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Can a Carbon Tax Reduce CO2 Emissions Without Hurting the Economy? – Alex Epstein


By Alex Epstein

See more from Alex Epstein at Energy Talking Points

Q: Won’t a carbon tax reduce CO2 emissions without hurting our economy?

A: No. A carbon tax would raise energy prices, make every American industry less competitive, and offshore our CO2 emissions to the countries that outcompete us.

Quick Summary

  • Any policy toward CO2 must recognize that CO2 emissions are a global issue–and that global emissions are rising because of the developing world’s increasing use of fossil fuels. The US causes less than 1/6 of global emissions—and falling.1
  • The developing world overwhelmingly uses fossil fuels because that is by far the lowest-cost way for them to get reliable energy. Unreliable solar and wind can’t come close. That’s why China and India have hundreds of new coal plants under construction.2
  • The only way to lower CO2 emissions and benefit America is to promote innovation that makes lower-carbon energy truly reliable and low-cost. Are China and India going to stop using fossil fuels so long as they are the lowest-cost option? They won’t and they shouldn’t.
  • America can lower emissions and energy costs by decriminalizing nuclear energy. Nuclear is actually the safest source of energy and the only way to provide reliable non-carbon electricity anywhere in the world.3 Yet politicians are overregulating it to death.4
  • America can also lower emissions and energy costs by lifting irrational restrictions on natural gas, such as anti-fracking policies and pipeline opposition. Yet many politicians want to restrict or outlaw fracking as well as stop new pipelines.5
  • By liberating lower-carbon energy, America can lower emissions, lower costs, and encourage innovation. And yet instead of pursuing these energy liberation opportunities, many of our politicians seek to pursue energy taxation instead via a “carbon tax.”
  • A carbon tax is a tax on CO2 emissions. Since all energy directly or indirectly emits CO2, a carbon tax would make all energy more expensive–adding the most costs to coal, oil, and natural gas (in that order).
  • Increasing energy costs is the ticket to economic failure. Since every industry uses energy, the higher cost American energy is the higher cost every American product and service is. A carbon tax means American industry is less competitive.
  • What happens to CO2 emissions when a carbon tax drives up American energy prices and shuts down American industry? Our CO2 emissions are “offshored” to nations without a carbon tax.
  • Some politicians say they can solve the problem of a carbon tax offshoring CO2 emissions–often called “leakage”–by setting up a massive bureaucracy that taxes the emissions involved in every import. This is impossible to do accurately and thus guarantees corruption.
  • Politicians say a carbon tax will do no harm because it would be “revenue neutral.” But “revenue neutral” just means the government’s finances are unaffected. Increasing energy costs for American industry will hurt every American’s finances.
  • Australia’s short, painful carbon tax experience is instructive. One year into the Australian carbon tax, Australians saw their home electricity prices jump by 15%. By the time they repealed it the following year, the carbon tax was responsible for 19% of household energy costs.6
  • Politicians say a carbon tax is good because it is more efficient than random coercive policies like opposing pipelines or passing renewable mandates. But in practice the politicians don’t replace random coercive policies with a carbon tax, they just add the carbon tax on top.
  • Most advocates of a carbon tax see them as a first step to give government unlimited power to restrict energy use. They start by proposing a tax that costs us “just” 20 cents a gallon. Once they have that power of taxation they want to increase the tax dozens of times higher.
  • Most advocates of a “low” carbon tax when pressed say it should grow enormously — because they think fossil fuels should be eliminated. Example: When I debated RFK Jr. he said gasoline should be at least $12/gallon. And even that wouldn’t reduce emissions nearly enough for him.7
  • Summary: A carbon tax would raise energy prices, make every American industry less competitive, and offshore our CO2 emissions to the countries that outcompete us. And it would create a dangerous and potentially unlimited new government power that could truly destroy our economy.
  • What should people concerned about CO2 emissions support instead of a carbon tax? Liberation and innovation. Liberate nuclear, natural gas, and other lower-carbon technologies so that innovation makes lower-carbon energy cheap for everyone.

References


  1. The U.S. Energy Information Administration in its reference case projects an overall increase of CO2 emissions for the world while America continues to reduce emissions slightly. As of 2017 US CO2 emissions were less than 15% of the global total.The largest increase in energy consumption is projected to come from non-OECD countries, but this might be underestimating future growth potential for the poorest regions in Africa.
    U.S. EIA International Energy Outlook 2019 reference case
  2. Combined, China and India have 288 new coal plants (over 300 GW of capacity as of late 2020) under construction or in the planning phase as of July 2020.
    Global Coal Tracker by Global Energy Monitor
  3. Nuclear energy is statistically the safest form of energy production by a wide margin, regardless of whether one takes into account speculative health impacts from air pollution, which nuclear technology does not create. No other relevant technologies cause so few casualties per unit of energy produced.
    World Nuclear Association – Safety of Nuclear Power Reactors
  4. Institute for Energy Research – Regulations Hurt Economics of Nuclear Power
    Historical construction costs for nuclear reactors have escalated in the US in contradiction to the standard logic of a “learning curve” with declining unit cost over time as technology and industrial ability advances. Lovering et al. (2016) – Historical construction costs of global nuclear power reactors
  5. Fossil fuel infrastructure like natural gas pipelines face increasing resistance from green activists and politicians who see this as an opportunity to attack the economic viability of fossil fuel production in the US.
    Institute for Energy Research – While U.S. Pipelines Are Under Siege, China Streamlines Its Oil and Gas Network
    Institute for Energy Research – Natural Gas Moratorium in New York Due to Lack of Gas PipelinesCalifornia’s San Onofre nuclear power plant was shut down in 2013 despite only requiring the replacement of a steam generator for less than $700 million.
    Mark Nelson and Minshu Deng – California Nuclear Closures Resulted in 250% Higher Emissions from ElectricityThe state’s last remaining nuclear power plant, Diablo Canyon, will shut down by the mid 2020s.
    Regulators vote to shut down Diablo Canyon, California’s last nuclear power plant – Los Angeles Times
  6. https://www.instituteforenergyresearch.org/wp-content/uploads/2019/04/Carbon-Tax-Policy-BriefFinalText-1.pdf
  7. Robert F. Kennedy jr. blamed all kinds of costs from war to respiratory illnesses on oil, arguing that these constitute negative externalities not included in the market price and concluding that “[i]f you did add all those costs of oil? Yeah, gasoline price at the pump would go up to $12 and 50 cents. What would happen? We’d all be driving electric cars.”
    Fossil Fuels Debate – Alex Epstein vs Robert F Kennedy Jr (1:25:00)


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