Responsible Spending

Yesterday we continued our support for a carbon tax to replace the current federal gas tax.  Our back of the envelope estimate was that a carbon tax of about $20 per ton would be equivalent to the current federal gas tax of $0.184.  Of course, because the left would love to have a carbon tax we agreed with Holman W. Jenkins, jr. that the right is in a good position to negotiate.  The responsible spending should include other tax cuts.

Here is how the negotiations start.  Transportation emits about 28 percent of US carbon and motor vehicles are about 83 percent of that so a revenue neutral replacement of the gas tax would be a carbon tax of roughly $5 per ton.  The negotiation space is what can we get for the additional carbon tax of about $15 that would gas prices unchanged.  Our confidence in the GOP in negotiating for the right is limited but this is one they should be able to get a reasonable deal.  It won’t be perfect and some folks will be worried about introducing a new tax but we think it is worth the risk.  That is how we see politics working.  You rarely get something for nothing.  Here we could get much for some mild uneasiness.

 

 

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Price And Perceptions Matter

One of our favorites, both for her name and her writing, is Mary Anastasia O’Grady.  She writes about the Americas for the WSJ.  Often it is South and Central America but recently she took the Trudeau Administration in Canada to task:

Canadian Prime Minister Justin Trudeau’s Liberal government announced last month it will reduce a carbon tax on industry that is set to go into effect next year.

We support an carbon tax in the US.  Has this change our thinking?  No.  We still support a carbon tax that replaces the gas tax at an equivalent rate.  Canada has a  higher gas tax than the US.  The average Canadian tax is C$0.958 or $0.73.  The average in the US is $.04944.  Justin has proposed a new carbon tax without, it appears, eliminating the gas tax as we would:

The initial carbon-tax proposal, which takes effect next year, promised to levy companies on 30% of their emissions at 10 Canadian dollars (US$7.66) a metric ton, rising to C$50 a metric ton in 2022.  [It appears that the final tax is on all carbon emissions.]

So the tax goes from C$3 (C$10 * 30%) to C$50.  That is a big percentage increase over four years but does it matter?  It takes a little over 110 gallons of gas to create a metric ton of carbon.  To make the computations simple, let’s call it 100 gallons and then the cost per gallon is C$.03 and C$0.50 and, the federal government will be awash in cash when the tax is fully implemented.  Governments awash in cash need to find activities to spend it.

The problems are that Justin and friends are increasing taxes and regulations at the same time The Donald is generally, yes tariffs are a problem, making the US more attractive to investment.  Fifty bucks a ton is a pretty big tax.

We still support eliminating the federal gas tax ($0.184) and replacing it with an equivalent carbon tax.  That would be about 110 * $0.184 or about $20 a ton.  It would leave the price of gas unchanged while making incentives right.  Yes, we know that in Australia a carbon tax of AUD 23 caused a firestorm and was repealed.  We still think the trade-off makes sense.

It would also be revenue positive.  Will the US federal government find a way to use it responsibly?  We think it is possible.

 

Good Company On Carbon Tax

Holman W. Jenkins, Jr. writes Fuel-milage Rules Are No Help To The Climate at the WSJ.  As always, read the whole thing.  It ties together two of our pet topics: regulations and taxes.  We recently gave our lukewarm support for The Donald revising his predecessor’s Corporate Average Fuel Economy rules (CAFE).  We preferred eliminating them entirely but recognized that The Donald would make them less negative.  Holman also recognizes the negative political impact on our ability to make climate improvements:

But don’t the fuel-economy rules at least have symbolic value by showing the U.S. leading on global warming? If, in return for zero climate benefit, American consumers and auto makers shoulder hundreds of billions of dollars in inefficiency-producing, consumer-dissatisfying costs, how does this encourage the body politic to be more receptive to further climate policies? It doesn’t.

We have supported replacing the current gas tax with a carbon tax because it is much broader it would raise revenues and get incentives right.  Holman is taking a New York Times Magazine screed to task while he recognizes that the carbon tax is a useful tool for climate change that could appeal to both sides of the aisle:

If the Times is looking for a folly, this is it. The green movement’s resort to hysterical exaggeration and vilifying skeptics buried any hope of enacting the one policy that is nearly universally endorsed by economists, that could be a model of cost-effective self-help to other countries, that could be enacted in a revenue-neutral way that would actually have been pro-growth.

A carbon tax remains a red cape to many conservatives [not us] but, in fact, would represent a relatively innocuous adjustment to the tax code. It could solve political problems for conservatives (who want a tax code friendlier to work, savings and investment) as well as for liberals (who want action on climate change).

