Welcome to the Carbon Tax Ticker

August has given us a chance to catch our breath, review the first two-thirds of the year, and prepare for the home stretch ahead. Below you’ll find links to an American Energy Alliance piece documenting the pre-recess carbon tax activity and a Niskanen Center piece that gives us insight into the current thinking of the pro-tax camp.

American Energy Alliance, 15 August 2019 blog:

This year’s carbon tax crop is sure to rot in the field, thanks to the public’s minimal appetite for energy taxation. Be that as it may, the annual rite indicates how pro-carbon tax thinking is developing and gives us the opportunity to sharpen our own argumentation. Pulling alongside the lump-sum rebate revenue-recycling approach (typically marketed as a “dividend”), the tax swap approach favored by Rooney and Lipinski has shown a resurgence and will require attention in the coming months.

IER’s Take

This blog, which I wrote for AEA, documents the highlights and lowlights from 2019’s summer carbon tax flurry. Under review are the Climate Action Rebate Act, Sen. (Coons D-Del); the America Wins Act, Rep. Larson (D-Conn.); the Raise Wages, Cut Carbon Act, Rep. Lipinski (D-Ill.); and the Stemming Warming, Augmenting Pay Act, Rep. Rooney (R-Fla.).

Niskanen Center, 26 August 2019 blog:

Economists are convinced that a carbon tax would be the best policy to fight climate change. We are frustrated when people who should be our natural allies prefer regulations and subsidies that, to us, are obviously less efficient and effective. But perhaps our very focus on efficiency is the explanation for our own ineffectiveness in the broader debate over climate policy.

Perhaps what we need is a better communication strategy. We should recognize that people are as concerned about distributional issues as about efficiency, and perhaps more concerned about politics than economics. We should recognize that we need policies that will be effective, but also policies that can be trusted. And we should be willing to consider second-best policies as a supplement to a carbon tax, or even designs where a carbon tax plays a supporting role. It may be that over time, increasing acceptance of an aggressive climate policy in general will encourage the development of mechanisms that look more and more like a carbon tax.

IER’s Take

Among carbon tax advocates, Niskanen Center economist Edwin Dolan has earned more of my respect than just about any other. Dolan has a coherent theoretical approach to environmental challenges and is critical of many ill-advised environmental policies—as he demonstrates in this blog’s rebuke of the Green New Deal and the Corporate Average Fuel Economy.

Because of the rigor and thoughtfulness he demonstrates, I think opponents of carbon taxes would do well to pay attention to Dolan’s arguments, as they rank among the strongest we face. This blog, written for an audience of his fellow travelers, suggests a pro-tax communications strategy that Dolan thinks would be effective based on polling data that show more support for carbon dioxide regulations and non-fossil fuel energy subsidies than carbon taxes.

As an opponent of carbon taxes, what I see in the data is the importance of the concept of “willingness to pay” (WTP). WTP is a key plank that the carbon tax advocates would need to establish for a tax to gain traction in the U.S. It is true that Americans are increasingly concerned by global warming. And yet their willingness to spend their own money toward mitigation remains very low. MWR Strategies polling earlier this year found that when asked how much they would be willing to pay annually to address global warming, the median response among likely voters was $50. Thirty-five percent said they would be willing to pay exactly $0. Polling from Yale’s environmental program finds higher average WTP, yet admits “…the possibility for negative WTP; that is, respondents might be willing to pay a positive amount to avoid passing the carbon tax proposal.”

By reinforcing to Americans that a carbon tax will drive up prices of goods and services throughout the economy—by connecting the policy abstraction with a decrease in their economic wellbeing—we can keep the carbon tax at bay.

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