There’s an interesting post at City Journal on a Washington State ballot initiative to impose a tax on fossil fuels that, in an interesting reversal, is being opposed by Democrats, unions, and green groups. The sticking point appears to be that the tax is revenue neutral, decreasing general taxes by the amount of the tax.
I’m not entirely sure what that means. Washington State does not have an income tax; all of its taxes are regressive. I guess that’s one way of keeping poor minorities out.
Whitopias don’t come easy!
I think a good portion of the environmentalists want something in the form of a cap-and-trade system, with revenue raised invested in green technology.
Chicago is an innovator in cap-and-trade markets, creating one for volatile organic compounds. The Illinois EPA believed this market would be a money-maker for the state, which turned out not to be the case. Manufacturers moved. That’s my interpretation, but there are scores of studies, mainly pointing to not-setting an optimal price point (price-discovery is an even bigger problem in artificial markets), and lack of transparency and risk of government manipulation of the market rules (Hi Europe).
Mostly though Pigovian taxes and cap-and-trade deal with a problem by nudging behavior, and I don’t read a lot of explanations about how behavior changes and how long it would take. There probably needs to technology advances and I doubt Washington State could raise enough money to be relevant.
My modest researches have convinced me that carbon footprints increase exponentially with income. That suggests that the people who would be most affected by Pigouvian taxes or cap-and-trade systems are those who, even if they changed their behavior drastically, would have a negligible effect on the problem that is presumably being addressed. I can’t see that the Pigouvian taxes or cap-and-trade systems would influence the behavior of the top 1% of income earners at all and that’s where most of the problem is.
I remembered that. I got into a discussion with someone who strongly felt that Pigouvian taxes should be assessed against the ultimate consumer, not the producer. His reasoning was that he wanted tax transparency and encourage people to make different consumption choices. I didn’t disagree, but my response was that there may be little that the ultimate consumer can do, and what they might do is not reduce energy usage, but reduce their dining and entertainment expenditures.
If, however, the real change needed is for power plants to upgrade their equipment, switch fuel source, or upgrade transmission lines, then it probably makes sense to target where the most money is at and where the most change is possible, even though it might also be possible that no change is made and increased costs are simply passed-on. I believe the cap-and-trade argument presumes this is where things need to happen as well.