dust” criticism, Inglis said Taylor and Kreutzer believe in the “tooth fairy” because they believe there is such a thing as a free lunch. Coal power plants kill 23,000 people annually, Inglis asserted, and just because we don’t pay for those deaths at the meter doesn’t mean we don’t pay. Regardless of our views on climate change, we should support a carbon tax because it will help clean the air, he said.

So despite the ‘no science allowed’ rule of the house, Inglis appealed to a scientific rationale of sorts. It is not credible. Claims that fine particulate matter (PM2.5) pollution from coal power plants kills tens of thousands of Americans annually are based on weak statistical associations in cherry-picked epidemiological studies. Such research is particularly susceptible to measurement error, publication bias, and spurious correlation due to unknown confounding variables. More reliable toxicological studies of volunteers, elderly asthmatics, and laboratory animals find that current PM2.5 concentrations in the U.S. are too small to cause significant disease or death.

PM2.5 pollution is already controlled directly or coincidentally by more than two dozen EPA rules, and the Clean Air Act requires states to reduce PM2.5 to levels requisite to “protect public health” with an “adequate margin of safety.” As a strategy for reducing PM2.5 emissions, these policies are much more efficient than a carbon tax, which does not target the pollutant of concern.

Raising the cost of power generation via a carbon tax creates no incentive whatsoever to control PM2.5 emissions. The only way a carbon tax would reduce PM2.5 emissions is as a byproduct of making coal uneconomical as an electricity fuel and forcing coal power plants to shut down. Is that what Inglis wants? Does he think the Obama administration’s war on coal is a conservative policy?

Two things should be evident: (1) Decades of experience show that the U.S. does not need a carbon tax to control and reduce air-pollutant emissions; and (2) air pollution has long since ceased to be a plausible excuse to suppress the production, delivery, and consumption of fossil fuels.

Source: EPA

What about the social costs of carbon mitigation?

Inglis stated at the outset that a key issue for carbon tax proponents is the “negative externalities” of CO2 emissions. If I may translate, carbon has a “social cost” — adverse effects not directly paid for by fossil-energy producers and consumers. Therefore, the argument goes, policymakers should correct this “market failure” with a tax that makes polluters pay for damages they impose on others. In other words, the tax should match the “social cost of carbon” (SCC). But that is very far from being a known quantity. Modelers can get practically any SCC estimate they want by fiddling with discount rates and by tweaking assumptions about climate sensitivity, meteorology, ice sheet dynamics, technological change, etc.

More importantly, even if SCC estimates were not assumption-driven hocus-pocus, their use by activists, policymakers, and agencies would still be biased and misleading, because proponents of “climate action” always ignore the social costs of carbon mitigation.

As Cato Institute scholar Indur Goklany explains in a recent study, fossil fuels are the chief energy source of a “cycle of progress” responsible for the amazing improvements of the past 250 years in life expectancy, health, nutrition, safety, comfort, human capital formation, and per capita income. The cycle of progress is to no small extent a “positive externality” of fossil fuels. Thus, policies that suppress the extraction, delivery, and consumption of fossil fuels, or that make fossil energy less affordable, have social costs in addition to whatever compliance burdens and economic losses the policies entail.

For example, the more stringent the carbon mitigation scheme, the more severe the impacts on household income and job creation. Numerous studies find that poverty and unemployment increase the risk of sickness and death. Carbon tax advocates never acknowledge this side of the ledger.

Given the continuing importance of fossil fuels to human flourishing and the undeniable connection between livelihoods, living standards, and life expectancy, carbon taxes can easily do more harm than good to public health — even if one accepts the IPCC’s version of the science.

Conservative policy or dumb politics?

Finally, let’s get down to what the major parties care about most: elections. The political choice facing the American people is in no small part that between a Republican Party that is anti-tax and pro-energy and a Democratic Party that is anti-energy and pro-tax. This clear product differentiation is an asset for the GOP. Republicans are truly the Dumb Party if they squander their energy advantage instead of pressing it to the hilt. Conservative advocacy of a carbon tax can only blur the battle lines, divide GOP leaders, and demoralize the movement’s activist base.

In 2010, Rep. Inglis lost a primary battle by 70%-29% to Tea Party challenger, Trey Gowdy. Inglis himself blames his defeat principally on his advocacy of a carbon tax. Inglis is an ideal spokesman for the proposition that a carbon tax is a conservative idea whose time has come. The messenger is a living refutation of the message.