Saturday, January 30, 2010

The Economics of Carbon Emissions

Suppose that you decided that you wanted to reduce carbon emissions in the United States. The extreme climate change advocates (think Al Gore) say that this must be done, worldwde, within the next two decades. If that is the case, then there is simply no point in even trying since it is not possible (without widespread economic dislocation, worldwide, that would be far, far worse then the predicted climate change). But, imagine a more realistic goal: substantial reductions in carbon emissions over the next half century, perhaps reducing new carbon emissions to negligible levels by 2060. How would you do it?

Announce a "sliding scale carbon tax." In five years the tax would begin by putting on a carbon tax that would, over time, increase at an escalating rate. Suppose, for illustrative purposes, that it is only oil consumption that you wished to reduce (and ignore for a moment all other sources of carbon emission). Place a $ 10 per barrel tax on oil beginning five years from today. Every year, increase the tax by $ 2 in year six, $ 4 in year seven, $ 6 in year eight, and so forth. By year 20 the tax would be $ 120 per barrel and rising fast.

This type of tax would basically tax oil out of business over a twenty year period. The proceeds would be used to provide broad based tax cuts or used to reduce the deficit. (It is very important that it not be used by the government to subsidize alternative energy).

The numbers in this example are not critical. What is critical is that sufficient time is given between today and a serious level of tax that will allow for alternatives to be developed. The free market can produce the alternatives on its own because of the ever increasing price of oil. One hopes the tax never gets paid at all as alternatives to oil (or carbon, if you like) are developed and flourish.

There is a good chance for a bi-partisan agreement to a plan such as suggested here. Especially, if clean energy sources like nuclear energy are combined with delayed and escalating carbon tax. This kind of program would improve the economy, not damage it (as Obama's climate change agenda does) and it is difficult to see why any one (other than the Copenhagen crazies) would oppose it.

1 comment:

fatman8823 said...

After reading through your blog I think I need to attend your lecture more often...it's so early though!