Ryan Avent speculates that the reason that Americans are opposed to a carbon tax, despite their avowal of support for action on global warming, is that they don't understand how the tax works very well.
I'd say they understand it all too well: a tax will make it more expensive for them to drive, forcing them to do less of it. If they didn't like driving right now, they wouldn't be doing so much of it.
This is true of a lot of policy plans for which advocates claim a groundswell of mass support: people support them in abstract, but in actual particulars, they are against them. People support universal healthcare--until the majority who are perfectly satisfied with their health care right now hear the details of the plans, and the taxes required to pay for the plans. People like wars, but not the part where we spend a lot of money and soldiers die. People think we should do something about the environment--but only as long as it doesn't involve driving less, or buying smaller, more fuel efficient vehicles and homes, or giving up the long-distance plane flight to Disneyworld, or . . . well, when you come right down to it, what Americans have so far proven willing to do is buy biodegradeable cleaning products once a year, and waste a lot of carbon dioxide talking about how the government should do something.
As I pointed out at Ryan's site, he is correct on a certain level that Americans don't understand how a tax works, because he commits one of the most common errors himself. He says that he thinks "that opposition also stems from the fact that most Americans can’t respond all that well to higher gas prices."
I commented:
"Americans in general equate a carbon tax with a gasoline tax. And as you correctly note, gas demand is relatively inelastic, so a gasoline tax will be a painful way to reduce emissions.
But there are other sectors where a price on emissions would make a substantive difference, and these tend to be overlooked by most Americans (that lack of understanding thing). Utilities will make very different capital investment decisions if coal power plants start costing 30% more to operate overnight. Wind or nuclear or other low-carbon generation will become much more relatively attractive.
Most people hear “tax” and just think about paying 10% more for their gas or electricity and correctly conclude that this won’t cause them to change their behavior a whole lot (maybe a little, but not much). But it’s the compositional effects in the economy that are the primary reason that carbon taxes would produce change."
This isn't to say it won't be expensive, but it does mean that the average person doesn't have a very good sense for how a price on emissions works.
Megan_McArdle: I suspect there are much different forces working against a carbon tax, which make environmental-leaning people not like them:
-Most of the hated, conspicuous consumption would still happen because rich people would rather pay the tax than ditch the SUV, and things like this anger environmentalists more than the actual impacts of global warming.
-Most of the savings, as Daniel_Hall mentions, happen invisibly, so there's no clear signal who is "part of the team" by driving hybrids, etc.
-Environmentalists believe certain "wasteful" energy uses are so wrong that you can't "buy your way out of them" by incorporating the externalities into your costs. They want them to stop, period, economics be damned.
-The adjustment would be too painless for those that environmentalists want to see suffer.
Changes in power generation will take a long time to implement, though, so people will pay more for electricity before things change. If you increase the cost of coal generated electricity by 30% overnight, lots of things will cost more for decades before significant power can be generated by other sources.
Also, Americans are (quite rightly) suspicious of the government and balk at giving Congress more money (see recent polls on popularity and levels of trust for Congress).
Many probably question the ultimate effect of marginally reducing US carbon emissions on global warming.
EI
I agree with the points made by Earnest Iconoclast and would add that one of the “selling points” behind a carbon tax is that there would be some sort of corresponding reduction in other taxes (usually either payroll taxes or income taxes) to make it revenue neutral. Many people (rightfully) think that if you agree to a new tax on carbon in exchange for a promised reduction in another tax, all you’re going to ultimately end up with just a new tax as the promised reductions in other taxes would either never materialize or just be reversed soon afterwards.
A carbon tax would also keep red state voters in blue state areas, most of which are in blue states.
Could a carbon tax get traction by being combined with the elimination of the existing gas tax?
Check out this link about Pigou taxes
http://www.nber.org/papers/w13454
Non gated version
Link found at
http://www.marginalrevolution.com/marginalrevolution/2007/09/i-knew-sooner-o.html
Bah, you misquoted it:
In theory, there is no practice.
Daniel Hall wrote: Utilities will make very different capital investment decisions if coal power plants start costing 30% more to operate overnight. Wind or nuclear or other low-carbon generation will become much more relatively attractive.
Utilities are already making "different capital investment decisions" because of a mix of good old crass profit, and federal tax incentives for renewable energy investments. Wind power is the big winner at the moment, and is currently being built by a few major utilities just as fast as the industry can produce the equipment. However, wind power at its zenith can only provide a fraction of the energy demands of the US, and even with construction running at industry capacity, coal-fired plants are still being erected.
Nuclear? Sure -- just figure out how to expedite the permitting process and override some of the power of the NIMBYs, and there is little else to stop new construction from going up. Taxes aren't going to remove the existing barriers that make it very difficult to erect nuclear plants; it's like trying to apply a swift kick in the groin as a cure for impotence.
Also, it takes about thirty years to bring about sea changes of infrastructure composition in the power industry. This is partly due to (1) the estimated lifetime of the equipment and associated depreciation, (2) government rules on DoA loan funding for rural utilities that informally sets the baseline of the first, and (3) the kind of time and money required to site, permit, engineer, construct, test, and fully bring a new genration facility online.
