The Myth of the Revenue-Neutral Carbon Tax
Climate Change Weekly #312
The carbon dioxide tax is like the Hydra of myth. Every time some hero cut one of the Hydra’s heads off, two more sprang up in its place. The same is true for the carbon dioxide tax. Every time a version of the carbon dioxide tax is proposed, economists and other analysts deftly cut its head off, showing its promises of climate salvation and economic prosperity to be as mythical as the Hydra itself, yet two more versions of the tax arise.
Progressives and socialists embrace the carbon dioxide tax myth to promote more government control—their control—over the economy and peoples’ lives.
Sadly, a number of old, mossback, Rockefeller Republicans have also drunk the Kool-Aid, embracing the myth of a beneficial carbon dioxide tax. The main attraction for them seems to be their belief they can create a revenue-neutral carbon dioxide tax, and thus, like the “smarter-than-thou” economic mandarins they believe themselves to be, they can manipulate tax law in a cost-free fashion to penalize industries they no longer find useful and reward people and companies they like. For them, it’s is just a matter of political engineering. The problem is, the idea a carbon dioxide tax can be revenue-neutral is just as much a myth as that it will save the Earth from climate doom (as if the Earth needed saving, which the best science shows it doesn’t), or that it will grow jobs and boost the economy.
As my colleague James Taylor cogently writes in a recent article, no carbon dioxide tax is revenue-neutral for the households being taxed.
The intent and impact of a carbon dioxide tax is to raise the price of coal, natural gas, and gasoline enough to make them more expensive than high-priced, inefficient wind power, solar power, and electric vehicles powered by wind and solar. When this happens, consumers will be purchasing wind and solar power that is much more expensive than what they currently pay for coal, natural gas, and gasoline. Consumers will therefore be forced to spend substantially more money on energy and energy-related bills. Yet the wind and solar industries will pay no carbon dioxide taxes, meaning a “successful” carbon dioxide tax that dramatically reduces carbon dioxide emissions will collect little tax revenue and thereafter return little money to the people. This would be “revenue-neutral” for government, but households would suffer dramatic declines in discretionary income as a result of the uncompensated increase in their energy bills.
Nor will the tax be revenue-neutral for households with workers in the fossil-fuel industry. The idea all the oilfield workers, coal miners, and coal or natural gas power plant operators will be able to transition smoothly to other jobs without a hitch is a myth. Their household incomes will fall sharply in the short term, if not permanently. And even if they could simply snap their fingers and magically switch jobs with no time on unemployment or incurring costs associated with training or relocation, the jobs they would be taking installing and servicing solar panels and wind turbines simply don’t pay as well as the jobs they will be forced out of by the carbon dioxide tax.
Nor could any carbon dioxide tax actually be neutral in terms of government revenue.
A good portion, of the revenue generated by the carbon dioxide tax will of necessity be diverted to the bureaucracies involved in collecting it and disbursing the rebate checks. No government program is cost-free.
How are we to calculate or track the amount of the carbon dioxide tax revenue each individual should receive from the Internal Revenue Service each quarter or year? Will the government just give an equal check to everyone with a Social Security number? This would end up shorting some people, such as farmers, truck drivers, and others who use a lot of energy in their daily lives or at work, while overcompensating those who use little energy. On the other hand, maybe everyone will have to use their Social Security cards when purchasing gasoline or paying their utility bills.
As with every government program, there will be huge transaction costs related to collecting, tracking, auditing, and archiving taxes paid and revenues paid out. New employees will have to be hired, or existing federal government workers will have to divert their time from other responsibilities, to account for the carbon dioxide taxes to be paid, to ensure they are paid, to police the program, and to send out the revenue checks and handle complaints when there are disputes.
These and other costs will eat up billions of dollars each year. Unless these costs are paid directly out of the carbon dioxide tax revenues—in which case all the revenues will not be returned to taxpayers as promised—then the government will have to impose other taxes or take on additional debt to pay for the program. So much for revenue neutrality!
Anyone who tells you paying a new tax will make your life better, especially a tax on fossil fuels that serve to power the economic prosperity we currently enjoy, is lying. Hang onto your wallets, and when the time comes, vote them out of office, because they come like thieves in the night to take your money for their ends.
- H. Sterling Burnett
IN THIS ISSUE …
In the quest to reduce the use of fossil fuels to fight anthropogenic climate change, a number of cities have begun replacing some or all of their diesel bus fleets, both transit and school buses, with buses powered by rechargeable batteries. The Institute for Energy Research reports these cities are getting much less than they bargained for.
Electric transit buses are 40 percent more expensive on average than the cleanest new diesel-powered buses, and battery-powered school buses are two times more expensive than new diesel-powered school buses. In addition to the higher direct costs of the buses themselves, cities that replace their diesel fleet with battery-powered buses must also pay to install recharging stations and related infrastructure which can carry a steep price tag. For instance, IER reports the Central Ohio Transit Authority is spending $2 million for electric vehicle recharging stations to charge just 10 electric buses it is adding to its fleet to replace diesel vehicles, and the Chicago Metropolitan Agency for Planning awarded the city a $15.5 million federal grant for electric vehicle infrastructure, including six electric airport buses, nine fast-charging stations, and 182 lower-level charging stations.
