Carbon tax vs. subsidies

[deonb]

So I was looking at the Edison Electrical interview with Elon & JB, and there is something that Elon said that struck a real chord for me:
https://www.youtube.com/watch?v=5nMcJxA3lto#
54:27 into it.

"The fundamental issue with incentives and subsidies when it comes to renewable power is that we've been unwilling as a country to establish a tax on carbon. If you could establish a tax on carbon then no incentives or subsidies would be necessary - cause the market system would work as it should. I'm a big believer in the market system - the market system is just basically the collective will of the people - that's all.

As long as that's not something that's causing an error in the pricing system, as there is because of the unpriced externality, which is the CO2 capacity of the oceans and atmosphere, the market system works very well. But since we've thus far been unwilling to place a tax on carbon - and simply price it correctly, is really what it would amount to - there are all these indirect mechanisms - they're klunky - and they don't always have the best outcome - they end up trying to subsidize sustainable energy instead of putting the right price on unsustainable energy."


This is something I've been wondering about for years - if I had a time machine and could do 1 thing, it would be to go back to when the respective constitutions of the countries in the world was written (or at least the U.S. constitution), and convince them to add a clause to the constitution that reads something like this:

"The seller of any good or service sold is responsible for returning the raw materials used to create that good or service to its origins, at the end of the useful life of the product. If the seller is unwilling or unable to return the raw materials of the product to its origins, government shall raise a tax on the sale of the product to be used for collecting, disposing and returning said raw material to its origins."

All other regulations would then stem from this one.

Do you think it would have worked? Or would it have left us in the pre-industrial age, unable to make any further progress?

Do you think it would work now? Ignoring the fact that it would be pretty much impossible to pass now, but I think enforced cradle-to-grave pricing is the silver bullet that can solve pretty much all of the environmental issues that we've encountered to date. (Elon seems to agree at least on the carbon side.)

 

[Robert.Boston]

In 1789 the concepts of scarcity of natural resources and negative externalities weren't well understood. I'd also dispute whether exact restoration should always be the standard, or how that concept would work even in concept. If I build a pier, do I have to establish a decommissioning fund to remove it at some uncertain date in the future when it stops being used?

But to your core point, yes, a carbon tax should be paired with a comprehensive removal of renewable portfolio standards, tax incentives for renewables and EVs, etc. I'd still retain royalties on mineral extraction, because those aren't about pollution but about transfer of ownership.

The existing subsidies for renewables are a poor substitute for a proper carbon tax. Investors talk about the "market for renewable energy" (i.e., the portion of total power requirements mandated by government policies) and about the risk to market projections from changes in policy. Instead they should be looking at the market for energy, which is much bigger and for which the demand is much more certain. A carbon tax would cause that shift in the debate.

 

[dhrivnak]

I too like the concept but the details are challenging. As Robert Boston said should part of Hoover dam be in escrow to tear it down? When we build a home should we be forced to put into escrow the funds to return the lot back to forest?

So for now I would settle for carbon tax.

 

[Evbwcaer]

Deonb, run for president and I'll vote for you. That could be your singular issue.

 

[deonb]

In 1789 the concepts of scarcity of natural resources and negative externalities weren't well understood.

No, but cleaning up after yourself was. What that entailed in 1789 and what that entails now, is very different. But a general codified law of 'clear up after yourself', covers both worlds. It would still have been easier to pass in 1789 than it is now.

If you go back to 1789 and directly tried to introduce a carbon tax, people would just look at you funny. And it wouldn't have covered the CFC fiasco of the 20th century. Who knows what our next challenge going to be? Let's say liquid fluoride thorium reactors become so cheap that every large building wants one. As promising as the technology is, I don't want thorium to be the next carbon where 100 years down the line we have large deposits of thorium in our water supplies and don't know how to get rid of it again.

A broad stroke constitutional amendment should empower the government and marketplace in tandem to select the cleanest solution to a problem, rather than necessarily the cheapest one.

Good laws emanate from the constitution. When laws are passed outside of that framework they are slow to push through and open to the whims of the day. Say what you want about the NRA, but even a badly written highly ambiguous constitutional amendment makes them pretty much invincible. The environment should have similar power.

But the question is, how do you write something that covers 1789, 2015 and 2240, where technology is so vastly different?

I'd also dispute whether exact restoration should always be the standard

You don't necessarily need to physically perform exact restoration. You just need to price it so that you could. If a mineral (e.g. Copper) is mined, you pay the tax for putting it back into the ground once. However, this is a highly reusable metal - so if you keep using it over and over, you don't pay taxes on it again, making the average tax per use infinitesimally small.

But let's say 100 years from now copper is obsolete and the world runs on Tesla coils. You certainly want to be able to dispose of all that copper cleanly.

However, the cleanup itself is really ancillary to the process. You just need to raise a tax as-if you were going to clean it up, and let the market figure out the rest. You may not actually be cleaning things up (I certainly don't want the Chichen Itza to be cleaned up), and the logistics of managing and planning a fund with a multi-century lifespan is probably impractical. But if you do raise a tax you end up with a bunch of revenue... so what to do with that? I suppose you can just assign it for general operations, rather than keeping it in an actual reserve. The tax step itself is the important part.

I too like the concept but the details are challenging. As Robert Boston said should part of Hoover dam be in escrow to tear it down? When we build a home should we be forced to put into escrow the funds to return the lot back to forest?

That is an interesting conundrum. It may not necessarily be bad. Let's say the Hoover dam has a lifespan of 300 years. With a reasonable investment (or theoretical investment for purposes of calculating tax rate) the tax required to clean up the dam again 300 years in the future is probably minuscule (a fraction of a percentage point).

