Good Riddance.
On July 20, 2021 The Atlantic published this obituary, Carbon Tax, Beloved Policy to Fix Climate Change, Is Dead at 47 by Robinson Meyer. Meyer is a superb journalist. I subscribe to his newsletter and read as much of his reporting as possible. The obit describes well the conflict between economic efficiency and political impossibility always plaguing climate policy. I enthusiatically recommend it.
I do not, however, share Meyer’s mournful tone over the tax’s demise. In an earlier story, I outlined 6½ reasons why a carbon tax is bad policy. For me, ideas come when they are ready, and with this writing, I add one more reason, implied but not explicit in my other articles, to this list.
The new reason is this. The carbon tax and cap and trade auction gain much popular support from the polluter pays principle but really make the consumer pay. This mixed messaging is misleading. The polluter pays principle is largely a myth, which too many accept as truth. Any validity it may have had did not carry over to the carbon challenge. The carbon tax effort consumed precious time and resources that could have been employed elsewhere.
The polluter almost never pays. If pollution continues, the external costs are paid by the victims of pollution, not the polluter. If pollution is abated, abatement is generally sector wide, and consumers pay higher prices to cover abatement costs thus keeping the polluter whole. If the abating polluter cannot raise prices and goes out of business, the reduced competition and supply of goods mean prices go up anyway, and the consumer pays again, not the polluter. Ironically, surviving businesses will profit from the policy. If the polluter pays a pollution tax and stays in business, the consumer pays that tax, again through higher prices, in addition to the external costs of the taxed but unabated pollution.
In fact, making the polluter pay is a shell game. The explicit goal of a tax or auction is not to make polluters pay. Rather, the intent is to price polluting goods to reflect their real costs and, thereby, change consumer behavior. Robinson Meyer describes the notion with this elegantly simple observation, “If you don’t want people to do something, charge them money for it.”
“Polluter pays” may have some truth in the limited context of a single polluter, perhaps a brick factory, emitting noxious fumes and impairing the health and welfare of nearby or downwind residents. A tax on the emitted pollutants might encourage or even force the factory to install controls, and the air would be clean again. At the very least, the factory would either price its goods to reflect the abatement, other internal and external tax costs of production, or, if competition prevented appropriate pricing, the factory would be forced to honestly examine its viability.
This situation is predicated on a perpetrator versus victim dichotomy. The factory and all those purchasing bricks are perpetrating an external cost on a smaller group of nearby or downwind victims. These perpetrators should pay for pollution imposed on victims. This rationale, however, has no relevance, if any it had, to carbon. Carbon is ubiquitous. We all are carbon perpetrators. Carbon pollution is not something insidiously foisted upon us without our knowledge or acquiescence. It is something, which through our own actions as consumers and policies enacted by our elected representatives, all of us have directly and indirectly encouraged and even subsidized. There is plenty of blame to pass around. We just didn’t know it was pollution. Likewise, we all are carbon victims. Climate change and ocean acidification pose a serious, if not existential, threat to our planet, economy, society and perhaps life as we know it. No one will escape these external costs.
As Walt Kelly’s Pogo said, “We have met the enemy and he is us.” For carbon, making the polluter pay means simply making all of us pay to properly price the harm we have done to ourselves. We will be charging oursleves to influence our own behavior and perhaps protect the victim in all of us. There is no larger group of perpetrators harming a smaller group of victims.
Carbon tax revenues likely will not be distributed in proportion to carbon’s external costs; those living on disappearing islands or close to burning forests are not likely to receive more. Our payments as polluters to ourselves as victims will most likely correlate to a person’s position on the poverty versus wealth spectrum. This possibility alone raises significant political problems for the polluter pays principle. Indexing compensation to individual harm is generally impossible.
The polluter pays principle simply disguises the fact we, not the polluter, will pay for our own collective contributions to the problem. A tax claiming to be built on that principle offers one thing but delivers another. We are better off facing reality or, as W.C. Fields said, grabbing the bull by the tail and facing the situation. Let’s mandate abatement knowing the costs we pay will be for real progress, not for behavior manipulation. So, rather than mourn the political impossibility of a carbon tax, I say “Good riddance.”