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Carbon Policy and the Debt — Common Ground?

By Taylor Marvin

Economist Donald Marron (via Ezra Klein) is confidant that the eventual debt-induced necessity for tax hikes could be America’s best shot at a carbon tax or cap-and-trade program:

“But I would like to suggest another strategy: Perhaps the environmental community should make common cause with the budget worrywarts. In principle, a carbon tax is a powerful two-birds-with-one-stone policy: it cuts carbon emissions and raises money to finance the government. (This is equally true of a cap-and-trade approach in which the government auctions allowances and keeps the proceeds.) Perhaps there’s a future 60-vote coalition that would favor those outcomes even if various energy interests would be opposed?”

It’s certainly true that a carbon tax would be a major source of government revenue and could play a major role, when combined with real cuts in government entitlement and defense spending, in cutting the deficit. However, it’s hard to be optimistic about the federal government taking any major steps to combat the deficit before it’s too late for any type of carbon reduction program to be most effective– that is, before the concentration of greenhouse gasses in the atmosphere is so high that significant global climate change is guaranteed whether we subsequently cut emissions or not. The European Union’s target limit for global warming is 2° C, of which .8° of warming has already occurred and another 0.5-0.7° is already certain due to the greenhouse gasses already in the atmosphere. This doesn’t leave much room to move: if the world is going to avoid significant global climate disruption carbon admissions need to be stabilized in the next few decades.

Unfortunately it’s hard to believe that the United States will take serious action on climate change during this crucial period. It certainly won’t for the sake of the climate itself. The Republican party is increasingly moving towards a complete rejection of climate science as a whole, and with the guaranteed Republican gains in November’s midterm elections this means that any type of cap-and-trade bill is dead for the foreseeable future. In the modern Senate extreme partisanship, combined with traditional Senate rules, effectively require 60 votes to bring any controversial legislation to a majority vote. Barring a drastic reform of Senate procedure or an unprecedented change in American conservative ideology climate change legislation is only going to happen when the Democrats have 60 votes in the Senate. Aside from the first half of the 111th Congress the last time they had this type of majority was the 1970’s. American climate change legislation is dead for the foreseeable future, at least for it’s own sake.

Is Marron right then? Does concerns about the debt and the necessity of eventual higher taxes offer the best change at some kind of reasonable American carbon policy? Cutting the deficit and reducing the national debt will require some form of higher taxes — it’s impossible to reduce the deficit through cutting spending alone. However, Marron is too optimistic that the United States will ever take the real steps, including tax hikes, necessary to reduce the debt. The actual legislation required to cut the debt will be deeply unpopular. A quick look at a breakdown of US federal spending reveals that the most expensive government programs whose cost drive the increasing debt are some of the most popular things the government does — any politician who advocates means-testing Social Security or reforming Medicare payouts simply won’t get reelected. When Americans say that they strongly prefer reducing the deficit by cutting spending they’re not being honest. Americans like the federal programs that we can’t afford — it’s only paying for them that’s unpopular. That’s why political rhetoric vaguely attacking general spending is popular while politicians refuse to name specific programs they advocate cutting.

The same logic applies to tax increases. With the Republican party increasingly opposed to any form of tax increases it would take a looming national fiscal crisis to give politicians the incentive to take the type of drastic action needed to make real steps to reduce the debt. However, it doesn’t seem like this impetus will ever come. Most economists don’t think that the US or other rich world economies aren’t close the the absolute limits of their debt — a new study predicts that the US and UK government could continue borrowing until their debt is equal to 160% of GDP, which is decades off. Given how painful fixing the structural problems at the core of advanced economies’ debts will be it’s likely that politicians will simply continue to put off real reforms as long as they can afford to. This would push the critical moment when politicians are forced by necessity to raise taxes and enact harsh austerity measures to public healthcare and pension programs decades into the future, possible to beyond mid-century. Even if Marron is right and future environmentalists are able to join forces with fiscal realists to get a rational carbon tax passed in the US by then it will be too late. Atmospheric carbon concentrations will be too high by the mid-21st century to avoid the worst of climate change. If a carbon tax or it’s less efficient and more bureaucratic cap-and-trade cousin are to be most effective they must be passed now, or as soon as possible. Unfortunately for the world as soon as possible in American politics seems to be a long way off.

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One Comment Post a comment
  1. Granola Chick #

    This is the typical provisions the goverment takes, no action until crisis. At the moment, the carbon tax is seen as in reality unnecessary, yet what is saddening is the necessity for the continuance of privatization, government issued bonuses and the influx of resources poured into municipal funding. I personally believe the government has knowledge about the upcoming years that is not available to society. I mean look at it, it is evident all these problems exist and more issues will arise, yet the government handles it will an “eerie” coolness.

    October 14, 2010

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