Tax/Trade Update

A while back I wrote about two of the most widely discussed options for federal carbon legislation: a tax on individual and/or institutional emissions, and a market-based “cap and trade” system. The debate has continued to heat up in the past couple months, and I thought I’d weigh in with an update.

At yesterday’s 2010 Imperative webcast, leading climate scientist James Hansen stressed the need for immediate carbon legislation: continuing our current path for another decade, he explained, would put our emissions at 40 percent above 2000 levels, making it virtually impossible to reduce to acceptable levels without severe recession. Though he made it clear that action needs to be taken now, he refused to take a side on the tax/trade divide. What he did suggest was that CO2 restrictions be slowly phased in so as to avoid economic disruption, and that they be controlled by a nonpartisan appointee in the manner of the Federal Reserve.

Gristmill has been seeing a raging debate on the issue recently. In a guest editorial last week, Bill Chameides, Environmental Defense’s chief scientist, came out in favor of a market, calling taxes politically unfeasable and less likely to promote technological innovation. In a series of comments to my original post, fellow Green Archer Daniel Dempsey agreed, citing the precedents of NO2 and SO2 markets in the US as successful examples of market-based pollution reduction.

But Gar Lipow’s well-researched response to Chameides’ piece counters these very examples. Lipow provides evidence that domestic pollution markets were slower and resulted in smaller reductions than tax-based programs in Germany and Western Europe. Furthermore, these markets were nowhere near as complicated as a carbon trading system would have to be, and were therefore easier to implement and less subject to manipulation. In other words, if set up correctly, markets can indeed work – just not as well as taxes.

Still, one of Daniel’s criticisms still holds: to institute an effective carbon tax would be tantamount to “political suicide” in our current taxophobic political climate. Although endorsed by economists and corporations alike, to my knowledge not a single elected official has proposed introducing one, probably because it would raise the price of nearly everything we buy.

It seems clear to me that the tax vs. trade debate is essentially one of feasibility versus necessity. Emissions trading would be cheaper to implement and is far more business-friendly, which is why politicans are so fond of it. But it’s also complicated to set up, and likely to be less effective overall. To reduce our carbon quickly enough to prevent catastrophic climate change, it seems as if taxing is a safer bet. Sure, at the moment it seems as if a carbon tax is unrealistic – but then again, this very discussion would have seemed politically preposterous only a couple years ago.


One thought on “Tax/Trade Update

  1. Historicus says:

    Interesting point, and one that deserves a broad analysis in ecology, politics, and economics. I would like to offer an economists view. As I have explained before, the market-based solution presupposes the functioning of the market. Not paradoxically, it was the disfunctionality of the market that brought us to this ecological predicament in the first place. Subject this quandary to critical reasoning and it is as if you are trying to mend a cut with knife or to use a more germane analogy, it is like winning war through war. It is in the nature of the knife to cut, it is the nature of war to produce conflict. Obviously a market-based solution is a masterpiece of disingenuousness. But what can we expect in solutions from a system that left to operate according to its own inner logic would reveal itself as a manifest absurdity? Certainly nothing significant.

    We happen to know what it is that motivates and determines capitalist’s behavior. First, the capitalists must make as much profit as they can, and second, they will use this profit to further the size, power, and rate of growth of their enterprise. They do this through “plowing back” earnings, or if there is favorable requisite, they will borrow from others. It must be understood that the pursuit of these aims are not something the capitalists are free to accept or reject according to their personal morals, ethics, or tastes any more than a football player is free to accept or reject the aim of making touchdowns. With respect to the current ecological crisis, there are certain boundaries that demarcate the possibilities within the given framework of solutions. Taxation would certainly, at least nominally, appear as a rational and realizable solution. The social acceptance of taxation however is contingent on the state of the economy. Historically people have been willing to accept higher taxes when the economy is expanding. They feel more secure with their social status and see their wages rising and become imbued with a false sort of benevolence. Of course that situation has since become fantasy and people today are reluctant as ever to see their already negative wealth decline further, even if it means their children will “live” in an ecologically uninhabitable world. This makes perfect sense of course and one needn’t look further than household consumer debt in adducing an explanation. “The ratio of outstanding consumer debt to consumer disposable income has more than doubled over the last three decades from 62 percent in 1975 to 127 percent in 2005. On top of this, savings are in the negative, real median wages have been declining for 34 years, underutilization of productive capacity continues to rise, and banks continue to pull consumers further into dept through negative amortization practices. It’s no wonder people are unwilling to pay an emission tax, they can’t even pay for basic human necessities without accumulating more debt.

    It would seem absurd then to expect any positive sentiment from the consumer with respect to higher taxes, for they would be hit doubly hard, both through a decline in net incomes and in consumptive capacity through the inflationary reaction of businesses to these taxes.

    It would seem that at this point consumers must set aside their insecurity, and capitalists must forget about maximizing profits for if anyone is expecting to survive much longer they are going to have to make some concessions. The government would be the enforcer of such measures by legislating a carbon emissions tax regardless of popular sentiment and eventually people would realize in addition to their short term self interests, it is in their long term interest to survive.

    There is however no reason to expect anything like this. For, in the magnificent words of Joan Robinson, “in the present age, any government with the power and will to abolish the defects of capitalism would abolish the system all together, while a government with the power to retain the system lacks the will to remedy its defects.” State capitalism is no happenstance, the amalgamation of Big Business and government is a desideratum of monopoly capitalism and we should not view politicians as anything but managers of the state apparatus. Hence we should expect as little concession as possible from government and business alike in attempting to rectify the current ecological crisis. Beyond this we should expect to see more and more people “buying in” to the idea of “green capitalism” harangued by people like Paul Hawkins. All the while the economy and the environment will continue sinking into the mires of stagnation and degradation. The only true rectifier would come from an abolition of private property rights and adoption of a system where people have the right the means of life and the environment is enthroned as the provider of life.

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