Texas public policy foundation
The costs of carbon taxes are real — and crippling
 
COMMENTARY
 

As The Hill reported last week, two House Republicans have introduced a resolution condemning the idea of a carbon tax. Such a tax on carbon dioxide emissions, say Majority Whip Steve Scalise and West Virginia Rep. David McKinley, would “be detrimental to American families and businesses, and is not in the best interest of the United States.”

They’re right, but if anything, they’re understating the harm of a carbon tax. Because it’s a tax on energy production by fossil fuels that primarily fuel our livelihood, it’s a tax on virtually everything we do. It would mean people paying more for everything they do, eat, wear, and use. Reducing carbon dioxide to a taxable good means the subjection of nearly every facet of human existence to taxation.

The costs are real — and crippling.

What is a carbon tax? It’s often pitched as an economically painless “market” mechanism for addressing a compelling public problem — in this case, climate change. It’s based on the notion that free markets fail to account for broader social costs. For example, this thinking goes, the price paid for a piece of fruit at the grocery store does not account for the carbon dioxide emissions involved in its growth, harvest, preservation, or transport — and the damage those emissions might have on society by, say, making a future hurricane more intense.

That’s why carbon tax-supporter Sen. Bernie Sanders calls his legislation the “Climate Protection and Justice Act.”

But supporters of a carbon tax are wrong. Carbon isn’t a commodity. And it’s not a form of injustice. It’s a building-block of life. Without it, plants, animals, and humans alike would not exist. Moreover, carbon-based fossil fuels have supported unmatched economic prosperity since the Industrial Revolution. 

We know what the effects of a carbon tax would be in America because we can already see them happening from such destructive policies in Europe where outrageously high prices of basic goods are forcing people to choose between food on the table and heating in the home. Even more damning and ironic is the last resort to burn wood for fuel in places like Germany.

That’s because in its desperation to make these policies look as if they’re working, the European Union counts firewood as “biomass,” and considers it carbon-neutral. It’s not — indoor burning releases more carbon dioxide than burning coal and is bringing back the respiratory ailments of previous centuries. Taxes meant to reduce carbon dioxide emissions are, paradoxically, encouraging even more of its releases at the household level – in homes desperate to stay warm.

Something else to understand about the real effects of a carbon tax is the tremendous aid it will give to those seeking to crush competition and gain an unfair advantage in our marketplace. Big corporations and big industries can bear the costs — of accounting, compliance, diminished sales — imposed by a carbon tax, which they then pass along to consumers. Their smaller competitors, hit harder by the costs of compliance, might not.

Think of the carbon tax, then, as an energy-specific counterpart to Dodd-Frank, or ObamaCare: only the huge and politically connected survive. And the small businesses and consumers lose.

But what about the benefits of a carbon tax? Just as it’s hard to overstate the harm of one, it’s difficult to understate — indeed, even to know — the benefits. That’s because the calculations of the “social cost” used to justify a carbon tax are so subjective in their attempt to quantify the value of human lives and livelihoods, in order to sum up how climate change might affect them. As economist and MIT Professor Robert Pindyck notes, these calculations “can be used to obtain almost any result one desires.”

Furthermore, these models fail to account for how reliable, affordable energy from traditional sources benefit people — by extending lives, fighting disease, reducing hunger, and alleviating poverty.

These benefits are, in fact, easily quantifiable. There is a historical correlation of over 95 percent between increasing use of fossil fuels and rising economic growth over time. As income rises, so does improvement in most indicators of human well-being including hunger, infant mortality, education, child labor, and economic freedom.

Calls for a carbon tax are based on flawed assumptions and bad math. Moreover, the proclaimed benefits of a carbon tax are not proven, yet the negative economic effects of such a carbon tax are clear.

Congress is right to take a stand against a carbon tax. More freedom and more opportunity to innovate are the keys to a cleaner environment. And American businesses are up to that challenge.

This commentary was originally featured in The Hill on May 3, 2018.