Well said.  We are not sure on the number of conservatives against a carbon tax.  Some are loudly against but we are unsure on numbers.  Some of the green movement is equally loud about a large carbon tax.  We are with Holman and have the exact solution: eliminate the gas tax and replace it with an equivalent carbon tax.  Everybody should be happy for a moment.  Then they need to decide what to do with the revenue-positive impact of taxing more transactions at an equal rate.  Tax relief, infrastructure, and entitlements all need work. Our first step (after eliminating the gas tax) would be to tie eliminating CAFE to passing the carbon tax.

Politics is about deciding when to compromise.  Holman has pointed out a great opportunity of both sides.  Why not take advantage of it?

 

Kids, Government And Climate

David French at NRO alerted us to this article by Roy Scranton, a professor at Notre Dame, in the NYT.  Roy’s title is Raising My Child In A Doomed World.  Really, we are not making this up.  David does a nice job calming folks down and reminding us that suicide is not the proper reaction to climate change.  You should read all both David, to see a reasonable response, and Roy to see what at least some of the climate folks seem to believe.

In case you don’t we will give you a taste.  Roy has just had a daughter and he is worried about climate change although his book mentioned in his introduction, we haven’t read it, is essays on war and climate change.  The section we found most interesting was this:

To stop emitting waste carbon completely within the next five or 10 years, we would need to radically reorient almost all human economic and social production, a task that’s scarcely imaginable, much less feasible. It would demand centralized control of key economic sectors [why just limit yourself to key sectors], enormous state investment in carbon capture and sequestration and global coordination on a scale never before seen,

Again, you should really read the whole thing to see that the above quote is not unusual.  Roy appears to believe that the only possible solution is 1984.  Roy is worried that he has doomed his daughter to live on a dystopian planet and his plan is to ensure that she does.

We hope that Roy’s daughter will never endure the government he suggests.

Non-Local Politics

The headline in the local paper was: “This Is Not Hypothetical.”  Then they go on to talk about how Mayor Tim Kabat of our modest hamlet had decided that he needs to help the The Donald with climate change.  We hate to go all Webster on folks but Dictionary.com says hypothetical means:

1. assumed by hypothesis; supposed:

a hypothetical case.
2. of, pertaining to, involving, or characterized by hypothesis:

hypothetical reasoning.
3. given to making hypotheses.
4. Logic.
  1. (of a proposition) highly conjectural; not wellsupported by available evidence.
  2. (of a proposition or syllogism) conditional.

We left the fourth definition in to give some hope to the headline writers.  They were trying to discuss a logic problem.

Climate change, nee global warming, is part of science and science is about hypotheses.  Climate change is a hypothesis or a bunch of hypotheses.  It is exactly a hypothetical.  In science a hypothesis is accepted until evidence leads to its rejection.

Sidebar: An enormous problem with climate change is the lack of precision.  For example, the efficient market hypothesis (EMH) has weak, semi-strong, and strong versions.  We suggest, partly in jest, that climate change adopt historical, reasonable, and hysterical.  End Sidebar.

There is also a second level of science: economics.  Once we decide about climate change then there is the issue of economics.  The cost to have a substantial impact on hypothesized climate change is large.  Is it worth the cost?  For example, we would support a modest carbon tax because the cost is small and the incentives are right.

The local paper has tied Mayor Tim to the local head of the Sierra Club:

Van Gaard warned that without immediate and drastic efforts to reduce greenhouse gas emissions, millions of people will be left without clean water and food and millions more will be refugees as a result of extreme weather events.  “This is not a hypothetical. This is already happening. This is our future if we don’t take this seriously right now. Fuel efficiency standards are a necessary step to move us away from that future,” Van Gaard said.

We are unconvinced that the fuel efficiency standards are a necessary step. We need to analyze the alternatives.  Immediate and drastic actions will have enormous costs.  The millions and millions have turned out to be wrong several times.  The Sierra Club is welcome to try to influence policy.  It doesn’t look like a good trade-off but let’s look at the full cost of the alternatives.  It is hypothetical and we need to consider the alternatives and the risk involved. Meanwhile, we need our mayor to be worried about serious city stuff.

 

Picking Winners

It is hard to pick winners in a sporting event.  It is much harder to pick winners in the economy because you don’t know who is playing.  Arsenal hosts Tottenham tomorrow.  Get the odds from Ladbrokes for win, lose or draw.  You could bet on other events like which player gets the first goal.  Wisconsin hosts Michigan is even easier because it can’t end up in a tie.

