The FT reports this morning that:
Janet Yellen has spoken out in support of a carbon tax as the most effective and efficient way to reduce US greenhouse gas emissions.
Ms Yellen, who chaired the US Federal Reserve until February, has joined the Climate Leadership Council, a bipartisan group pushing for the US to address the threat of global warming by introducing a carbon tax, with revenues returned to the public in dividend payments.
But you need to know:
The group is backed by large companies including ExxonMobil, BP, General Motors and Johnson & Johnson.
So maybe you might have your doubts. They're confirmed by this comment:
“Climate change is a very critical problem that we need to address,” Ms Yellen told the Financial Times. “When the central problem is the damage caused by greenhouse gas emissions, the cleanest and most efficient way to address it is to tax those emissions.”
That is glaringly obviously not true. The cleanest and most efficient way to address carbon emissions is to stop them. Tax does not stop them. It just treats them as an economic externality.
And in this case it will create a supposed dividend stream that people will not want to stop once it starts, meaning that in due course they will have no incentive whatsoever to cut carbon emissions at all, and will instead be aligned with business in a desire to pump pollution into the atmosphere.
I believe in tax. But I also know that there are things that tax cannot do. Tax cannot stop carbon emissions by itself. Regulation is far more effective as a way to do that. And in this case, perverse incentives entirely equivalent to moral hazard would be created by the scheme that Yellen is backing. And that makes her proposal not just wrong. It makes it deeply cynical, and a threat to limiting the impact of climate change.
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Back in the late 2000s Dieter Helm wrote a hilarious attack on the EU ETS – which puts a price on CO2 emissions (cap & trade). He argued that econometrically, carbon taxes were a better route. In 2009 (I think) the WTO published a report on border carbon taxes (allowing them) – however, the EU never picked this up (ideologically against – and wanting to give space for the Eu ETS) – although france remains very keen on border carbon taxes (probably seeing it as a big stick with which to beat the Chinese). The EU seems to have finally got its act together with respect to the EU ETS but is also setting EU targets for energy efficiency and renewables – which is a form of regulation. In the case of US carbon taxes – this would just be a pass through to customers. The problem the fossil people face is that in the period 2000 to 2018, the renewable people have driven capital equipment costs down to the point where electricity generated by RES is mostly competitive (for a given tech in a given location) with elec’ from fossil. Given this, I’m not sure what Yellen is trying to do. In the case of “dividend stream” the same could be applied to the EU ETS – given recent price rises, member states have big smiles on their faces (cos they are the ones who sell the EUA certificates to companies that need them). Looking back at “market based solutions” (of which EU ETS & to a lesser extend CO2 taxes form part) with respect to CO2 emissions, they have been a total & complete failure in the period 1990 to 2018 – because even in the EU – emissions have declined relatively little compared to what is needed..
Agreed, entirely
i couldn’t agree more, and the companies backing this are just doing an exercise in green washing…
I read this today and wondered if you would like to comment on it…….http://evolvepolitics.com/hmrc-refuses-to-charge-rich-and-powerful-people-with-tax-evasion-to-avoid-damaging-their-reputation/
I admit that this story may not be all it seems to be
99% f all tax cases end this way even when there is no evasion
Most of the fish will settle avoidance cases
This is how our tax system works
It may need reform, but it’s not news
I like the idea of a carbon tax. Everything would be simpler for your average consumer if negative externalities were priced into the goods we buy. The problem here is if a campaign is hijacked by people who fundamentally oppose it, leading to a rate being set too low.
To me a carbon tax is more about making carbon taxed appropriately which makes alternatives cheaper in comparison and can speed up a transition. The tax should however be set high and it should increase each year so even declining revenues wouldn’t necessarily reduce a dividend payout.
I too have supported the carbon fee and dividend tax proposed by James Hansen. Of course sometimes out and out bans are the best way to deal with a bad but I can’t see international agreement being reached on that. The good thing about the carbon tax is that it can be operated by individual states. Perhaps it’s just the dividend which needs to be removed.
The dividend is essential to gain popular/political support. As Adam says a rising tax can maintain a constant dividend , and emissions will never be zero. Every economist who has studied this issue knows that carbon taxes are an essential component of policy and cannot be replaced by regulation alone, though regulation also has a role, so it’s a shame that Richard attacks the most promising climate policy .
Entirely agree on carbon taxes and trading. Plus, as with any other financial ‘product’, you end up with a whole industry focused on gaming the system and profiting from it.
Just a way of ducking the issue and avoiding tackling the problem at source