The Ethics of a Carbon Tax

by Luke Muehlhauser on December 15, 2009 in Ethics,Guest Post

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The ethical theory I currently defend is desirism. But I mostly write about moraltheory, so I rarely discuss the implications of desirism for everyday moral questions about global warming, free speech, politics, and so on. Today’s guest post applies desirism to one such everyday moral question. It is written by desirism’s first defender, Alonzo Fyfe of Atheist Ethicist. (Keep in mind that questions of applied ethics are complicated and I do not necessarily agree with Fyfe’s moral calculations.)

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With the Copenhagen climate change talks going on, I have been looking at some of the approaches to dealing with the issue of climate change.

I have looked at the anarcho-communist approach that many conservatives argue for. On this model, the climate (or, more specifically, uses that affect the climate such as dumping CO2 into the atmosphere) is treated as a commons. No person owns the climate (or the CO2 dumping grounds), and no person is required to pay others for costs that others are made to suffer in using these resources. They are “free” communal property to any who wish to use them.

I have looked at the big-government response that liberals advocate. On this model, we trust bureaucrats and legislators to know the socially optimal level use of climate resources (e.g., the ideal amount of CO2 to release into the atmosphere where marginal costs equals marginal benefits). Furthermore, we trust those bureaucrats to keep the use at that socially optimal level. The costs of uses that affect the climate will be handed off to the tax payer who will, through the government, either pay the costs created by climate change or pay to rebuild that which climate change destroys.

The third method to look at is more of a free-market approach – one that involves a carbon tax.

I suspect that one question that will immediately come to mind on the part of some readers is to question how a tax can be considered a part of a free-market approach to climate change.

To see this, note that free-market approaches operate on a number of principles. Among these principles is that each person has certain property rights – including rights to their own life and their own body. No person may do harm to another without compensating the victim for harms done. In economics terms, those who impose costs on another are obligated to raise that other person back up to the ‘indifference curve’ – the point at which the victim is indifferent about exchanging that was lost for the compensation.

Many people think of a free-market system as one that is free of government regulation. However, free-market systems require a massive amount of government regulation. Questions of who owns what property, what types of acts legally transfer property, what counts as damage done to the property of another, and questions of what to do with those who violate the rules of private property are all handled by government agents. The police and courts, the many complexities of contract law, and the law of torts, all count as a part of a regulatory system that is capitalistic.

So, there are principles such as the principle that no person may harm the property of another without providing compensation. And there is an institution charged with the enforcement of property rights based on these principles: the government.

In the case of harms done to life, limb, and property caused by climate change, we have a problem in that we cannot cut the atmosphere itself, or the climate, into distinct units that are then owned as property. In short, we cannot do to the air what we do to the land. So, the free-market practice of assigning individuals discreet objects and limiting the use of those objects to what does not harm others is not possible. The fact that all of our uses get mixed together in a common atmosphere, and the costs cannot be traced to any one person, means we need to find an alternative way of realizing these free-market principles.

The ideal for a free-market approach would be to determine the costs that each individual suffers as a result of global warming, figure out the percentage contribution of each greenhouse gas emitter to the overall problem, then charge emitters a fee so that the total moneys collected equals the value of total harm done. Then that money would go to those harmed as compensation for harms done, or to cover the costs of mitigation strategies that seek to avoid harm.

We may assume that emitters would prefer to pay for a less-costly mitigation strategy than to pay more to cover harms that could have been prevented.

If we could set up this ideal system, then emitters would cease to create any new emissions at the point where the additional benefit (to them) of another unit of emissions exceeds the costs that emitters would have to pay for those harmed or seeking to avoid harm.

A carbon tax provides a reasonable proxy for setting up a system consistent with these capitalist principles that demand that greenhouse gas emitters cover the costs of their actions.

However, it requires a tax that perfectly matches the costs of greenhouse gas emissions, and it requires that the revenue from that tax cover exactly those costs created by greenhouse gas emissions themselves.

The most significant problem is that we would have to trust to bureaucrats and legislators to know what the costs of global warming are, to set the tax level at a rate to cover those costs, and to make sure that the money received goes to cover costs.

Another important problem is that this system must be set up to work across international boundaries. American greenhouse gas emitters are not only imposing costs on other Americans. They are imposing costs on people all over the world. Ideally, those compensations should be provided to people harmed regardless of where they live. This means compensating the people of Bangladesh for property destroyed by sea-level rise, compensating the people of Africa for increased drought, and paying Cubans for the costs of more severe hurricanes.

