Coyote Blog

It is frustrating to see the absolutely awful Waxman-Markey bill creeping through Congress.  Not only will it do almost nothing measurable to world temperatures, but it would impose large costs on the economy and is full of pork and giveaways to favored businesses and constituencies.

It didn't have to be that way.   I think readers know my position on global warming science, but the elevator version is this:  Increasing atmospheric concentrations of CO2 will almost certainly warm the Earth "” absent feedback effects, most scientists agree it will warm the Earth about a degree C by the year 2100.  What creates the catastrophe, with warming of 5 degrees or more, are hypothesized positive feedbacks in the climate.  This second theory of strongly net positive feedback in climate is poorly proven, and in fact evidence exists the sign may not even be positive.  As a result, I believe warming from man's Co2 will be small and manageable, and may even been unnoticeable in the background noise of natural variations.

I get asked all the time - "what if you are wrong?  What if the climate is, unlike nearly every other long-term stable natural process, dominated by strong positive feedbacks?  You buy insurance on your car, won't you buy insurance on the earth?"

Why, yes, I answer, I do buy insurance on my car.  But I don't pay $20,000 a year for a policy with a $10,000 deductible on a car worth $11,000.  That is Waxman-Markey.

In fact, there is a plan, proposed by many folks including myself and even at least one Congressman, that would act as a low-cost insurance policy.  It took 1000+ pages to explain the carbon trading system in Waxman-Markey"“ I can explain this plan in two sentences:  Institute a federal carbon excise tax on fuels whose rate increases with the carbon content per btu of the fuel.  All projected revenues of this carbon tax shall be offset with an equivalent reduction in payroll (social security) taxes. No exemptions, offsets, exceptions, special rates, etc.  Everyone gets the same fuel tax rate, everyone gets the same payroll tax rate cut.

Here are some of the advantages:

• Dead-easy to administer.  The government overhead to manage an excise tax would probably be shockingly large to any sane business person, but it is at least two orders of magnitude less than trying to administer a cap and trade system.  Just compare the BOE to CARB in California.
• Low cost to the economy.  This plan may hurt the economy or may even boost it, but either effect is negligible compared to the cost of Waxman-Markey.  Politically it would fly well, as most folks would accept a trade of increasing the cost of fuel while reducing the cost of employment.
• Replaces one regressive (or at least not progressive) tax with a different one.  In net should not increase or decrease how progressive or regressive the tax code is.
• Does not add any onerous carbon tracking or reporting to businesses

Here are why politicians will never pass this plan:

• They like taxes that they don't have to call taxes.  Take Waxman-Markey "” supporters still insist it is not a tax.  This is grossly disingenuous.  Either it raises the cost of electricity and fuel or it does not.  If it does not, it has absolutely no benefits on Co2 production.  If it does, then it is a tax.
• The whole point is to be able to throw favors at powerful campaign supporters.  A carbon tax leaves little room for this.  A cap and trade bill is a Disneyland for lobbyists.

Here are three problems, which are minor compared to those of Waxman-Markey:

• We don't know what the right tax rate is.  But almost any rate would have more benefit, dollar for dollar, than Waxman-Market.  And if we get it wrong, it can always be changed.  And it we get it too high, the impacts are minimized because that results in a higher tax cut in employment taxes.
• Imports won't be subject to the tax.  I would support just ignoring this problem, at least at first.  We don't worry about changing import duties based on any of our other taxes, and again this will affect the mix but likely not the overall volumes by much
• Making the government dependent on a declining revenue source.  This is probably the biggest problem "” if the tax is successful, then the revenue source for the government dries up.  This is the problem with sin taxes in general, and why we find the odd situation of states sometimes doing things that promote cigarette sales because they can't afford declining cigarette taxes, the decline in which was caused by the state's efforts to tax and reduce cigarette use.

Postscript: The Meyer Energy Plan Proposal of 2007 actually had 3 planks:

1. large federal carbon tax, offset by reduction in income and/or payroll taxes
2. streamlined program for licensing new nuclear reactors
3. get out of the way