If we have a critical problem with carbon now, then the only way an aggressive carbon tax will "work" at the public utility level is by re-creating the California energy crisis at a national scale. Yeah, people consume less power when it comes and goes on a third-world schedule, but you'll be one of the first necks the lynch mob comes after.
Do the people understand carbon taxation? As McCardle notes, they do: it means expensive carbon-containing fuel.
But I think they also understand that the more carbon tax government takes -- and it already takes a lot -- the more intent it will be on punishing and thwarting carbon thrift.
I'm against carbon taxes because we don't know how much difference particular levels of emissions improvements would make. I do also know median GCM results show only slow warming rates. I also know a carbon tax could be hard on our economy, quite possibly out of scale to warming improvements.
I want to see plausible projections on likely improvements particular carbon taxes before I'll support such a tax.
Now, I'm not exactly a normal person, but I suspect alot of other Americans are unhappy and unconvinced by Gore's scare tactics, and want to see more positive data before taking action as well.
I always (?) knew it as:
"In theory, there is no difference between theory and practice. In practice, there is."
Of course,the more relevant quote is from P.J.O'Rourke (from memory):
"Giving money to Congress is like giving whiskey and car keys to a teenage boy."
the more carbon tax government takes -- and it already takes a lot -- the more intent it will be on punishing and thwarting carbon thrift.
According to this theory the government should be forcing cigarettes down our throats.
Person hit it on the head - Global Warming isn't about global warming, it's simply another way to try to bring down the capitalist system. Using the least painful way to reduce CO2 emissions is the exact opposite of the whole reason Greens care so much about CO2 in the first place.
People can accept taxes if they understand and agree with their purpose and the tax is directly related to the purpose. Has anyone established the amount of taxes that have to be levied to stop and hopefully reverse global warming? Is there any way short of a constitutional amendment to ensure that other taxes are reduced dollar for dollar so that the carbon tax is purely pigouvian?
Assuming that the first question could be answered, how about a carbon deposit instead of a tax? In many states consumers must pay a deposit on cans of beer, bottles of wine, ect. The deposit is refunded when the can or bottle is returned for recycling. This deters some people from over consumption (not many because the amount of the deposit, established in the 1970s, is now trivial), encourages recycling, and gives others an incentive to pick up discarded cans and bottles.
The proceeds from a deposit on motor fuels such as gasoline could be divided by the number of registered motor vehicles and rebated in an equal amount to each vehicle. The deposit on carbon consumption in electricity could be rebated to each meter on an equal basis. Products such as plastic bags that contain carbon (I guess anything made of steel would fit here) would have a deposit applied and rebated in the same way that bottle and can deposits are handled.
You would see owners of motor vehicles finding ways to reduce their carbon consumption, either by driving less or switching to alternative fuels or more efficient vehicles. The same would apply to those hooked up to the electric grid. One sticking point would be carbon consumed in heating - sensitive issue in Maine which has very cold winters and where most homes are heated with oil, not to mention the creation of a bureaucracy to register places that are heated.
EI: "If you increase the cost of coal generated electricity by 30% overnight, lots of things will cost more for decades before significant power can be generated by other sources."
Which is why it shouldn't be raised "overnight", but phased in over a decade or two, giving energy producers and consumers a chance to adjust to what the cost of carbon emissions will be, over the lifetime of their power plants, factories, houses, cars, etc.
By the way, the first application to build new nukes has been filed: "Energy suppliers gearing up for nuclear expansion".
A, Fred 4th's version of the maxim is the one I'm familiar with:
"In theory, there is no difference between theory and practice.... But in practice, there is."
Maybe people aren't stupid.
Maybe because there is not now, and never will be any demonstrable, causal link between a particular tax rate on fossil fuel use and global temperatures.
Maybe it's just not a problem to most people, despite their willingness to give the culturally correct answers to poll takers.
A weird thing is that not-so-insane individuals (GOP presidential candidates, so you understand why I am qualifying the statement) propose replacing income tax with sales tax, and carbon tax would basically be no more regressive than that schema. While carbon tax is "unrealistic", the criticism of the national sales tax is mild. The contrast is of course particularly strong among Republicans.
One thing that I like about carbon tax is simplicity. The second thing is that this simplicity can be maintained while providing some help for the most greviously affected individuals and industries. Still, it should be a part of a larger package.
One part, gradual introduction. For example, in 10 equal installment. This way it will affect economic planning starting from day one, and it will give time to adapt.
Second part, spending part of the revenue in helping people to switch to alternatives. E.g. qualified low income people could get need-based subsidy to buy much more efficient vehicles or heating systems for their homes.
Third part, making some part of connection between income taxes and carbon tax. E.g. 20% of carbon tax would be spend in helping people and industries to switch to carbon-saving technologies, and 80% would be used to decrease, say, personal and bussiness income tax rates in the following year. This way the "government" will not be hooked on carbon taxes, but individuals and bussnesses will be in a race to pay less than others.