Economic events are much harder because the set of alternatives is not known.  It would be like if Chelsea (or even better example, a team that does not yet exist) could win the Arsenal-Tottenham match.  Picking economic winners involves ignoring prices and markets to say X is the best.  Recent evidence shows the problems when the warmists and their allies try to pick winners.

Sidebar One: There are two main issues in global warming (whoops, climate change).  The first is the science side of it.  What determines global temperatures?  To date we have some evidence that carbon dioxide and temperatures are positively related.  The models have been unimpressive in forecasting temperatures but the ability to explain the past suggests we need to pay attention.  The bigger problem is what to do about the forecasts.  The warmists, with the exception of a few like Bjorn Lomborg, want to take action now.  That means picking winners.  End Sidebar One.

Two articles show the problems with trying to pick winners.  One is on Germany from the WSJ and the other is an academic study of ethanol from the University of Wisconsin reported in the Milwaukee Journal Sentinel.  Let’s start with the WSJ.

Mrs. Merkel’s failure [to reach carbon emission goals] comes despite astronomical costs. By one estimate, businesses and households paid an extra €125 billion in increased electricity bills between 2000 and 2015 to subsidize renewables, on top of billions more in other handouts. Germans join Danes in paying the highest household electricity rates in Europe, and German companies pay near the top among industrial users.

On the other hand, the AP reports on carbon emissions in the US:

In a surprising turnaround, the amount of carbon dioxide being released into the atmosphere in the U.S. has fallen dramatically to its lowest level in 20 years [Emphasis added].

It continues to amaze us how often the press is surprised when pricing mechanisms work.  The odds are to be surprised the other way.

Sidebar Two: We were not supportive of the mandate during the George W. Bush administration to require ethanol on a tactical basis.  We support price mechanisms.  We thought that there was a reason to do it on a strategic basis.  During W’s administration it seemed to us that the warmists had the momentum and there was a chance that the government would do something on an epic level of foolishness.  We made the judgment call that the ethanol mandate was the least foolish option available.  It seemed to sap the warming momentum.  End Sidebar Two.

A University of Wisconsin-Madison study has looked at the impact of the ethanol mandate on carbon emissions.  A word of academic caution.  No one study is definitive and this one has not yet been subject to a formal (everyone gets informal peer reviews as they create a paper) peer review.   The authors found that the trade off between more corn and less fossil fuel did not work as hoped:

The study underscores the unintended consequences of a federal policy meant to reduce America’s reliance on fossil fuels.

While adding ethanol means burning fewer fossil fuels, the study found that the benefits were lost as even greater amounts of carbon held in the soil were released into the atmosphere in newly cultivated farm fields.

It is not a surprise when you ignore market prices.  It would be wise to reduce the amount of ethanol in gas.  We need to eliminate wind subsidies.  We would take a reasonable carbon tax instead.  Eliminate the gas tax and make the carbon tax equivalent to the old gas tax is our idea.  It is revenue positive and makes the incentives right.  We are pretty sure that carbon is a bad thing but we don’t know how bad.  There is time for the market to fix it and there is really no other viable choice than to wait for the market.  Epic foolishness is not called for.

Bjorn For Something

Bjorn Lomborg is back at the WSJ telling us to be rational about climate change.  It is a timely message given what happens when a hurricane or two hits the US.  Steven Hayward has a great hurricane chart.  Here is an example of Bjorn being rational:

In this case, the science is unambiguous. Rising temperatures mean that malaria-carrying mosquitoes can become endemic in more places.

But looking mainly to global-warming policies means missing the most important levers of tackling malaria. Malaria is a consequence of poverty: The worst affected are those poorer households in rural areas with less ability to purchase mosquito nets and treatment. Focusing on what we could achieve in the future through global-warming policies takes our attention away from what we could accomplish today.

Do read the whole thing.  If you meet a zealot send him to see Bjorn.  Bjorn is a climate change believer but he recognizes economics too.  See his website.

One topic we like to discuss is binary choices.  You can see that Bjorn uses binary choices as argument.  As he explains in more detail after the quote above, you can fight malaria by fighting climate change or by malaria prevention.  Malaria prevention is much cheaper and much more effective at saving lives.  Bjorn doesn’t mention it but malaria prevention is much more certain to be effective and much more timely than trying to address malaria by addressing climate change.

Unfortunately, Bjorn doesn’t appear to be a US citizen so he would need to be appointed to any government post.  Fortunately, he is making sense.