One Answer to Global Warming: A New Tax

Escrito el 16 diciembre 2007 por Rafael Pampillón en Energía, medio ambiente y cambio climático

Scientists on the Intergovernmental Panel on Climate Change (IPCC) of the United Nations, meeting in Valencia one month ago, advised that global temperatures are increasing because human beings emit too much carbon dioxide and other greenhouse gases (carbon). The economic theories suggest that when something is taxed, it reduces in quantity. Therefore, if we want to reduce global emissions of carbon, we need a global tax system for these emissions to the atmosphere. The document produced in Valencia (Summary of Policymakers of the Synthesis Report of the IPCC Fourth Assessment Report) advises, among other instruments of environmental policy, that taxation as a tool to fight against climate change is appropriate.

When I was preparing this week’s class of microeconomics, which is dedicated to Externalities, I found an interesting article by Gregory Mankiw titled One Answer to Global Warming: A New Tax , published in The New York Times. It argues that a global tax for the emission of carbon dioxide and other greenhouse gases would be easier to negotiate than the rights of emissions arising with the Kyoto agreement.

The idea of using taxes to fix problems, rather than merely raise government revenue, has a long history. The British economist Arthur Pigou advocated such corrective taxes to deal with pollution in the early 20th century. In his honor, economics textbooks now call them ”Pigovian taxes.” Using a Pigovian tax to address global warming is also an old idea. It was proposed as far back as 1992 by Martin S. Feldstein on the editorial page of The Wall Street Journal. Once chief economist to Ronald Reagan, Mr. Feldstein has devoted much of his career to studying how high tax rates distort incentives and impede economic growth. But like most other policy wonks, he appreciates that some taxes align private incentives with social costs and move us toward better outcomes.

Those vying for elected office, however, are reluctant to sign on to this agenda. Their political consultants are no fans of taxes, Pigovian or otherwise. Republican consultants advise using the word ”tax” only if followed immediately by the word ”cut.” Democratic consultants recommend the word ”tax” be followed by ”on the rich.” Yet this natural aversion to carbon taxes can be overcome if the revenue from the tax is used to reduce other taxes. By itself, a carbon tax would raise the tax burden on anyone who drives a car or uses electricity produced with fossil fuels, which means just about everybody. Some might fear this would be particularly hard on the poor and middle class.

But Gilbert Metcalf, a professor of economics at Tufts, has shown how revenue from a carbon tax could be used to reduce payroll taxes in a way that would leave the distribution of total tax burden approximately unchanged. He proposes a tax of $15 per metric ton of carbon dioxide, together with a rebate of the federal payroll tax on the first $3,660 of earnings for each worker.

A carbon tax would provide incentives for people to use less fuel in a multitude of ways. Any long-term approach to global climate change will have to deal with the emerging economies of China and India. By some reports, China is now the world’s leading emitter of carbon, in large part simply because it has so many people. The failure of the Kyoto treaty to include these emerging economies is one reason that, in 1997, the United States Senate passed a resolution rejecting the Kyoto approach by a vote of 95 to zero.

A global carbon tax would be easier to negotiate. All governments require revenue for public purposes. The world’s nations could agree to use a carbon tax as one instrument to raise some of that revenue. No money needs to change hands across national borders. Each government could keep the revenue from its tax and use it to finance spending or whatever form of tax relief it considered best.

Convincing China of the virtues of a carbon tax, however, may prove to be the easy part. The first and more difficult step is to convince American voters, and therefore political consultants, that ”tax” is not a four-letter word. (Source: “One Answer to Global Warming: A New Tax”. By N. GREGORY MANKIW. Published: September 16, 2007).


Jose Luis Borrallo 16 diciembre 2007 - 12:27

The problem associated with taxes is once the society absorbs tax nobody knows what´s that for and what was the reason behind its approval. It is a new cost that is passed on the customer/end user.

I do agree that value of things must reflect its cost but if we put a tax to the vehicles that pollute more this car will not stop selling (if preferred by the buyer).

Why do not ask the governments to treat consumers/voters as an intelligent entity. If you really believe in the theory of global warming and so on, inform to the persons, let the companies put this issue in their marketing campaigns (environmentally friendly) and let the consumers to decide whether they buy your information or not.

Make laws/regulations to protect the environmnet and let the companies make themselves more efficents to be more competitive and match what the buyers ask for.

Fabrizio 16 diciembre 2007 - 16:17

How to spend this money? I understand that a carbon tax effectively passed down to final users is the only immediate way to tackle CO2 emission. Being the demand curve for energy rigid, a rise in energy price will probably only reduce use of marginal consumption. This is good news but a negligible variable if we take into consideration the population growth and other factors such as the access to private transportation of millions of people in a near future.
Supposing that world leaders finally agree on some sort of carbon tax, the key issue would be haw to spend this money? I personally believe that governments should use other instruments to balance tax burden on their population according to their own values and standards. The revenue generated by a CO2 tax should be dedicated principally if not entirely to research and development of new technologies to make more effectiv use of energy. If the energy consumed to build a solar panel is basically the same that it produces in its life span where is the eco-advantage of it? If the car industry continues to develop a technology that has been around since 1876 (four stroke engine) instead of developing a new one, it means very little improvement on energy efficency. On the contrary a brand new technology that say allows us to drive 100 Km with one liter of gasoline (or energy equivalent) would really reduce CO2 emission and consumer would not mind pay their fuel 10 Euros per liter if energy efficiency also improve proportionally. Realistically this technology is not around the corner but others such as the CO2 underground storage could be developed and implemented rapidly and they would have great impact on climate change.

apolonio 16 diciembre 2007 - 21:55

Los impuestos se dedicarán a lo que decidan los gobiernos. Habrá gobiernos que tengan una baja presión fiscal y les interese recaudar más (nueva recaudación) para financiar el gasto social o de seguridad ciudadana. Otros gobiernos pueden dedicar esos ingresos extra a reducir o quitAR OTROS IMPUESTOS.

Jose A. Menéndez 17 diciembre 2007 - 15:51

My concern is if all this environmental care trend is maybe nothing else that a new cash cow to collect money by scaring population about next future disasters. Mostly remember still the famous Y2K effect, that made spend billions of dollars worldwide to avoid a “total collapse of the Humanity” the first of January of 2000, isn´t it? . Now we most probably have to pay more when buying a car, a washmachine, an air conditioning unit, travelling etc, because of greenhouse gas emissions and to avoid climate change (Please note that the ozone hole is out of fashion already to scare people, nobody mention it nowadays).

Do not misunderstand me, of course I am convinced that all industrial rubbish influence severely in nature, but individuals can contribute quite few on this, why to make them pay taxes for that? Governments are responsible to control and to punish those out of tolerance values, not to everybody.

The problem here about how to implement a global approach is related to distinguish between developed and emerging countries. How to compensate to the second ones the requested limited growth now that they are taking speed? Nobody was controlling those that are rich already and can implement much easier eco-friendly power generation. How to mitigate this gap thinking globally in future generations?

Patxi Bonel 19 diciembre 2007 - 12:58

To me, projects such as Google’s RE<C are much more interesting initiatives than taxes.

Google’s Goal: Renewable Energy Cheaper than Coal


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