The Case Against a Carbon Tax | Miles Holder

A lot of people hold the misconception that the debate on climate change is fairly binary, with supporters of Greta Thunberg and Extinction Rebellion on one side in contrast to climate denial on the other side. Extinction Rebellion gives out the narrative that capitalism and environmentalism cannot coincide with each other. In reality, capitalism and conservation of the environment coexist with one another. Important as conservation is an inherently conservative idea. One such topic that would be considered ideologically on the left that some on the right are proposing is the idea of a carbon tax as a solution to the carbon emissions that are produced as mentioned in the BCA’s new book Green Market Revolution.

What is a carbon tax? The tax is a fee imposed on companies that burn carbon-based fuels, including coal, oil, gasoline, and natural gas. The tax is designed to reduce the output of greenhouse gases and carbon dioxide, a colorless and odorless incombustible gas, into the atmosphere. The tax is imposed with the goal of environmental protection.

What are the arguments for a carbon tax? The scientific consensus is that man-made impacts on climate change resulting from carbon emissions have the potential to bring devastation to the planet.Health impacts from high levels of carbon dioxide emissions are well documented, leading to respiratory diseases such as asthma, and even in some extreme cases, cause premature death. Individuals have the right to life, private property, and autonomy over themselves. Carbon dioxide emissions, which citizens are incapable of avoiding or preventing, cause damage to their bodies and potentially endanger their lives. If governments exist to protect the lives and liberties of its citizens, a carbon tax would act as an effective tool for governments to perform their duties.

 A carbon tax offers a practical and effective solution. Increasing the cost of carbon-based fuels will incentivise energy companies to increase efficiencies in their processes and also switch to cleaner energy sources, thereby reducing carbon dioxide emissions. A carbon tax would provide the opportunity for the government to abolish regulations and other taxes designed to reduce emissions and offset negative externalities. These taxes and regulations place a burden on businesses and households. A single tax on carbon would simplify the system, thereby alleviating the burden on businesses and households. A carbon tax has the potential to bring in vast sums of revenue for the government. This increased revenue could be used to cut other more economically damaging taxes. 

The idea of implementing a carbon tax is one of the most popular policy options in the environmental debate. However, the closer one looks at it the less convincing the case for a carbon tax becomes. There are multiple reasons why a carbon tax is ultimately a bad idea. 

Firstly, it fails a cost-benefit analysis. Just to make a simple comparison, one can look at the estimated costs of climate change mitigation and compare them to the costs of global warming. According to the IPCC AR5, the reduction in global GDP would be about 5% in 2100 as a consequence of sufficient mitigation actions. And yet, at the same time, the estimated costs of the amount of global warming that would be probable without mitigation actions are much lower in most studies. Taking average data, 5% of global GDP would have to be spent to avoid a 3% GDP loss from global warming. Therefore, a cost- benefit analysis fails by the IPCC’s own data.

Secondly, is highly unlikely to be implemented with a tax rate high enough to make any significant difference regarding climate change. A very high carbon tax would need to be introduced to lead to any meaningful reduction of consumption. This is because most products responsible for high amounts of carbon emissions (such as gasoline and energy production) are very inelastic so that changes in prices have a limited influence on demand. Such a high carbon tax rate is likely not politically feasible in most countries. 

Thirdly, it is a major burden on economic growth and could increase carbon emissions. A carbon tax could easily lead to increased carbon emissions if implemented only nationally or regionally. As only relatively wealthy countries can afford to implement a carbon tax (poor countries would probably impoverish their population in short order), such a carbon tax likely leads to production going from richer to poorer countries. As there are fewer capital goods in poorer countries, the production there tends to be less efficient (it is only made relatively more efficient due to the carbon tax). This lower efficiency means that there will be more emissions per unit of output. Therefore, a carbon tax implemented by only some countries could lead to increased carbon emissions due to relocation of production.

A carbon tax is also one of the most economically harmful taxes that can be implemented. This is mostly due to the narrow tax base of a carbon tax. Most studies conclude that even a revenue-neutral carbon tax abolishing some taxes on labour and capital would reduce economic growth. Lastly, it would lead to new unproductive bureaucracy. As every new tax means a new bureaucratic burden on the economy. There will be fresh red tape, processes that need to be adapted to by businesses, etc. – in short, ultimately causing the working time where people should be economically productive to be used for bureaucratic purposes. More government control is required to enable people are adhering to the tax. To conclude, a carbon tax is ultimately a hindrance rather than a positive solution on climate change. A tax on carbon emissions isn’t a free market solution, rather a state imposed one that will lead to more inefficiency. 

Photo by 小书生 on Flickr

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