In the case of the lot for a home, it will be a higher percentage point, but it does make chopping down a forest in order to build a house more expensive than building on empty land - which is the desired outcome. And if you DO chop down a forest, but keep re-using the land over and over again instead of chopping down another forest, the ownership becomes cheaper - also a desired outcome.

 

[deonb]

Deonb, run for president and I'll vote for you. That could be your singular issue.

You'd have to pass a constitutional amendment first that allows South Africans to run for the US presidency. And if you DO allow South Africans to run, I can think of at least one better candidate...

 

[cpa]

Deon, you are talking about personal, community, and societal responsibility. A worthy goal! We have millennia of personal habits that excised relatively small amounts of resources because our population held (comparatively) steady. So, our ancestors from zillions of years ago developed habits that enabled them to live their lives in relative comfort for those particular eras. We burned wood and peat and coal for heat. We clear-cut forests and ravaged the land for building materials for structures and vessels. We manipulated the land in order to plant food and fiber. We harvested wild animals for food, fuel and clothing.

Then something changed, something that our forefathers never anticipated: The population exploded. Death from famines, disease and natural disasters declined. Advances in medicine extended our lives by decades. Birth rates increased with a large decrease in infant mortality. The decline of the resources on the planet started accelerating geometrically. The replenishment of living beings could not keep up with their demise. Geographic resources became more difficult to obtain, but was still cheaper than "recycling," a concept that is comparatively new in our history.

It is nearly impossible to change habits that have been passed down throughout history, particularly those that are easy, cheap and convenient.

We are in the midst of a four-year drought here in California. Things are bleak in the short term if we don't start receiving even "normal" winter precipitation this coming wet season. One hundred years ago we Californians could have gotten by because there were only around 2,500,000 people here (maybe fewer--too lazy to look it up) and we were not feeding the country 12 months per year. Now there are nearly 40,000,000 people here, and we are not only feeding the country, we are feeding the world. (But that is a different thread!)

 

[AudubonB]

Deon, internalizing externalities always is the most appropriate course of action; however, the crux of the matter is a combination of what cpa just wrote - altering the entire history of the human experience - plus objectively determining what is the appropriate price of any given externality. And there are a lot more externalities in all our lives than the few you mentioned. Noise? Consumption of water here versus making use of it there? Fertilizer runoff - how do you appropriately price the downstream effects? Weaving the web even more intricately: what's the cost to nature of that city over there growing.....what's the cost to society of creating that nature preserve over there crimping a region's citizenry growth?

Nevertheless, as I started by stating, to the extent that you can appropriately put a price tag on such activities, it is a worthy task.

 

[EchoDelta]

Deon, internalizing externalities always is the most appropriate course of action; however, the crux of the matter is a combination of what cpa just wrote - altering the entire history of the human experience - plus objectively determining what is the appropriate price of any given externality. And there are a lot more externalities in all our lives than the few you mentioned. Noise? Consumption of water here versus making use of it there? Fertilizer runoff - how do you appropriately price the downstream effects? Weaving the web even more intricately: what's the cost to nature of that city over there growing.....what's the cost to society of creating that nature preserve over there crimping a region's citizenry growth?

Nevertheless, as I started by stating, to the extent that you can appropriately put a price tag on such activities, it is a worthy task.

I think part of a good system makes sure the entity doing X accounts for its externalities... As you say: but in my mind that is not an external fixed price but rather part of the speculation of doing a business.
As any speculation it's risks would be reduced by appropriate investments in R&D. As many businesses do, you would build the ship as you sail it, and probably that R&D would happen a tad later than ideal but would still be a bigger liability not to do it at all.

I think carbon tax gives the idea that we can quantify the liability because we have an accounting unit, but the notion that we can fix-price it a priori is IMO an unnecessary constraint. We may find out that the retroactive cost of a ton of carbon is higher in a year than now.

So yeah, a dam would come with an escrow to remove it. Etc Etc

Eg now that WHO is finally starting to put out official statements about glyphosate being a cancerinogen, there should be a massive liability line rapidly growing in Monsanto's books; one that better research early on could have helped them avoid, and the stock should be crashing. Unfortunately I don't see that happening.

 

[ThosEM]

Musk is a clear thinking person. We have to do something like this. Another way to express it is as an "Infrastructure Tax" analogous to gasoline taxes at the pump that feed the Highway Trust Fund. Except that the entire natural world including the atmosphere and oceans can also be considered to be "infrastructure" that must be maintained. Anything and everything that damages or even just wears down the infrastructure must be countered with active maintenance, and that costs resources. Entropy must be constantly reduced, just to stay even, and that takes work. Anything in common use that costs us to maintain can be paid for with user fees designed to assure that it is maintained for future users. We just haven't quite come to the point of treating the natural world as a resource to be maintained.

 

[ItsNotAboutTheMoney]

You'd have to pass a constitutional amendment first that allows South Africans to run for the US presidency. And if you DO allow South Africans to run, I can think of at least one better candidate...

That's not necessary. You just do what everybody else does: pay for some eligible guy to run and then be the eminence grise who makes the decisions. You get a lot more free time, and more freedom to do what you want with it.

In terms of the constitutional amendment idea, I think it's too prescriptive. I prefer a more "pragmatic idealist" or utilitarian approach since:
- There's the principle of the lesser of two evils
- Technology advances, allowing us to deal better with stuff over time.

So, levying a tax might put a price on something now when you really want to stick it in a pile and deal with it when you've really solved the problem.