Comes now the oil industry in a shocking piece of news:Â
Now that six of the world's largest oil companies have essentially come out in favor of a carbon tax, it's getting harder to dismiss the idea as some kind of outlandish lefty plot. And those companies can help their cause by engaging Congress directly, instead of outlining their case in a polite letter to the United Nations.
True, that would be helpful. A carbon tax, while not the be-all, end-all of climate policy, is an elegant solution to the problem of ensuring that entire economies cut their carbon emissions, rather than just particular sectors or nations. (But you still need to do sectoral policy like efficiency standards and electricity market reform.)
The most economically elegant of all climate solutions, a carbon tax is beloved by newspaper opinion writers, environmentalists, economists, financiers, conservatives, liberals, and business leaders alike. It is probably one of the only climate policy choices that enjoys such broad acclaim.Â
And for good reason: Itâs so simple. If you put a price on carbon, people will emit less of it to save money. Theyâll invest more in alternative technologies like renewable energy (and thereby drive down the cost). Industries will make more productive use of energy, and optimize existing processes for minimal carbon emissions. New materials will be invented that make it even easier to cut carbon.Â
On the government side, a carbon tax doesnât require a new layer of bureaucracy. You can refund the tax to low-income households to minimize its impact. You can distribute the revenues directly into activities that further reduce emissions. In theory, a carbon tax sets up a virtuous cycle that makes it easier, every year, to cut emissions.Â
... With a Catch (Cynicism Recommended)
But thereâs a catch, and itâs not technical in nature - itâs political. You see, a carbon tax only works to reduce carbon emissions if the price is high enough to actually change peopleâs behavior. For example, the Congressional Budget Office estimates that a carbon tax of $20 a ton would add 20 cents to the price of a gallon of gasoline.
Now, if gasoline were still pushing its 2008 price of over $4 a gallon, a 20 cent increase might really get people to switch to electric vehicles, or clean transportation, or move to more pedestrian-oriented developments.
But gasoline isnât expensive anymore, and itâs not clear when it will be again. Americans are rushing back into SUVs and trucks. A 20 cent jump in gas prices might cause a few headaches here and there, but itâs not realistic to think that Americans are going to dramatically shift their driving behaviors for so little money - after all, they didnât really do it last time.
So, whatâs the catch? Well, letâs venture inside Washington, DCâs Beltway for a second, and gird ourselves with some cynicism. Letâs assume, for the sake of argument, that a carbon tax of $40 or $50 per ton - the amount many experts think is necessary to slash emissions, corresponding to a jump in gasoline prices of about 50 cents - would actually get people into cleaner, more efficient cars or other forms of transit. Letâs say that such a carbon tax would also lead to dramatic shifts in other sectors, slashing carbon across the entire economy.Â
But letâs say that, for now, the political consensus within DC is only comfortable passing a carbon tax of around $10.
Think of all those oil- and coal-industry lobbying firms on K street. Theyâre paid to ensure that their clientsâ extremely harmful behavior goes unpunished. Sensing a growing political consensus around the need to tax carbon, they make a radical proposal to their clients:
The oil industry should lobby for a $10 per ton carbon tax.Â
Youâre thinking, âHuh? I thought you said a carbon tax was a good, agreeable, elegant solution?â Well, yeah - if itâs high enough to change behavior. But $10 is not high enough, and itâd be a mere, glancing blow for the oil and coal industries, which, under all reasonable climate scenarios, need to be winding down their core business over the next 25 years or so.
The risk is that, if and when Congress passes a (low) carbon tax, it will wash its hands of the climate issue. For how long, nobody knows - a decade? Two decades? Congress does not often pass major legislation effecting the entire economy; it never does so year after year after year. But this is what would be necessary if we all rally around a âpassableâ (read: âlowâ) price on carbon. Weâre making assumptions about future Congressional actions that belie abundant experience in the past.
Think about it: A graduated carbon tax - which, logically, makes a ton of sense - requires Congress to raise taxes on the American people every year for a decade, or longer.
The fossil fuel industry knows perfectly well that Congress will not raise the carbon tax every year. If it sees an opportunity to pass a carbon tax that has little to no impact on its operations or profitability, it will support a carbon tax.
The Canadian oil industry went first last week - potentially sensing the shifting political winds as the Harper government loses public approval - and called for a carbon tax of undefined intensity.Â
Now the new batch of oil majors have also called for a carbon tax, also of undefined intensity. Coincidence?
Watch this story very carefully. If they go all-in on a tax of $5 or $10 a ton, youâll know which way the wind is blowing. And itâs not toward sensible climate policy.
If Congress passes a low-price, low-impact carbon tax, Iâll bet you a $5 ginger beer that theyâll use that as an excuse to wipe out a bunch of other programs - programs that, to date, have been almost entirely responsible for slowing and, potentially, halting Americaâs carbon emissions.Â
Incentives for solar power? Bye-bye, donât need them! We passed a carbon tax. Wind power tax credits? Same deal, yo! Who needs subsidies when youâre taxing carbon? Fuel efficiency standards? Appliance standards? State renewable energy standards? EPA authority to cut carbon from power plants?
My fear is that weâll all rally around a low carbon tax, with our brothers and sisters in the oil and coal industries by our sides, and blindly step off the plank.
Letâs hope this outcome never comes to pass.