The twin pillars of the administration's environmental policy have collapsed, but the Democratic platform is calling for a doubling down on that policy of regulation and subsidization in order to achieve "climate justice" and transform America into a "clean energy superstar". Nothing less. The first pillar of the present and proposed future policy was crafted in Paris, at a conference in which some 200 nations signed pledges to reduce their carbon emissions or face, well, naming and shaming. No enforcement mechanism could be invented since President Obama would not dare ask the Senate to concur and elevate the unenforceable deal to treaty status. Key to the entire transaction was China's promise to begin reducing the increase in its emissions at some date far down the road. Without that agreement from the world's largest polluter, few if any other countries would have bothered to come to Paris, much less sign on the dotted line.
Even if all pledges are honored, the reduction in the growth of emissions would be insufficient to meet the sponsors' goal of limiting warming to less than 2 degrees Celsius compared to pre-industrial levels. In short, even under the best of circumstances the Paris pillar of current environmental policy is inadequate to support the policy-burden it is being asked to bear, in part because the world's nations are not prepared to cut emissions by enough to avoid the disaster they all profess to see coming, in part because even their inadequate pledges cannot be enforced, and in part because either a Republican administration or mounting pressure from energy-intensive businesses losing markets to China and others will undermine the deal.
And these are not the best of circumstances. Never mind that countries such as Brazil and the Philippines are having serious second thoughts about their promises. China is building a new coal-fired power plant at the average rate of one per week and plans to continue doing so until 2020 to feed the power needs of its subsidized steel and other industries, even though both already suffer from serious excess capacity. In addition, China is financing scores of coal plants in developing countries that have elevated their need for more rapid economic growth over their felt need to honor their Paris pledges. As if that were not enough to make nonsense of the Paris pillar, India has 100 more coal plants in the pipeline than does China.
Meanwhile, our government's "war on coal" continues and will continue if Hillary Clinton wins the coming election. She has promised, "We're going to put a lot of coal miners and a lot of coal companies out of business." Her later pledge to have her husband find work for the displaced miners does not in any way suggest that the war on coal will be wound down.
This gives China a competitive advantage to add to its currency manipulation, threat of intellectual property, use of its courts to give its companies an edge over U.S. firms such as Apple, and restricting its state-owned enterprises to procuring equipment and supplies from home-town firms. Which is what conservatives and climate-change skeptics warned would be the result of the Paris gathering. They were right.
The second pillar of the Obama-Clinton environmental policy is its reliance on regulation, especially the Clean Power Plan, developed by the Environmental Protection Agency. The plan underlies Obama's pledge in Paris to cut U.S. emissions. But it will not survive a Republican victory in November, and in any event has been derided by almost all economists as an inefficient way to drive down emissions.
Just as the Paris deal dies its death at the hands of hundreds of Chinese, Indian and other cuts, and the regulatory approach to reduced emissions loses support, the market is making its voice heard. Central bankers, insurers, environmental groups, Exxon, securities regulators and others are demanding that we rely on the price system to bring emissions under control at a cost that does not weaken our and other struggling economies. But not the price system as it operates in other markets, because in the market for energy the price determined between buyers and sellers does not include the social costs of energy consumption, an externality in the jargon of the economics trade. If the globe is indeed warming—and even this skeptic cannot be certain that it is not—then the emissions resulting from the burning of fossil fuels impose a cost on society that is not borne by the user of the fuel. That can be corrected, as a mounting number of authorities are demanding, by imposing a tax on carbon, or by pricing carbon if your lips, when watched, will not move to form the words "new tax".
Exxon is requiring its executives, in their perennial intra-company competition for capital to fund their projects, to include in their requests the cost of carbon emissions resulting from the drilling, or the refinery expansion, or whatever capital expenditure they are touting. Mark Carney, Governor of the Bank of England, complains that only one-third of the world's 1,000 largest companies are providing investors and monetary authorities with sufficient information to appraise the risk their businesses face from global warming, including being left with stranded assets: oil and natural gas in the ground that cannot be produced.
That would hurt investors and the banks—fewer and fewer, by the way—that lend to fossil-fuel producers. "The thing that keeps central bankers up at night is … sudden change in risk," Carney told a business audience in Toronto. That's why the Group of 20 industrialized nations has asked the Financial Stability Board, an international body that attempts to coordinate national financial authorities, to study the risks to the financial system from climate change and related policies.
Even many environmental groups agree that such a tax would make the inefficient Clean Power Plan unnecessary, and seriously weaken the case for subsidizing costly renewable sources of energy. And if adopted by the U.S., a carbon tax could at the same time become a tool for preventing China and other countries from gaining a competitive advantage on our fuel-using industries. All that would be necessary is an equalizing tax on imports that embody emissions-producing inputs. Complicated, but doable. As a recent paper by Adele Morris, policy director of the Climate and Energy Economics Project of the Brookings Institution, put it, "The idea would be to specify carefully the most energy-intensive traded goods (such as aluminum) and set import tariffs on those goods from countries with substantially weaker climate policy."
Such a tax, or price on carbon, would do more than just substitute for the crumbling pillars of the Obama policy by reducing reliance on the good word of China and the efficacy of regulation by an agency that has suffered from damage to its reputation by its pollution of Colorado's rivers and failure to act on the lead-laced water supply of Flint, Michigan and 5,300 other water systems. It would also provide funds that could be used to:
* lower payroll taxes on low- and middle-income workers (revenue neutrality);
* fund some of the entitlement expansion that Democrats are calling for;
* refresh our military, as Republicans are calling for;
* substitute for job-killing corporate taxes;
* move to the consumption taxes that Paul Ryan's agenda calls for, or some of the above.
No admission that the globe is warming, or that human activity is causing it, if it is, is necessary for those who doubt the "settled science" of warming believers. And with the weapon of equalizing border taxes, there is no need to cede competitive advantage to China or any of our other international competitors.
It would be naïve to assume that voters will be urging their candidates to campaign for a carbon tax. But it would be equally naïve to assume that when the next president sits down with the leaders of the next Congress to attempt to reform our woe-begotten tax structure, a carbon tax will not be on the table. Indeed, it is already front and center in many serious circles in which reform is being discussed, and buried in the Democratic platform's often ridiculous statement of environmental goals is an indication that a Clinton presidency might be open to a carbon tax: "Democrats believe that carbon dioxide, methane, and other greenhouse gases should be priced to reflect their negative externalities, and to accelerate the transition to a clean energy economy and help meet our climate goals."
If Democrats move from that belief to action when tax reform is being considered, the ball will be in Republicans' court to join in enacting a carbon tax that they can comfortably support without shelving their doubts about the "settled science" of global warming.
Not a bad trade: with a carbon tax, we get rid of costly regulations and subsidies, establish efficient pricing of fossil fuels, and get a new source of revenue that can be used to reduce other taxes or meet budgetary needs.