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Amazingly, in the wake of the Copenhagen climate policy meltdown, growing climate science turmoil, worldwide recession and runaway national fiscal disasters, the official policy machines still crank out plans for carbon taxes and cap-and-trade regimes. They also refer to official greenhouse emissions targets, despite obvious signs that such national goals are fast becoming irrelevant, unnecessary and unachievable. Nobody talks any more about the impossible Kyoto Accord carbon objectives, and it is only a matter of time before the post-Copenhagen targets fall by the wayside. One should never say never, but it is — to use the risk-assessment language of the climate-science folks — very unlikely that major game-changing carbon taxes or significant cap-and trade regimes will ever be introduced in North America.

One reason is obvious: nobody will want to pay the economic, political and social costs such taxes would impose. A recent study by economists at the Harvard Kennedy School estimated that gasoline prices would have to rise to more than $8 a gallon (more than $2 a litre) to effectively reduce transportation emissions to target levels. Even that price is an economic forecast no better than any other, and certainly too low. Alternative schemes aimed at subsidizing green auto sales to change the composition of the North American auto fleet were deemed ineffective and ridiculously costly — between $22 billion and $37 billion annually, equal to a GM bailout every year for decades.

Aside from the direct cost of carbon taxes to consumers and taxpayers, there’s the burden they would impose on the economy. The Harvard study said that the reduction in U.S. growth would be “less than 1%” a year. Not much of a price to pay, they claim. But selling slower growth in a jobs-hungry country is a losing political strategy. The “less-than-1%” reduction, moreover, is impossibly optimistic, since it assumes that the money raised from the carbon tax is immediately recycled back to taxpayers in lower income taxes. Given the current U.S. fiscal outlook, the prospect of returning carbon-tax revenues to taxpayers is almost nil — which means the added carbon-tax burden will be a much more severe drag on growth.

Americans won’t buy carbon taxes for another reason. They don’t, for the most part, have confidence in global-warming science and policy. Policy-makers know this, so they routinely mush global warming in with another perennial objective — “energy independence” and/or “oil security.” Sky-high oil prices would, in theory, lower overall oil demand and therefore reduce U.S. dependence on foreign oil.

Oil independence is an even harder sell. Americans know that lower-cost energy, no matter where it comes from, is good for growth and jobs. President Barack Obama captured the national attitude on energy security in a recent speech. “For decades, we’ve talked about the risks to our security created by dependence on foreign oil, but that dependence has actually grown year after year after year after year.” The same long-term fate awaits carbon taxes, year after year…

Financial Post, 4 May 2010