As Joe Biden begins to fill out his roster on the environment, we can see a definite tilt emerging towards what might be called climate neoliberalism. In many ways, Team Biden reflects the orientation of Canadian Prime Minister Justin Trudeau, who recently upped his own carbon tax north of the border.

Return of The Climate Neoliberals
American Spectator, 7 December, 2020

The incoming Biden administration has made climate change a signature issue, deeming its importance on par with the COVID-19 recovery and racial inequality. According to the Biden transition website, climate change poses an existential threat to our environment, our health, our communities, our national security, and our economic well-being. It comes as no surprise then that the Biden administration will require every federal agency, department, and program to articulate a climate angle and that it has implemented an informal climate and environmental justice litmus test for candidates for positions ranging across government.

But for all its rhetoric on these issues, Team Biden has already run afoul of the Democratic Party’s environmentalists. Because instead of rallying around the Green New Dealers and climate strikers, the Biden camp has turned instead toward the party’s climate neoliberals.

IER’s Take

As I argued in the American Spectator op-ed above, Biden’s picks signal climate neoliberalism, which in turn signals some form of carbon pricing. It could be argued that neoliberalism’s signature policy in the 21st century is Pigouvian taxation, ala a carbon tax, but the neoliberals also know that their policy preferences will meet with voter opposition and populist discontent. Ergo, expect hidden taxation through the myriad federal agencies that Biden has tasked with tackling climate.

Some of the forms we might see: carbon pricing through financial risk regulation, carbon pricing through transportation funding, and carbon pricing through energy infrastructure permitting.

Trudeau or Consequences
Bloomberg Green, 11 December, 2020

Prime Minister Justin Trudeau stepped up efforts to hit Canada’s emissions targets by 2030, pledging billions in new money to combat climate change and increasing his government’s carbon tax.
The measures, announced Friday in Ottawa by Trudeau and Environment Minister Jonathan Wilkinson, seek to put the resource-rich northern nation on track to cut greenhouse-gas emissions by as much as 40% below 2005 levels by the end of this decade, versus the current 30% goal.

Central to achieving that will be an increase in the government’s carbon price to C$170 ($133) per metric ton by 2030. It was already on track to hit C$50 two years from now, and will increase by C$15 a year after that. Though revenue from the levy is returned to the provinces via consumer rebates, it’s being challenged in the courts by oil-producing Alberta and others.

IER’s Take

Just as in the United States, Canada faces tremendous polarization on climate policy and in particular the carbon tax. The provinces of Alberta and Saskatchewan have united in their opposition to the framework emanating from the capital. Somewhat surprisingly viewed from the States, Ontario also opposes Trudeau’s tax.

Earlier this fall, the Supreme Court of Canada listened to the arguments from the provinces, yet did not issue a decision, leaving this critical policy up in the air.

You’ve got to ask yourself one question: Do I feel morally upstanding?
Politico Canada, 16 December, 2020

 Trudeau implied on Friday that if people don’t like his plan, they’ll have a chance to voice their displeasure at the polls. “At least this way we’re being very clear,” a government source tells Corridors.

And so the Liberals will have to sell Canadians on a beefed-up carbon tax that was never all that easy to sell in the first place. So far, they seem to be relying on the same arguments they always have: one, that carbon taxes are economically efficient (sure to convert all the economists out there, a key demographic); two, that this is the morally upstanding thing to do; and three, if you’re not feeling very morally upstanding, never fear — you’ll probably make your money back through rebates anyway.

IER’s Take

This is a refreshingly direct presentation of the factors at work in discussing the carbon tax. As with all meaningful political discussions, at root is the question, is this the moral thing to do? I’m convinced (though I’m open to persuasion to the contrary) that carbon taxation is not the moral thing to do.

The people of Canada are being compelled by their government to pay more than the market demands for carbon-based energy, with the alleged moral payoff being reduced climate damages for persons unknown. I remain skeptical that climate damages have been presented with enough salience to warrant such compulsion. If and only if climate damages are presented in a way that crosses a widely agreed-upon threshold should we really even consider Canada’s Liberals’ first point, that carbon taxes are economically efficient. That conversation presupposes that Canadians are morally responsible for significant climate damages.

Furthermore, if climate damages are the moral responsibility of emitters in Canada or elsewhere, remediation of that harm might require something more creative than a simple carbon price. Something perhaps along the lines of a global carbon allowance—a tradable permit afforded to each individual on the planet. Considering how much more the average Canadian emits than the median human being, that isn’t a prospect many in Canada, Liberals included, would find appealing. The carbon tax allows them to feel a sense of righteousness without sacrificing too much.

Yet More on The Ethics of The Carbon Tax
Council on Foreign Relations, 12 November, 2020

The only way to take effective and far-reaching action to combat climate change…is the imposition of a carbon tax with border adjustments imposing a comparable carbon tax on imports coming into the United States so that American companies are not disadvantaged, along with providing a rebate for carbon taxes paid in the United States when energy-intensive products are exported abroad. Acknowledgment that border-adjusted carbon taxes will accomplish the primary goal of reducing GHG emissions while leveling the playing field for American companies is coming from across the political spectrum. As former Clinton administration Treasury Secretary Larry Summers put it: “The case for carbon taxes has long been compelling.” And a group of prominent Republican leaders, led by former secretaries of both State and Treasury, James Baker and George Shultz, former Secretary of Treasury Hank Paulson, former chairmen of the Council of Economic Advisers Martin Feldstein and Gregory Mankiw, and business leaders have come together to put forward what they are calling the “conservative climate solution” of a carbon tax with border adjustments, with the revenues raised from the tax to be returned to the American people in the form of a monthly dividend.

IER’s Take

For a carbon tax to be effective, some form of adjustment must be raised at the border to minimize leakage, that much is clear. Yet a carbon border adjustment bears a striking resemblance to a tariff. And as has been long established, tariffs cause deadweight loss, leaving economic welfare lower even though domestic manufacturers are less exposed to competition from other jurisdictions. This line of thinking won’t dissuade any carbon taxers, though, since it is viewed as a cost worth absorbing for environmental reasons.

I recently came across a new-to-me argument against carbon border adjustments, however, that might give some taxers pause.

Arvind P. Ravikumar sees a border adjustment as a perpetuation of neo-colonial economic policies, nudging developing countries to adopt ever-shifting Western norms. As Ravikumar wrote over the summer in the MIT Technology Review, “That China, India, and other developing countries rely on fossil fuels to power their economies is not an accident. These growth models are a consequence of post–World War global dominance by the West in economic, political, and financial spheres. Until very recently, international organizations like the World Bank Group provided financing to expand fossil-fuel infrastructure, including coal-fired power plants, in developing countries.”

On Dr. Ravikumar’s logic, to the extent that a carbon border adjustment does protect domestic manufacturing or incentivize new energy technologies in the developing world, it is unjust because it prevents the narrowing of the global wealth gap. An arresting thought.

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