Fourth, how high the tax should go should depend on effectiveness. After 10 installments of the tax increase are enacted, the tax can keep increasing or even be decreased, dependend on the efficacy and popularity.
A lot of resistance is based on fear -- but how we will cope doing things differently than now!? Is it safe to drive a small car? [Clearly, highway safety can be achieved in several ways.] Is it OK to sweat (a major objection I hear now against bicycling, perhaps we could make it v_i_r_t_u_o_u_s to sweat]. Nuclear waste is much more obnoxious that cutting down mountain tops, "washing" coal and storing millions of tons of waste rich in heavy metals. How our landscape will look with windmills [look like 17-th century Dutch ruined their landscape! they painted those horrors so we can see it today].
Is it OK to sweat (a major objection I hear now against bicycling, perhaps we could make it v_i_r_t_u_o_u_s to sweat].
The big problem with cycling in most of the US is the climate.
I used to live in Britain, where I would cycle 6 miles to work in the morning, and 6 miles home again at night, year-round. I didn't need to own a car.
Here in the US midwest, I live more like 8 miles from my place of work, but there aren't any hills, so it's not really so different.
In the summer months, I would make myself very ill with heat exhaustion were I to cycle to work. In the winter months, the snow and ice make it too dangerous (and it's bloody cold). That leaves maybe 3 or 4 months of the year where the temperature is sufficiently moderate to make cycling a possibility.
The problem, of course, is that because I need to run a car for the other 8 or 9 months of the year, the marginal cost to drive to work is small, and being small, outweighs the downsides of cycling - the extra time it takes, and the risk of getting rained on. So I don't cycle.
piotr
I agree with you that a carbon tax is closer to a sales tax and hence economically friendlier than income tax.
However - the "energy" market is a strange one and not very transparent. In this climate it is difficult to pinpoint what is a 2nd best and what is a 3rd best policy?
Under "normal" conditions - a direct tax is better than an indirect one and better than subsidies as well.
But retail energy is different than the production. for example - most energy sources other than solar have to be transported over long distances and than be distributed via a grid (those services account for 2/3s of the retail price).
If we wanted to decrease carbon we would have to tax either all three services: production, transportation and distribution or better - subsidize local solar production which does not require transportation and distribution.
In other words and against intuition - I believe the 2nd best, in the case of carbon reduction, to be subsidies and not taxation...
Ryan Avent speculates that the reason that Americans are opposed to a carbon tax, despite their avowal of support for action on global warming, is that they don't understand how the tax works very well.
No. Americans understand why we tax tobacco. Even if they do not care about cancer and are all for "freedom of choice" - they might care about health care spending and transparent costs?
we oppose the carbon tax because we do not perceive the dangers to be real?!!
I'd be tempted to say - let private business alone solve climate change given the strong and impressive VC industries in the US, Europe and Asia..
at some point business men will want to survive long enough to enjoy their riches. an environmental catastrophe will make this impossible and they too will eventually change their mind and put a price tag on environmental costs.
but given human nature, 5 year financial plans in business, exit strategies of VCs and given that market prices are not transparent (we subsidize CO2) - maybe too little too late?
mother nature is active in places where there is not even Coke.. no.. better not?
Ryan is partially correct that "the reason that Americans are opposed to a carbon tax, despite their avowal of support for action on global warming, is that they don't understand how the tax works very well." Megan is also partially correct when she states that "I'd say they understand it all too well: a tax will make it more expensive for them to drive, forcing them to do less of it."
People understand that the tax will make it more expensive to drive, but they don't understand or believe that a carbon tax could and should be revenue-neutral.
Yes, a carbon tax will make it more expensive to drive and to generate electricity by burning the coal. That's the idea. It's time to put a price on carbon so people begin to learn that the atmosphere can no longer be used as free dumping ground for carbon. Putting a price on carbon will encourage rational decision making such as substituting less carbon-intensive fuels when producing electricity, purchasing more efficient cars and appliances and generally using energy more wisely. Of course, these changes will not happen immediately. That's why the Carbon Tax Center, www.carbontax.org, recommends a ten-year ramp-up period that provides sufficient time to gradually invest in more efficient use of energy. And, for both equity and political reasons, the Carbon Tax Center strongly supports revenue-neutrality.
Dan, I'm not seeing something that I think is important on carbontax.org.
If you want me to support taxes, I need to see projections that go all the way to what kinds of climate improvements could be reasonably hoped for, preferably from 3 different GCMs. I applaud your effort on providing the beginnings of economic models and thoughts on padding impact on the poor (a big fear of mine), but they also, of course, leave unaddressed questions of impact on the traditional economy.
Generally speaking, Americans will help as long as the help consists of buying something in a color that matches their decor. If you can figure out a way to do that, you've got it made and can solve all the environmental problems.
Asking us to give up our creature comforts and be inconvenienced? Not going to go over well with most. Hell, most recycling programs can't get people to sort worth a damn. Asking for real sacrifices? Don't hold your breath.