Evidence indicates additional costs and inconvenience from the adoption of electric buses could also result from their frequent breakdowns and the buses getting many fewer miles per charge than promised.
As IER reports, the six Chinese-made electric buses Martha’s Vineyard obtained in June 2018 had to be sent out for maintenance shortly thereafter because they ceased to function properly when drivers turned on their headlights. (China dominates the electric bus market, whereas diesel and natural gas buses are made primarily in the United States. The offshoring of manufacturing jobs is a topic for a separate story.) As IER writes:
“Similar fleets in Los Angeles and Albuquerque could not climb up hills, could not drive reliably over 100 miles, and generally could not stay on the road. Los Angeles’s first five buses were so bad that they had to be pulled off their routes after less than five miles. Albuquerque experienced similar problems. Of the 16 buses BYD [Build Your Dreams—a Chinese company that is the world’s largest electric vehicle manufacturer] delivered to Albuquerque, seven were sent back because of cracks, leaking fluids, axle problems, and an inability to hold charges. The city ordered a fleet of 20, but their performance was so poor the city canceled the order and switched back to natural gas and diesel [buses].”
Any money spent above and beyond what it cost to purchase traditional fossil-fuel-powered buses is unavailable for other pressing issues cities and schools face. With both any cost savings resulting from shifting a bus fleet powered by fossil fuels to one powered by batteries being questionable, and reliability being a primary virtue those relying on public transit should expect, IER concludes cities should not be quick to replace diesel- and natural gas-powered buses with battery-powered ones.
Biologist Jim Steele, who for more than a decade ran San Francisco University’s Sierra Nevada Field Campus, finds the increase in wildfires in California since the 1970s has been caused by changes in forest management, not climate change.
Steele points out fire ecologists have estimated that before the year 1800, wildfires burned more than four million acres per year on average in California. Since then, the size of California’s wildfires—and indeed those across all the western United States—declined substantially: first as European immigrants began to settle and actively manage Western lands and later as the federal government implemented programs to suppress wildfires actively wherever they occurred on federal lands. Beginning in the 1970s, however, “the US Forest Service moved away from extinguishing all fires by 10 AM the day after detection, switching to a ‘let it burn policy’ if human structures were not endangered,” writes Steele. As a result, Steele notes, in recent years large fires scorched about 1.8 million California acres a year on average.
The climate hasn’t changed much in California. Temperatures have risen only modestly, and rainfall and drought conditions have remained within recent historic norms. Because of prevailing wind and climate conditions, California experiences three to four months of extremely dry conditions during the summer each year, matched by high winds, conditions which contribute to wildfires spreading broadly and quickly if fuel loads—timber and brush—are not actively reduced before fire season starts and the fires themselves are not actively suppressed at their onset.
“In 2008 the world’s foremost expert on fire history, Stephen Pyne lamented, ‘global warming has furnished political cover to encourage certain fire management decisions while allowing climate to take the blame.’ How true,” writes Steele.
SOURCE: Landscapes and Cycles
In a recent post on his science and economics blog, Alan Carlin, Ph.D., who ran the U.S. Environmental Protection Agency’s Implementation Research Division for three years, writes the cost of decarbonizing the economy by replacing fossil fuel use with renewable energy sources has large hidden costs that are rarely if ever accounted for.
“The costs include (1) higher prices for usable energy, (2) lower reliability of energy supply, (3) visual and other pollution and wildlife damage,” writes Carlin.
Regarding the first point, Carlin explains Western European countries farther along the path of decarbonization than either neighboring European countries or the United States have much higher electric power prices than those not politically suppressing fossil fuel use as greatly, with 84 percent of the price differential being directly caused by the replacement of fossil fuels and nuclear with highly subsidized wind and solar power.
Carlin also notes the substantial costs of reduced reliability are little recognized until there is a major electric power outage that leaves homes and businesses without electricity.
Finally, Carlin observes, decarbonization harms the environment in at least three ways. First, wind and solar facilities take up lots of often pristine land, destroying wildlife habitat and creating visual blight. Second, disposing of “huge windmills and toxic solar panels at the end of their useful lives present[s] major problems whether they are cleaned up or not,” writes Carlin. Finally, because plants thrive under conditions of higher carbon dioxide, reducing atmospheric carbon dioxide reduces plant growth and reproduction, in the process indirectly harming the animals that depend on plants for food or shelter.
Carlin writes, “it is surprising that people who call themselves ‘environmentalists’ would want to advocate actions that would reduce the viability of plant life on Earth.”
SOURCE: Carlin Economics and Science