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10 reasons to create a carbon tax

Jim Pierobon's picture
Owner Pierobon & Partners LLC

Former Chief Energy Writer and Correspondent for the Houston Chronicle; SVP for Ogilvy Public Relations Worldwide; External communications chief for the American Council On Renewable Energy...

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  • Jul 23, 2012

The possible revival of serious talks about a U.S. carbon tax should take thought-leaders to the most recent credible analysis in a book finished earlier this year by Shi-Ling Hsu,  a professor at the University of British Columbia: The Case for a Carbon Tax.

CREDIT: Island Press

Here I cut to the chase to spotlight the 10 reasons Shi-Ling Hsu concludes a carbon tax is THE most effective mechanism to combat climate change and motivate the private sector to help solve it while raising much-needed revenue for governments with the where with all to pass one.

I take the liberty of paraphrasing to avoid speaking ‘over the heads’ of people who would benefit from reading this digest. I also include what I think are the most helpful quotes to help grasp the gravity of what Professor Usu is trying to say.

1. It’s economically efficient.  An accurate disincentive for using carbon-based fuels could mimick the increment of damage — the marginal damage — caused by each ton of carbon dioxide released into the atmosphere. “The simple genius of a carbon tax is that it aggregates disparate pieces of information, transmitting a price signal at everystage in which there is fossil fuel usage . . . no data collection is required and no model is required.”

2. It avoids creating physical capital that could actually harm the environment — e.g. coal-fired power plants. “The problem with capital is that once we have it, its high cost makes it difficult to dispose of.”

3. It doesn’t interfere with other regulatory instruments or jurisdictions. “A carbon tax would have the advantage, because of its simplicity, of forming the strongest foundation upon which other policies can stand.”

4. Government is better at reducing bad actions than increasing good good actions. Taxes work better than subsidies.

5. Incentives for innovation — price effects. It would impact emissions not only from the largest carbon sources such as power plants and industrial facilities but all carbon sources.

6. Incentives for innovation — price breadth. It focuses new products and services no matter how much money can be saved by using less electricity or electricity from a different source, e.g. renewables.

7. It’s easy to administer. There are no “offsets” as would be needed with a cap-and-trade program. “Awarding an offset for a project that purports to avoid emissions increases rather than actually reducing them is a tricky proposition.”

 8. International coordination is doable. “An international accord based on a carbon tax scheme would avoid the unfortunate appearance of China being allocated some cap amount by an external bureaucracy.” It “would not represent  . . . a binding limit to economic growth.”

9. It raises badly needed revenue. This might not be the panacea that some think it would. The tax would only raise a lot of money if it changes behavior. The less carbon emitted, the lower revenues would be. That said, there is a LOT of money to be raised by discouraging carbon emissions.

10. It avoids the risk of catastrophe. In the long-run, THIS is the ultimate measure of efficiency from a public welfare perspective.

Of all the book reviews one can find on the Web, I found this one, by Mat McDermott for Treehugger, the most helpful.

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Rajat Sen's picture
Rajat Sen on Jul 23, 2012

There is no intellectual debate about carbon tax being the most simple and efficient way to deal with greenhouse gas emissions. I agree with everyone of the 10 reasons cited in the post. Most importantly, a carbon tax would give industry a clear road map to develop and deploy new generation technologies to keep energy supply stable and cost-effective. However, I have a very difficult time imagining that a carbon tax could be under serious consideration in the current political climate. I just cannot imagine that a majority of the american public will sign on to such a tax. I am also not sure that while the economy is recovering very slowly, this would be the righ time to consider such a tax.

Jim Pierobon's picture
Jim Pierobon on Jul 24, 2012


The tax could raise a LOT of money early on. If it's successul, then the revenues would trail off. So it cuts both ways.

Rajat Sen's picture
Rajat Sen on Jul 24, 2012

Jim -- I did not comment on the merits of the carbon tax. In fact, I pointed out that a carbon tax is a good idea. The only point I was making was that I do not believe that it is a realistic option under our current political climate.

As to "digging a bigger hole," there is no question that there will be huge winners and losers as the earth warms. I think insurance costs will soar to the point where they will unaffordable. I do not believe that the federal or the state governments will be able to intervene fully and so a lot of folks are going to suffer in many ways. 

