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InsiderOnline Blog: November 2012

Just Two Problems with the Carbon Tax

There are only two problems with supporting a revenue-neutral carbon tax as an alternative to regulating carbon emissions: The carbon tax will never be revenue-neutral; and it will never be an alternative to regulating carbon emissions. David Kreutzer:

The MIT professors who authored one of the studies purporting to show the benefits of a carbon tax must use a Newspeak version of “revenue neutral,” when they say “All of the carbon tax revenue, after assuring neutrality, is used for tax relief or social programs.” If it were truly a revenue neutral tax, there wouldn’t be any revenue left “after assuring neutrality.”

An anecdote is illustrative of the problem with revenue neutrality. The first person who sat next to me a the American Enterprises Institute’s program on the carbon tax, last week, told me her association’s industry has great plans for the carbon-tax revenue. There appeared to be over 150 people at the event. In all likelihood, many of them represent groups with similarly great plans for the revenue.

Revenue neutrality is out, but what about eliminating overly burdensome regulations? Some proponents of a carbon tax believe the tax properly prices the externalities that vex opponents of fossil fuels and, therefore, eliminates the need for regulation of carbon dioxide. Bolstered by this knowledge of economics, they expect any deal for the tax to include eliminating all or a significant part of these regulations.

If this logic did carry over, then cap and trade also would have eliminated the need for carbon regulation. Instead of reducing regulations, the cap and trade bills added them. For instance, the Waxman-Markey bill went on for nearly 700 pages before it even got to cap and trade. [National Journal, November 20]

Posted on 11/20/12 07:35 PM by Alex Adrianson

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