‘The Case Against A U.S. Carbon Tax’ (Murphy, Michaels, Knappenberger)

“A carbon tax is hardly a genuine market solution analogous to other introductions of property rights.”

“Libertarians and conservatives in particular should not simply trust the assurances from the advocates of a carbon tax but should instead read the relevant literature themselves. In both theory and practice, a U.S. carbon tax remains a very dubious policy proposal.” (p. 21)

A new study by the Cato Institute usefully brings together arguments from physical science and social science to demonstrate that giving government a new area of taxation is fraught with difficulty. In one sense it is a cure worse than the disease; in another sense it is an open sesame for growing government–and a punitive weapon against a ‘politically incorrect’ industry, coal first, oil second, natural gas third.

Robert P. Murphy is a research assistant professor at Texas Tech University and senior economist at the Institute for Energy Research. Patrick J. Michaels is director  of the Cato Institute’s Center for the Study of Science, where Paul (Chip”) Knappenberger is assistant director.

Here are some salient quotations from the study, which can be accessed in its entirety here.

Executive Summary

“The actual economics of climate change — as summarized in the peer-reviewed literature as well as United Nations (UN) and Obama administration reports — reveal that the case for a U.S. carbon tax is weaker than the carbon tax proponents claim.” (p. 1)

“Future economic damages from carbon dioxide emissions can only be estimated in conjunction with forecasts of climate change. But recent history shows those forecasts are in flux, with an increasing number of forecasts of less warming appearing in the scientific literature in the last four years.” (p. 1)

“There really is a consensus … that carbon taxes cause more economic damage than generic taxes do on labor or capital, so that in general even a revenue-neutral carbon tax swap would probably reduce economic growth.” (p. 1)

“In Australia, the carbon tax was quickly removed after the public recoiled against electricity price hikes and a faltering economy.” (p. 1)

“After an initial (but temporary) drop, the [British Columbia] carbon tax has not yielded significant reductions in gasoline purchases, and it has arguably reduced the BC economy’s performance relative to the rest of Canada.” (p. 1)

“[T]here is mounting evidence in the physical science of climate change to suggest that human emissions of carbon dioxide do not cause as much warming as is assumed in the current suite of official models.” (p. 1)

“Policymakers and the general public must not confuse the confidence of carbon tax proponents with the actual strength of their case.” (p. 1)

Physical Science

“The published estimates of [equilibrium climate sensitivity] have been trending down [in the peer-reviewed literature].”

“[M]any proponents of a carbon tax are denying a growing body of low-sensitivity findings as well as a large and growing discrepancy between climate model predictions and temperature observations in the lower atmosphere.” (p. 20)

Social Cost of Carbon

“[I]n reality the [social cost of carbon] is a malleable concept that is entirely driven by analysts’ (largely arbitrary) initial assumptions. The estimated SCC can be quite large, small, or even the latter meaning that greenhouse gas emissions should arguably be subsidized because they benefit humanity—depending on defensible adjustments of the inputs to the analysis. But the possibility of such negative SCC values is rarely, if ever, reported.” (p. 3)

“If the economic models were updated to more accurately reflect the latest developments from the physical and biological sciences, the estimated SCC would likewise decline between one-third and two-thirds because lower temperature increases would translate into reduced climate change damages. That is a sizeable and significant reduction.”

No Double Dividend

“The tax interaction effect suggests no double-dividend boost to conventional economic growth, even if a carbon tax were fully refunded through payroll tax cuts or lump-sum payments.” (p. 21)

Leakage (Shifting Emissions without Global Governance)

 “American policymakers have much less control over global climate change than they often imply.”

“Leakage could greatly increase the economic costs of achieving a desired climate goal.”

“If a carbon tax were applied only to certain jurisdictions, then emission cutbacks in the affected region would be partially offset by increased emissions (relative to the baseline) in the nonregulated regions…. Thus the optimal carbon tax is lower if applied unilaterally in limited jurisdictions.” (p. 8)

Politics

“It should be clear that a revenue-neutral deal at the federal level is very unlikely.”