Lately there has been a great deal of discussion, even among conservatives and Republicans, about the possibility of implementing a carbon dioxide tax, incorrectly refereed to as a carbon tax. Of course, carbon dioxide and carbon are quite different. But this is part of the manipulation of the language found in the global warming debate (incorrectly referred to as “climate change,” another purposeful manipulation of the language for political purposes).
There are many reasons for opposing a carbon dioxide tax, not the least of which is that such a tax, especially if imposed only by the United States, would have no noticeable or even measurable impact on global temperatures during the lifetime of anyone currently living or even any of their children.
This short article by the Manhattan Institute’s Oren Cass points out that there is one group that will stand to benefit a great deal from the tax, even if the tax will do nothing to impact the climate. This group is energy producers and especially, but not only, natural gas producers. And there is a second group that will stand to lose a great deal from the tax, namely the poor.
First, Cass points out that energy companies will not bear the burden of the tax. This is mainly because demand for energy is quite inelastic, and therefore most of the tax will be passed on to the final consumer. He notes that energy companies “don’t end up paying [the tax]. Most economists expect nearly the entire cost increase to be passed directly on to consumers through higher prices.”
Second, he notes that many big energy producers will see their output increase, not decrease, under a CO2 tax, especially those that are heavily into the production of natural gas, which is a low-CO2 alternative. As Cass states:
The biggest beneficiary of the damage would be natural gas, which emits less carbon dioxide and would thus face a lower tax. If higher oil prices push consumers away from gasoline and toward electric cars, the electricity for those cars can come from natural gas as well.
In other words, a CO2 tax is likely to end up subsidizing the same natural gas frackers that environmentalists despise.
So, not surprisingly, big energy wins while consumers take it on the chin. But among consumers, there is a division between those who only take it on the chin and those who also get hit with a barrage of body blows in the process. This second group is the poor.
Again in the words of Cass:
Perhaps the worst problem with a carbon tax is that it is extraordinarily regressive. Because poorer households spend a much greater share of their income on energy than do wealthier households, the price increases created by a tax eat up a greater share as well. Economists from the Brookings Institution and American Enterprise Institute found that a $15-per-ton carbon tax would cost the bottom 10 percent of households more than 3.5 percent of their income, and most taxes under consideration are two to three times higher. That’s the equivalent of a new income tax of 10 percent for the lowest-income households and 2 percent for the highest-income ones.
The bottom line with any carbon tax is that it will enhance the wealth of big energy companies, decrease economic growth, and negatively impact the well-being of all energy consumers while particularly harming the poor. And all this while having no impact on global temperatures. Other than that, it’s a great idea.
Dr. Roy Cordato (@RoyCordato) is Vice President for Research and Resident Scholar at the John Locke Foundation.