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The Baker-Shultz Carbon-Tax Plan Is a Bad Deal for Americans

Rupert Darwall, National Review Online

The fact that it’s being proposed by Republicans doesn’t make it any more economically palatable.

Madness is rare in individuals — but in groups, parties, nations, and ages it is the rule — Friedrich Nietzsche

Cap and trade was just one way of skinning the cat; it was not the only way,” Barack Obama declared after Democrats’ disastrous losses in the 2010 midterm elections. That shellacking finally killed off the Waxman-Markey cap-and-trade bill. From it was born the EPA’s Clean Power Plan and the Obama administration’s war on coal, in turn a contributory factor to Donald Trump’s election and Republicans’ retaining control of the Senate. Now the grandees of the Old Republican Establishment, led by former secretaries of state George Shultz and James Baker, are calling for President Trump to put the new Republican majority at risk by enacting an escalating $40-per-ton carbon tax.

There they are right is that a carbon tax is economically superior to cap-and-trade and EPA regulation. Their proposal addresses one of the big weaknesses of the latter two approaches by preventing “carbon leakage,” the migration of energy-intensive production to developing nations. It does this by reimbursing carbon taxes incurred in making goods for export while imposing a tax on imports from countries that did not price carbon, although it glosses over the vast expansion of the IRS that would be required to make such a system watertight.

The package is topped off by giving away the entire proceeds of the carbon tax to anyone with a Social Security number. The political bet is that the lure of free money for all — a reprise of a ploy first used by environmentalists in the 1930s, when the Green Shirts marched through the streets of London demanding payment of the national dividend to all — will be enough to induce wary Republicans who opposed cap-and-trade and want the Clean Power Plan nixed to embrace carbon taxation.

All government interventions to decarbonize impose an economic penalty. The best that can be said for a carbon tax is that it is the least bad way. A government-created market distortion that discourages the use of efficient hydrocarbon energy shrinks the economy’s productivity frontier — its potential output at the current state of best practice — and subverts consumer choice, so that for the same income families are forced to consume less than they would otherwise. This in turn shrinks the Gross Domestic Product, hurting consumers and increasing the deficit — effects ignored by carbon-tax advocates.

In that regard, the Conservative Case for Carbon Dividends produced by the Climate Leadership Council is disingenuous and dishonest. An American receiving as much in carbon dividends as he pays in carbon taxes would end up worse off because the economy would be smaller and his consumer preferences suppressed. So a carbon tax would not contribute to economic growth but detract from it.

And it’s all decked out in faux populism. “We the People deserve to be compensated when others impose climate risks and emit heat-trapping gases into our shared atmosphere,” it proclaims. This too is untrue. According to one of the Impact Assessment Models used by the Obama administration to estimate the social cost of carbon, only 1.1 percent of the impact of emitting a ton of CO2 in the U.S. results in extra climate impacts on the U.S. The costs of reducing greenhouse-gas emissions are borne by Americans while the overwhelming benefits in terms of reduced climate impacts accrue mostly to generations yet to be born in developing nations. A carbon tax is not about putting America First; it’s about Globalism with a capital “G.”

Sugaring the pill of allegedly pain-free decarbonization with free carbon dividends, carbon-tax supporters treat Americans solely as consumers, not as producers and workers. For those directly or indirectly dependent for their livelihoods on cheap hydrocarbon energy, the carbon tax spells fewer jobs and lower wages. It is a tax that would divide America, benefiting the two coasts at the expense of the heartland.

The Climate Leadership paper even claims that the benefits of taxing CO2 would accrue “regardless of one’s view on climate science.” No one in their right mind would think of taxing CO2 if it were considered harmless and essential to life, which of course it is. The risks of climate change are “so severe” they need to be hedged, write the former secretaries of state. Two former chairmen of the Council of Economic Advisers, Martin Feldstein (the first Reagan administration) and Greg Mankiw (the first and second George W. Bush administrations), write of the “dangerous threat of climate change.”

It is here, in the climate hysteria of the elites, that the nub of the problem lies. It is an opinion that brooks no dissent. After climate scientist Roger Pielke Jr. wrote of the scant evidence to indicate that hurricanes, floods, tornadoes, and drought were becoming more frequent or intense in the U.S. or globally, he was silenced by a flash mob financed by hedge-fund billionaire Tom Steyer. Instead of sounding like a cracked record, an open-minded approach to the credibility and reliability of climate science would examine how well climate predictions have worn. And on this basis, climate change is less threatening than when James Baker first started talking about it.

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