A Carbon Tax Will Destroy Our Economy

The idea of taxing carbon-based fuel by charging for every pound of carbon put into the air has been dismissed by Congress and the American public without much thought of the possible benefits and exaggerated claims on what it would do to our competitiveness. 

The typical fee quoted is about $30 per ton of carbon, although there is nothing sacred about this value.  At this fee level it would cost perhaps a trillion dollars a year.  Or, put another way, it would pay off about a trillion dollars of debt a year.  What the tax level should be depends on what we are going to do with the money, what other countries charge, and how serious we are about setting an example to the world on minimizing climate change.

Okay, the biggest argument is that it would make American business non-competitive.  First, competitiveness does not depend on absolute costs but relative costs.  If every country had a carbon tax, no advantage would accrue to any nation.  Perhaps, those countries that use less energy per capita, would have to pay less, but in general they have less.  So, it is a tax that is automatically prorated according to the ability to pay and the efficiency with which the energy is used.

With regard to competitiveness of the U.S. with a carbon tax we have to look to China first, are they likely to pass a carbon tax.  China is drowning in pollution, the air around its biggest cities is atrocious.  A carbon tax would be a first step in fighting pollution in China and they are seriously considering a carbon tax.   Of course, there major concern is competitiveness with guess who, us.  A chicken and egg problem. 

So, we negotiate with China the phasing in of a carbon tax in both countries.  Europe, Australia, and most of Asia will probably follow as America takes a leadership role in global warming.  America could phase in a carbon tax, say $5 per ton, and wait for the world to follow us.  When the major players commit to $5/ton, we go to $10/ton, etc.  It's called leadership, it was what America used to do.

Now, here is some inside scoop.  America has the cheapest natural gas in the world and even with a carbon tax the U.S. is positioned as the global leader with energy intensive projects such as making fertilizer, ammonia, urea, electricity, aluminuim, magnesium, silicon, solar panels, titanium, etc.   The problem is not our compeititive position in America, our problem is that we are destroying the middle class and with it the customer that keeps the market place humming.  

If competitiveness is not an issue, then what should we spend the money on?   Paying off the debt seems like a area where we would get across the board acceptance.  Perhaps some large energy projects such as intelligent power grids, solar and wind farms, energy research, more efficient and electric cars, public transportation, improved train freight initiatives, intelligent traffic control, and perhaps education, especially in the math and sciences.

Another option would be to phase in a carbon tax while phasing out corporate taxes.  If we want American profits to stay in America the corporate tax, which encourages nothing but going aboard to countries with low corporate taxes would be replaced by a tax that was at worse incrementally higher than our competitors (China) by the staged approach above.  And given that a carbon tax encourages energy efficiency and reliance on substantiable forms of energy such as nuclear, wind, and solar, it is a win-win.  (Calling Nuclear Power substantiable is another blog.)