Understanding the Political and Economic Realities of a Carbon Tax

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Date(s) - 5/3/20138:30 am - 10:30 am

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On May 3, the George C. Marshall Institute released a new study considering efforts to create a national carbon tax.

Authored by James DeLong of the Convergence Law Institute, the study summarizes the political and economic forces that undermine the case for a carbon tax.  DeLong presents five reasons to reject carbon taxes:

  1. Lack of Effect on Temperature– A carbon tax is assumed to have the effect of reducing temperature, but DeLong argues the evidence shows the impact “would be tiny” at the tax levels being advanced.
  2. Lack of Specificity About Future Energy Sources– Tax advocates fail to show what energy sources will emerge to replace current sources of supply or how this transformation of a capital-intensive energy sector would be accomplished.
  3. Neglect of Benefits from Fossil Fuels and CO2 Emissions– The carbon tax debate is solely focused on the “damages” wrought by CO2 emissions, but a fair evaluation must account for the benefits associated with production of CO2.
  4. Problems with Models– The carbon tax relies on the veracity of two rounds of complex computer models – one modeling the environment and humanity’s purported impact on it and the other modeling the economy and the impact of imposing a carbon tax.  Both sets of models have significant limitations.
  5. Political Pressures and Practical Problems– DeLong summarizes the regressive nature of a carbon tax, the negative impact on GDP and jobs, the effects on manufacturing in highlighting some of the consequences of a tax.  Further, he points to managing the interactions with other taxes and regulations, as well as international issues as practical obstacles to the construction of an efficient carbon tax.  Added to these are the inevitable tensions that will arise from the uneasy alliance of “Bootleggers” and “Baptists” (i.e., crony capitalists and environmentalists) that must unite to pass a carbon tax.

“The tax will not be implemented in the politically aseptic world of academic modelers, but in the real world of intense political pressures,” DeLong argues.  “Its assumed purity will not survive the onslaught.”

On May 3, DeLong discussed his findings.  A panel discussion followed, featuring:

  • William O’Keefe, CEO of the Marshall Institute;
  • David Kreutzer, Research Fellow in Energy Economics and Climate Change at The Heritage Foundation; and
  • Scott Segal, Founding Partner, Policy Resolution Group, Bracewell Giuliani, and Director, Electric Reliability Coordinating Council

Dr. Kreutzer also referenced his recent paper Boxer–Sanders Carbon Tax: Economic Impact.

DeLong’s study A Skeptical Look at the Carbon Tax is available here.


Understanding the Political and Economic Realities of a Carbon Tax

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