Irwin Stelzer’s ‘Conservative’ Carbon Tax. What Would Reagan Do?

Irwin Stelzer has a column in the Weekly Standard titled “Let’s tax carbon: It’s the worst form of energy policy except for all the others that have been tried.” Clever but not wise.

Whether or not a carbon tax is better than other ‘green’ energy schemes, it is not better than the free-market policy President Obama and Sen. Majority Leader Harry Reid won’t let us try: A broad-based strategy to “unleash” what Manhattan Institute scholar Mark Mills calls the “North American energy colossus.”

Stelzer worries the feds will run out of money and be forced to raise other taxes if they can’t tax carbon. He doesn’t explain why taxing carbon is preferable to taxing income, except for a glib remark that it’s better to have “taxes on bad stuff rather than on work and investment.” But carbon taxes are a tax on carbon-based (fossil) fuels, which supply 82% of U.S. commercial energy, and energy, like labor and capital, is a factor of production. In fact, without carbon-based energy, few of us would be employed — or even exist. A carbon tax is an indirect tax on labor and production — the good stuff.

Moreover, as Institute for Energy Research scholar Robert Murphy points out, the smaller the base on which a tax of a given size is levied, the more distortionary the effects. The base of a carbon tax — particular commodities or industries — is narrower than the base for retail sales, income, and labor taxes. Stelzer’s got it backwards. Substituting carbon taxes for income taxes — and especially adding carbon taxes on top of income taxes, as he envisions — would make the tax system less “efficient.”

Besides, there is no hope of avoiding fiscal ruin without sustained robust economic growth, and fossil energy development is one of the few bright spots in the economy. Tax a thing, and you get less of it: Econ 101.

Stelzer professes to like fracking and oil and even coal, but somehow sees nothing problematic about promoting a tax the basic premise of which is that fossil fuels are destroying the planet and should be suppressed. Especially in an election year, conservative politicians cannot adopt an agenda so deeply conflicted without dividing the movement and demoralizing its base.

The contest for hearts and minds in America today is to no small extent between a party that is pro-energy and anti-tax and a party that is pro-tax and anti-energy. Stelzer advises conservatives to throw away their comparative advantage on energy and taxes when even the Washington Post gives Republicans a 77% chance of taking the Senate. Sens. Vitter and Inhofe must be doing something right. Stelzer’s timing could not be worse.

Many of the same pundits who push a carbon tax now did so during the debates on the Kyoto Procotol and the Waxman-Markey bill. Cap-and-trade was “inevitable” unless Republicans endorsed a carbon tax, they argued, because “you can’t beat something with nothing.” How wrong they were! Cap-and-trade died in the November 2010 elections, because conservatives opposed it as cap-n-tax — a disguised tax on energy.

Rather than learn the obvious lesson — we can rally Americans to our cause if we champion affordable energy — Stelzer asks conservatives to do openly what Obama and the Democrats, fearing voter retribution, tried to do by stealth. The method to this madness? According to Stelzer, if conservatives support carbon taxes, they can talk ‘progressives’ into repealing green energy mandates and EPA regulations. Dream on!

Cap-and-trade and carbon taxes are both “market-based” policies. Their function is to put a price on carbon dioxide (CO2) emissions and then let market actors sort out the consequences. If ‘progressives’ had any interest in substituting what Stelzer calls “efficient pricing” for mandates and regulations, the Waxman-Markey cap-and-trade bill would not have included hundreds of pages on energy efficiency standards, coal power plant CO2 emission standards, and Soviet-style production quota for renewable electricity.

‘Progressives’ have not changed their tune since then. 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. Instead, Boxer-Sanders would impose new EPA regulations on hydraulic fracturing. Waxman-Whitehouse preemptively safeguards 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.” California Democrats last month rejected a plan to replace the State’s cap-and-trade program with a carbon tax.

Let’s get real. When was the last time you heard the Sierra Club, NRDC, Bill McKibben, or Gina McCarthy say that Massachusetts v. EPA, EPA’s greenhouse gas regulations, the Renewable Fuel Standard, new-car fuel economy standards, DOE energy efficiency standards, the incandescent light bulb ban, Stimulus subsidies for Solyndra, and the proliferation of state-level renewable energy quota are all just bargaining chips they would gladly trade in for a carbon tax?

Political calculations aside, a carbon tax is just a subtler form of the same fatal conceit Stelzer finds objectionable about targeted subsidies and tax breaks, and renewable energy mandates. A carbon tax still presumes that policymakers know the basic direction in which energy markets should evolve. It’s still an attempt to rig the game in favor green energy (in Obama’s words, “to finally make renewable energy the profitable kind of energy in America”). It’s still designed to suppress fossil-energy consumption before commercially-viable alternatives exist. It still assumes the “social cost of carbon” is a known quantity (utterly ridiculous). It further assumes politicians can be trusted to use carbon tax revenues to offset other taxes rather than feed their spending compulsions (equally ridiculous).

Stelzer does not address a common conservative criticism of green energy schemes. Even if policymakers could price carbon ‘efficiently,’ the benefits of the tax would still be orders of magnitude less than the cost. A $100 billion a year carbon tax might reduce global warming by 0.1ºC – in the year 2100. Cumulatively, that’s trillions of dollars in new taxes to achieve a warming reduction too small to have any detectable impact on sea-level rise, polar bear populations, or extreme weather.

Note too that the benefits, if any, would be spread across the entire world, whereas the costs would be concentrated on U.S. consumers and businesses. A carbon tax is bound to make Americans worse off even if, miraculously, politicians divine the true social cost of carbon.

Stelzer worries the current crop of green energy schemes will ‘decimate’ America’s fossil energy resources. Why wouldn’t carbon taxes pose the same risk? I don’t know of a single climate activist who would be satisfied with any carbon tax that did not make the coal industry and coal generation less profitable, or that didn’t scare off investment in Canada’s oil sands. Stelzer expects people who seek to ‘decimate’ fossil fuels to be mollified by a carbon tax that doesn’t.

Stelzer says the National Climate Assessment “makes it clear that unless conservatives offer a market-based alternative, we will get more government control.” No, the NAC makes it clear that we will get more government control unless we throw the bums out!

Stelzer’s is the siren song of defeatism. He wants conservatives to settle for an inside-the-beltway deal that would destroy much of the reason many people vote Republican. The deal is a pipedream, anyway, as explained above. But if enough conservatives push it, we may get carbon taxes in addition mandates and regulation. And, what the heck, after yielding so much ground, what principled reason would remain for continuing to oppose cap-and-trade?

The Weekly Standard is a neo-conservative journal, and many neo-cons began their Washington careers in the Reagan Administration. What would Reagan do? One can only guess. Here’s mine. Reagan would not be pitching carbon taxes. He would be campaigning to get government off the U.S. energy sector’s back.