Could a carbon tax mitigate that? I doubt it. If the tax is real high, it will bring on suffering today for a large number of people -- by substantially increasing energy costs. If the tax is too low, its impact will not be enough -- earth will get warmer and the suffering will just be passed on to the next generation.

Count me as a pessimist on this issue.

Rajat Sen's picture
Rajat Sen on Jul 24, 2012

Jim:  Hope you are right.

Paul O's picture
Paul O on Jul 25, 2012


I agree with you, I and feel compelled to say that  (as I have read elswhere), even if all Carbon fuels were to be discontinued tody, the effects of Global Warming (positive feed back etc), will still be felt and whatever disasters are coming to us will still manifest in spite of cessation of Carbon for fuel today. But use of carbon fuels will not stop anytime soon, and we have no control over what China and India may do. Obviously then the Carbon Tax by itself is not sufficient, and may be of little value in steming GW or coastal disasters.

I believe and have argued that unless we have a Plug In Ready Energy alternative to Carbon, we are just simply acting out our sound and fury. The world needs cheap and abundant energy and we have nothing ready out there to replace Carbon with.

Unless we have a fuel replacement for Carbon that the world can afford and adapt to  current infrastructure, any taxation will only serve to appease/placate our sensibilities, and enrich the most vocal (not neccessarily the best/viable), RE industries. Also if past taxes are an example, a carbon tax may just simply end up fattening the coffers of Big Govt spenders (how much do you wanna bet that the Carbon Tax Revenues will be spent on our politicians' pet projects?).

My sad conclusion is that we are not really ready, nor are we even trying with any real sincerity, to fix GW long  term. The Carbon tax is just yet another Band Wagon to jump on.


Rick Engebretson's picture
Rick Engebretson on Jul 25, 2012

Paul O, I agree with your tax cynicism entirely. Except I don't agree warming is inevitably built in.

I'm not far from you in Minnesota. And we've had good rain. And with the heat and longer growing season the forest growth rate and wildlife has exploded. There are many feedback loops, positive and negative, but among the negative feedback loops are ocean evaporation and plant growth and soil carbon sequestration.

I'm not selling anything or trying to influence policy. I'm just saying leave the Earth alone long enough to let it heal itself. It might take some water and fire prevention. If you had some irritating parasites living on your skin biting and chewing on you, you would lose equilibrium, too.

I've been out here for over a half century, with time enough spent around "experts." We need some good old fashioned conservation.

Rajat Sen's picture
Rajat Sen on Jul 25, 2012

Paul -- Thanks --I agree with you.

Rick Engebretson's picture
Rick Engebretson on Jul 26, 2012

Jim, I really don't care much about reasonable CO2 emissions. I persistently advocate CO2 sequestration. I have never heard anybody focus on the opportunity to mine the atmosphere for the development of habitable land.

You can sit in your apartment and dream of power plants in Tahiti, but I left the Biophysics academics for rural learning when people wondered who would want the internet. So today we need food, soil, water, air and other Biophysicists hope they can sell more heart pacemakers.

I might have taken a different path. But until I hear people consider expanding plant life for an expanding population with expanding demands it will be hard to take their "science" seriously.

Rick Engebretson's picture
Rick Engebretson on Jul 26, 2012

Jim, as always I must apologize for insensitivity. I come in dripping sweat and bring my outside work inside. Your ideas are probably good, best of luck, sincerely.

I've got a crowd coming this weekend from around the world. The wife invited them. Some day I hope to ride in the carriage, but somehow I'm always the horse. And this old horse is real tired of people in clean clothes telling him where to go. There is a big difference between a proposal and busting a gut to create something that makes a difference.

Ahilan Raman's picture
Ahilan Raman on Jul 30, 2012

Carbon tax is good because any pollution arising from a process is a direct measure of its inefficiency.When we use 1 ton of coal.oil or gas, we have to make sure that most of the heat value of the fuel is fully utilized to get the maximum benefit.othewise the process is not only inefficient but also damages the environment by carbon emission; whether Carbon emission causes global warming or not is secondary.Any pollution should be penalised.

Ahilan Raman

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