How to Cut the Carbon: Trading or Taxes?

 Below is an excerpt from an article by Anne Applebaum entitled “Global Warming Is a Real Problem…The Kyoto accords aren’t the solution.”  It was brought to my attention by Prof. Sylvester as part of a discussion comparing sin taxes to carbon taxes.

“For those whose memory needs jogging, let me remind you that the much-vaunted treaty—whose full name is the “Kyoto Protocol to the United Nations Framework Convention on Climate Change“—creates a complicated and completely unenforceable system of international targets for carbon-emissions reduction based on measurements taken in 1990. Critics of the U.S. president have condemned him for failing to sign it, conveniently forgetting that the Senate had voted 95-to-0 to reject it way back in 1997, a margin that surely reflects broad bipartisan opposition. At the same time, few of the Asian and European signatories are actually on track to meet their goals; those that will meet the targets, such as Britain, can do so because their economies rely less on industry than they once did. Canada and Japan aren’t even close to compliance; China and India, whose emissions rates are growing most rapidly, are exempt altogether as “developing” countries—which, given their current economic strength, is absurd.

None of which is to say that reduction of carbon emissions is impossible. But the limitation of fossil fuels cannot be carried out with an unenforceable international regime, using complicated regulations that the United Nations does not have the staff or the mandate to supervise, with the help of a treaty that effectively penalizes those that bother to abide by it. Though I once thought otherwise, I no longer believe that a complicated carbon-trading regime—in which industries traded emissions “credits”—would work, even within the United States. So much is at stake for so many industries that the legislative process to create such a regime would be easily distorted by their various lobbies.

Any real, lasting solutions will have to be extremely simple, and—because of the high cost implicit in reducing the use and emissions of fossil fuels—will also have to benefit those countries that impose them in other ways. Fortunately, there is such a solution, one that is grippingly unoriginal, requires no special knowledge of economics, and is extremely easy for any country to apply. It’s called a carbon tax, and it should be applied across the board to every industry that uses fossil fuels, every home or building with a heating system, every motorist, and every public transportation system. Immediately, it would produce a wealth of innovations designed to save fuel, as well as new incentives to conserve. More to the point, it would produce a big chunk of money that could be used for other things. Anyone for balancing the budget? Fixing Social Security for future generations? Cutting income tax dramatically? As a little foreign-policy side benefit, users of the tax would suddenly find themselves less dependent on Gulf oil or Russian gas.

Most of all, though, the successful use of carbon taxes does not require “American leadership,” or a U.N. committee, or indeed any complicated international effort of any kind. It can be done country by country: If the British environment minister or the German chancellor wants to go ahead with it tomorrow or the next day, nothing is stopping them. If a future U.S. president wants to call on the nation to rally around a truly patriotic and noble cause, then he or she has the perfect opportunity. If the Chinese see that such a tax has produced unexpected benefits in America and Europe, they’ll follow. And when that happens, we’ll know that the apocalyptic climate-change rhetoric has finally been taken seriously.”

Ms. Applebaum takes a typical realist position on the Kyoto Protocol’s potential for success.  She discounts the ability of an international institution to affect state behavior.  She cites the Senate’s 95 to 0 rejection of the Protocol in 1997 as evidence of “broad bipartisan opposition”.  The world has changed significantly since 1997, as has the level of public concern within the US.  Hybrid cars are rapidly increasing in market share.  Americans are aware of the problem, and seem to be as eager to solve it as their European counterparts.

She mentions that few parties to Kyoto are on track to meet their goals; and that those which will (she cites Britain) can do so because their economies rely less on industry than they once did.  I think that domestic politics can help to explain the change in those countries which are on track to meet their commitments.  The futility of the Protocol serves to explain the lack of widespread implementation.

She describes the UNFCCC as an unenforceable international regime, incapable of limiting fossil fuels.  She fails to recognize the reasons for its lack of enforcement power and Kyoto’s futility.  The history of international environmental politics suggests that the UNFCCC will become more effective in time.  The most effective international regimes have started as “toothless” entities.  As scientific consensus develops, the regime undergoes a process of strengthening; as is evidenced in the international ozone regime.  The most imparing element of Kyoto is the lack of US membership.  A protocol can not be effective if the biggest culprit is not a party. 

I don’t disagree with Ms. Applebaum’s carbon tax, but to rely on unilateral action would, in the words of Garrett Hardin, lead to a tragedy of the commons.  Multilateral action is necessary to overcome the collective action problem.  In my opinion, the carbon tax would be a more effective instrument for the UNFCCC than carbon trading.  A carbon tax does not license pollution, and it would create incentives for businesses and individuals to “go greeen”.

In order for an international regime to be successful in combating global warming, it must have the participation of all key states, effectively monitor and enforce adherence to commitments (to reduce fears of free-riding and double-crossing), and increase levels of domestic concern.  Public reaction to the recent report of the IPCC serves as evidence of the regime’s ability to increase domestic concern about global warming.  This may have the effect of creating incentives for politicians to pursue greener policies.  These “green politicians” largely possess liberal ideologies, which generally entails optimism regarding the potential effectiveness of international regimes.