Just subsidize and regulate a bit
This post, and most american commentary on carbon taxes, largely misses the point of why they are needed. There is too much focus on renewables vs. fossil fuels. There are many sources of emissions that don't compete in any way shape or form with renewables. One good example is production of cement, which counts for more than 6 percent of global emissions. That's more than the total emissions of Japan or Russia. Any technology to remove those emissions will come at a cost, and without a prices on carbon, it will never make sense to invest in and implement those technologies. Regulations won't work either, since you need to have the technology in order to mandate it.
The same thing applies to other industries such as steel (8 % of world emissions), aluminium production (roughly 3 % of world emissions), and many essential chemicals. Emissions from the energy sources of these industries are only a small part of the total emissions, and the easiest part. The difficult stuff is to decarbonise the actual production process. There are many promissing technologies, from hydrogen as a reduction agent in steel, to non-carbon based anodes in aluminiumproduction, to carbon capture from cementproduction. All of these are costly however, and require a carbon price to be economically viable.
Progressives in the US are still fixated on whether a moderate price on carbon helps decarbonise the power sector. Nevermind that the UK has shown that it is extremly effective at removing coal from the grid (combined of course with support for renewables). Nevermind also that a climate policy structured purely around support for renewables risks increasing energy usage, such that part of the renewable energy comes in addition to, instead of replacing fossil fuel use. More importantly it completly misses the point that decarbonising power production is the eazy part. The world needs to get to net zero ASAP, and the hard parts can't wait.
Thankfully Europe takes climate change seriously in a way that US progressives simply do not. Case in point, the price of carbon in the ETS is currently at 57 € and rising, with more ambitious EU legislation just around the corner. That's at a level where some of the "difficult" low-carbon technologies for heavy industry start to become profitable.
I think Noah Smith nailed this a while back. The fact that fossil fuel consumption isn't taxed for climate externalities is actually the lesser distortion. The greater distortion is that we aren't using renewable energy sources that are even cheaper than •untaxed• coal and oil--because we haven't discovered/invented them yet, because there hasn't been enough government-funded research to discover and invent them. Obama was shrewd enough to let the first problem go and focus on the second one, and thanks to the fall in photovoltaic prices on his watch, the coal industry is dying without any new taxes. Spending on scientific research is the real ice cream party.
“Subsidize and regulate” will turn the ship eventually, but it won’t achieve the massive reductions necessary to stick to a 1.5 or even 2.0 degree target for mean temperature increase. There needs to be investment in mitigating the effects of climate change. Improved coastal defenses and air conditioning subsidies are important steps, others are doubtless needed. Effect mitigation is too often thought of as a sort of defeatism, but it is an essential part of any popularist climate agenda.
I just love how often you go back to the well of "interest rates are incredibly low" as if that were a completely neutral fact independent of historical government policy. Like, yes r* is negative in the US right now. The channels contributing to that are not all instantaneous and include policy choices going back decades.
Even if inflation does arrive, everybody knows the Fed won't be able to raise rates more than 100-150 basis points over a few years, because if they did it would push the US into a sovereign debt crisis, cause waves of corporate bankruptcies, and basically collapse US politics as we know it. And that jeopardizes the Federal Reserve itself, so they just won't do it.
So just be careful with how much money you think we can dump into the economy, because if inflation does come, it will be low-growth stagflation, and consumers will be forced to eat that inflation for at least a few miserable years. And if that stagflation happens, we all know the Democratic Party will be stuck owning it.
So, ignoring the climate stuff, this is Matt's worst take and really demonstrates the limits of economic "popularism". The problem is that what is popular is always the same thing, giving people money. What's unpopular is paying for stuff. This whole dodge of, "Interest rates are low so we can just promise to print money at some undetermined point in the future instead of having to vote on a tax bill now." is a fucking disastrous way to do government. It's just a straight up political distortion. Just because people don't perceive it as a tax increase doesn't mean it's not exactly the same thing functionally. If you're doing what's "popular" it should be based on transparently debating the costs and benefits and not this bullshit monetary cup and ball game.
I thought the purpose of a carbon tax was to make carbon consumption go down not to raise revenue for green projects?
Green energy makes more sense to deficit finance, but to get old tech to be abandoned you’d need a stick so to speak.
