A CO2 tax is the worst option

TaxAbatementTol tmb

More than a month after her announce­ment that she intend­ed to leg­is­late a car­bon tax, Ms Gillard has yet to give us any details of her plans. The vague and con­fus­ing Min­is­te­r­i­al state­ments made while she was in Wash­ing­ton sug­gest that either this is anoth­er off-the-cuff plan for nation­al eco­nom­ic infra­struc­ture (like the NBN and the RSPT and the for­mer ETS) or, worse, that the Labor gov­ern­ment thinks we should be sat­is­fied with stan­dards of pub­lic pol­i­cy mired in half-truths, untruths and hypocrisy.

Although Ms Gillard won’t pro­vide details, we can nonethe­less find expert eval­u­a­tions of alter­na­tives for car­bon-emis­sion tax­es. A pan­el of Nobel Lau­re­ate econ­o­mists gath­ered by Bjørg Lomborg’s Copen­hagen Cli­mate Con­sen­sus con­fer­ence in 2009 eval­u­at­ed reports of dif­fer­ent fea­si­ble plans for emis­sions abate­ment. They con­sid­ered a “car­bon tax” was the worst option of those they con­sid­ered, putting it at the bot­tom of the list of rec­om­men­da­tions.

The cri­tique of the car­bon-tax option by Thomas Schelling, Ver­non Smith, Jagdish Bhag­wati, and oth­ers is dev­as­tat­ing. They say:

[Pro­fes­sor Richard] Tol [Con­tribut­ing, lead, prin­ci­pal, and con­ven­ing author for the Inter­gov­ern­men­tal Pan­el on Cli­mate Change] showed that achiev­ing the tar­get [of 450 ppm] would require a high, glob­al CO2 tax start­ing at around $68 per ton. Based on con­ven­tion­al esti­mates, this ambi­tious pro­gram would avert much of the dam­age of glob­al warm­ing. How­ev­er, Tol con­cludes that a tax at this lev­el could reduce world GDP by a stag­ger­ing 12.9% in 2100—the equiv­a­lent of $40 tril­lion a year. Despite the fact that we will also avoid dam­ages from cli­mate worth some 2–5% of GDP towards the end of the cen­tu­ry, the costs will hit much soon­er and much hard­er, mean­ing that for each dol­lar spent on the ‘solu­tion’, we will avoid only about 2 cents of cli­mate dam­age.
Cut­ting emis­sions now is much more expen­sive, because there are few, expen­sive alter­na­tives to fos­sil fuels. Our mon­ey sim­ply doesn’t buy as much as it will when green ener­gy sources are more cost-effi­cient… To put this in the stark­est of terms: dras­tic car­bon cuts would hurt much more than cli­mate change itself. Cut­ting car­bon is extreme­ly expen­sive, espe­cial­ly in the short-term, because the alter­na­tives to fos­sil fuels are few and cost­ly.” Extract fromAdvice for Pol­cy Mak­ers”, The Copen­hagen Cli­mate Con­sen­sus.

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