Son of a BTU

Ever since the Clinton Gore Administration, climate advocates have been working on schemes to put a price on carbon. Their goal is to force fossil energy out of our economy. The first attempt was the ill-fated BTU tax, introduced in the early days of the Clinton Gore Administration. Clinton-Gore quickly abandoned their proposal when confronted with a powerful political and public backlash over the impact of the BTU tax on energy prices and the economy. The backlash was so severe that BTU became a verb and no politician wanted to be BTUed.

Like Phoenix rising from the ashes, the BTU tax notion came back in the other forms, most recently the Waxman Markey cap and trade proposal which also had a ignominious fate when it became clear that it too would be a job killer and raise the cost of energy.

Only politicians living within the bubble called inside the Washington beltway would propose such a costly and economically absurd scheme with the economy mired in a serious recession.

Climate change advocates are so obsessed with an opposition to fossil fuels, that they never give up. They are now promoting a carbon tax as a way to put a price on carbon. A number of economists have become attracted to the notion of a carbon tax because they see it as a way of taxing bad carbon from driving, heating and cooling homes, lighting and power for commercial enterprises and lowering taxes on a good—labor for example.

There are a number of problems with the rush to embrace the intellectually elegant carbon tax. Energy is used to produce things that we value and for the foreseeable future, there are no large scale substitutes for fossil energy. And, while these economists have been explaining the elegance of their carbon tax theory, CO2 emissions have been falling and are not projected to return to 2005 levels until 2035. While part of this is due to a sick economy, a more significant reason is the rush to gas. Just think of it, CO2 emissions are falling without the help of the government but as a result of technology and innovation from private capital.

Economists who now embrace a carbon tax, do so because they start with the simplifying assumption that fossil energy use is the primary cause of global warming. But, the warming trend halted 15 years ago even as global emissions continued to rise. So, what would a carbon tax achieve? Even if you accept their simplifying assumption, calculations have shown that a US carbon tax’s effect on global temperatures would be infinitesimal. Imposing a high cost on consumers for no gain is not rational economic thought.

The current rush to a carbon tax is just another example of the Baptist and Bootlegger theory of public choice. In this case, the Baptists—the anti-fossil energy elites—are supported by some businesses and politiicans—the bootleggers. These businesses will exploit the system to earn profit from the political market place and politicians will get more revenue to lard out to the favored.

If the politicians goal really was to discourage fossil energy use and encourage alternative energies, there would be declining revenue as behaviors changed and less fossil energy was used. But, that is inconsistent with a new stream of revenue and its uses. Think of a carbon tax as a one off of the European Value Added Tax (VAT), governments have steadily raised from 13% to 20% or more.

When someone begins to tell you about the merits of a carbon tax, grab your wallet because you r pocket is about to be picked. As that great philosopher Groucho Marx once said, politicians look for problems, find them everywhere, misdiagnose them, and then apply the wrong treatments.

This article appeared on the FuelFix weblog at http://fuelfix.com/blog/2013/04/29/son-of-a-btu/

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