Actually, cap and trade makes even more sense than a carbon tax. This is a proven strategy for harm reduction in a case of externality. The revisions of the Clean Air Act in the 90s established a trading system in Sulfur dioxide emissions. The result has been no more dead lakes in New England. As someone whose summer vacations are in Maine, I'm sure you appreciate that. Putting a price on carbon emissions would encourage efficient solutions to their reduction. Of course, some of the responses will be unforseen. The mandate resulted in the substitution of low Sulfur Western coal for higher Sulfur Midwestern coal with attendant job losses in mining areas like West Virginia, Ohio, Pennsylvania, and Illinois.
Food for thought. Here is what I get out of it.
1. The unreflective masses (aka "voters") hate carbon taxes partly because they hate all taxes, and partly because they love cheap gasoline, which makes a carbon tax the worst possible tax.
2. People who make money selling fossil fuels hate doing anything about climate change and pretend to love carbon taxes because that will sabotage the chances of effective climate policy in general.
3. The left hates carbon taxes partly because they they don't believe in markets and therefore don't think carbon taxes would work, and partly because they agree with Matt and with the unreflectives and with the oil barons that carbon taxes are politically toxic. (For some reason Matt doesn't dwell on this, but see "Carbon Pricing and its Green Critics" http://tiny.cc/rmu9uz )
4. Carbon taxes might be a good way to raise revenue if we needed more government revenue, but right now we don't.
5. Therefore policy wonks who think carbon taxes are an essential part of an effective climate policy (and who could very well be right about that) should just shut up, at least for the time being, because they are doing more harm than good.
Do I have anything wrong here?
What polling are you relying on? I'd never seen polling but a carbon tax strikes me as (1) common sense and (2) the sort of thing that is too wonky for most voters to care about. I googled around and I didn't see the "less popular than defund the police" polls. I did find this, though: https://www.carbontax.org/blog/2021/01/19/still-they-persist-2-3-of-voters-in-poll-want-carbon-tax/
Perhaps oversimplifying but interest rates are low because we are printing money to compensate for massive government borrowing. “Follow the science” but economics is rightly called the “dismal science” so I don’t buy into the “nothing to see here, move along” view of the growing national debt.
Public, rather than incentivized private investment in alternative energy will inevitably suffer from the same cronyism and other political baggage that plagues infrastructure and defense projects.
The fundamental error in this piece is the declaration that people don't like taxes. They love taxes. As long as it isn't on them. The big problem with a Carbon Tax is that it is hugely regressive and afflicts the poorest the most. And if you try to draw the sting by subsidization of those people who will be most afflicted by rising home heating costs or travel or whatever you are going to find nearly everybody thinks that should include them. And the whole point of a carbon tax becomes moot.
I'm surprised you didn't mention rebates to consumers as a way to reduce resistance to carbon taxes. That's the path Canada is taking.
The most recent bipartisan ice cream party happened because Trump was desperate to avoid a depression which would have reduced his chances of re-election to near zero.
What Republicans want an ice cream party these days? Isn’t it mainly a question of giving pork to one or two small state moderates (Tomney, Murkowski, Collins possibly Capito) who can feather their nest with say $10 billion? Why is it necessary to offer tax cuts that would be much more expensive than building lots of roads in Alaska?
First, vegetables are good.
Second, don't call it a carbon tax, call it a carbon dividend.
Third, a carbon tax is probably moderately regressive, but a carbon dividend can be as regressive or progressive as the distribution rules make it.
Fourth, popularism is a fine principle, but every principle can be misapplied. Whether a carbon dividend is "popular" depends on the under-explored details. Unlike gas taxes, where we have decades of legislative and political experience, I don't think we know with certainty whether a well-framed carbon dividend would be a political winner.
A carbon tax may seem like a great idea in the abstract, but in practice it is a regressive tax, as we should have learned from the Yellow Shirt Movement in France.
One of the drums that MY has been beating on repeatedly is that "...moderate members who see the value of bipartisanship spent most of the Bush and Obama years paralyzed by a misguided fear of budget deficits." As best I can tell, he thinks this is because they were coming from a paradigm in the 90s where "the perception (and I think the reality too) was that objectively the government needed to raise taxes and cut spending."
Essentially - moderates believed that the economics of the 2000s and 2010s were the same as the 90s that required spending restraint when in reality they needed excess spending.
I'm concerned that this lingering lesson will go the other direction. That the economics will change and government spending restraint be needed, but most of congress will continue to believe that excess is acceptable and this will lead to economic problems.
This is even more concerning given I think future spending capacity will be needed to address climate change. There are likely to be major impacts that will need government intervention. Deficit spending for investments that will have a long term payoff return make sense. Outside of that though, the more debt we create now, the more we constrain our future capacity.