Higher Energy Tax is the Answer

Higher Energy Tax is the Answer

Horner Letter to the Financial Times
January 22, 2004

Sir, Your editorial "Cutting carbon" (January 20) misstates the efficacy of carbon cap-and-trade schemes as "the most cost-effective way of reducing pollution.”<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

 

It is true that "the economic impacts of cap-and-trade programmes would be similar to those of a carbon tax: both would raise the cost of using carbon-based fossil fuels, lead to higher energy prices and impose costs on users and some suppliers of energy" (US Congressional Budget Office, "An Evaluation of Cap and Trade Programs for Reducing US GHG Emissions").  The FT's view that trading schemes are more cost-effective than simply increasing energy taxes, however, is not widely accepted by those who have studied the issue.  Resources for the Future, the American centre-left think-tank, set forth precisely how and why cap-and-trade is far more costly than simply an energy tax in its report "Choosing Price or Quantity Controls for Greenhouse Gases.”  It concluded that the "range of costs associated with the [cap-and-trade] . . . is almost four times higher than the highest cost outcome under the carbon tax".  Such a "market mechanism" may be an efficient way to manage an emissions cap, but this is distinct from being the most cost-effective method of reducing emissions.

 

This should make the policy calculation a simple one.  Given that increasing the price of energy is among the most regressive regulatory/tax burdens, policymakers truly concerned about "catastrophic anthropogenic global warming" and also about human standards of living, should advocate the approach less harmful to seniors and the poor and simply propose higher energy taxes.  Instead, however, policymakers tend to promote more complex, far more expensive approaches for appearance purposes, regardless of the ancillary costs of that decision.

 

Demanding that policymakers address this reality head-on should force an examination of existing doubts about climate alarmism and its prescriptions, separating the green poseurs from those who seriously accept the doctrine they preach.  This can only be a good thing for the debate.