No Alternative

Megan McArdle contemplates the political challenges to serious carbon emission curbs and speculates about alternative approaches:

We’ve focused on reducing emissions because that seemed like the easiest engineering problem, which may well be true. But the best engineering solution may not be the best economic solution, and it certainly isn’t necessarily the best political solution. It seems like it might be wise to focus more energy on carbon sequestration, which may be technically much more difficult, but is politically worlds easier.

Needless to say, the political difficulties of rigorous emissions curbs aren’t something that people have just noticed. And so a lot of thought and energy and print and pixels have gone into mooting alternative strategies, most famously the Break Through strategy of trying to make clean energy cheap rather than trying to make dirty energy expensive. Megan’s idea is really a sub-set of that larger idea.

And unfortunately, I think the political benefits of that approach are largely illusory. Or, rather, it’s easy enough to say “instead of making dirty energy expensive we’re going to make clean energy cheap” and then pony up $50 million in tax credits for alternative energy. But if you’re assuming we’re talking about doing enough carbon sequestration or cheap solar power or whatever to actually forestall climate catastrophe then you would need to be spending a ton of money. And to raise that ton of money, you’d need a huge tax increase. And guess what’s not very politically feasible? A huge tax increase. After all, this is exactly why curbing carbon emissions via a hefty carbon tax is politically difficult. It’s not that there’s some special difficulty with hefty carbon taxes — any kind of huge tax increases are politically difficult.

Now maybe there’s some reason to think that raising $X from higher income taxes is politically easier than raising $X from a carbon tax. I’m not really sure what the evidence for that is, but maybe it’s true. Here you’re left with the fact that raising $X from carbon taxes for expenditure on sequestration or whatever other subsidy you like is going to be more than twice as effective at reducing carbon than would raising $X from income taxes and spending that money on green technology. The reason is that a carbon tax is, on its own, a de facto subsidy to all kinds of green technology (including sequestration), but since it’s a subsidy that works through market mechanisms rather than political pressure it’s likely to be somewhat more efficiently targeted. But in addition to that, a carbon tax would subsidize conservation.

So while raising $X from carbon taxes and spending that money to “make clean energy cheap” may be more politically difficult than raising $X from income taxes and spending it, I think it’s really beyond plausibility to think that raising $X from carbon taxes would be harder than raising $2X or $3X from income taxes.

Long story short, I just don’t see a better way than either taxing carbon directly, or else indirectly taxing carbon through a cap-and-trade program with auctioned permits. It’s true that if you do what Nordhaus and Shellenberger do and just assume the existence of hundreds of billions of dollars in funds to throw around, then “throwing funds around” looks easier. But given the need to raise whatever money you intend to spend, you might as well raise it by making dirty energy more expensive.