Furthermore, Americans need not cover all of those costs. We are only obligated to cover that portion that corresponds to our greenhouse gas emissions.

We can see in the description above another problem with this system – determining exactly which costs are associated with climate change. Under such a system, where harms caused by climate change are paid for by funds collected from emitters, a lot of people are going to try to “blame” climate change for certain harms just so they can collect “compensation” for these “harms”. The political task of determining exactly how much cost-responsibility that greenhouse gas emitters have for those costs are enormous

All of this means that we will not be able to set up a system that will ideally capture the free-market principle that those who do the harm pay the costs. There is still room for error.

However, we do not need to see this as an all-or-nothing proposition. It is an ideal to work towards, even if we can never make it totally efficient. We know what some of the costs of climate change are, and we have an easy method for collecting revenues from emitters in proportion to their contribution to those costs. So we can at least put some of these costs and compensations under more of a free-market, “people who do harm compensate those who are harmed” system than we have today.

This is not just an economically better option, it is also a morally better option. A person with good desires should be strongly averse to people paying for things by forcing others to pay those bills. A strong aversion to these cost transfers would go a long way to helping to fulfill (and avoid the thwarting of) other desires. It is an aversion that comes strongly recommended in desire-utilitarian terms.

However, this aversion would lean those who have it towards supporting a carbon tax (or any comparable system that captures the same principles) – a tax where those who are responsible for greenhouse emissions pay the bill for greenhouse emissions. The fact that there are some problems to be worked out with this type of system does not argue for abandoning the principle that those who do the harm pay the costs.

Other methods – those that allow people to run up costs that others are then forced to pay – have even more problems. Where people are allowed to run up costs and pass the bill onto others, they have an annoying habit of running up some exceptionally high bills. In this case, the bill will come in the form of destroyed cities and countries and the suffering of whole populations.

- Alonzo Fyfe

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{ 7 comments… read them below or add one }

Charles December 15, 2009 at 8:07 am

Too bad it’s not politically viable.

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Mark December 15, 2009 at 6:01 pm

Where is everyone? Luke goes offline and all the commenters take the day off with him? :D What is up with that?

Anarcho-communist approach, Alonzo? Really?

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Jeff H December 15, 2009 at 8:23 pm

Lol I’m still here! Unfortunately I had to spend part of my day writing a stats exam. So that’s my excuse for not spending every second of my waking moments here commenting :P

Alonzo, I really don’t get this. First you make a big deal about how if you don’t set the cap-and-trade limit properly, the whole thing creates a big mess. Then you say that even an imperfect tax that has error (and could also presumably be set at the wrong level) is still better than nothing. Let me quote what you said about the negative aspects of cap-and-trade:

Even if a cap is set, it will be set at the wrong level, and it will remain the long level while political factions continue to spend billions of dollars in a political battle, while greenhouse gas emitters will continue to muddy the water to prevent any type of political conclusion that will prevent them from passing the bill to innocent third parties.

Soo….what part of that wouldn’t be the same with a carbon tax? Presumably, government wouldn’t know the right level to set the tax at, and political factions would fight over the right level and corporations will lobby to fight the tax. So what’s your justification for one over the other?

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CRL December 15, 2009 at 9:22 pm

Charles: Too bad it’s not politically viable.

How is a carbon tax any less politically viable than a cap and trade? Aren’t both options more politically viable than the government having to pay the costs of global warming after the fact?

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lukeprog December 15, 2009 at 9:32 pm

Mark,

So… can you post under just one name, now, please?

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Charles December 15, 2009 at 10:30 pm

CRL,

Because it has the word “tax”.

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Neil Jordan December 16, 2009 at 5:00 am

I’ve posted my opinion in the last post Alonzo Fyfe made on the topic, albeit quite late to the party. It was not replied and what I read above only supports what I said, so I will paste it here again for those who missed it before.

I’m going to have to disagree with the superiority of the carbon tax vs. cap-and-trade, and for the same reasons Alonzo Fyfe highlighted in these articles.

First, I’d like to point out that both cap&trade and a “straight-up” emissions tax are, in fact, taxation on carbon emissions. I disagree with the claim that all costs in the former are ultimately shifted to the taxpayer and not the polluters, because a more pollutant industry would be required to purchase more credits, which would of course become more scarce (and costly) the closer you get to the cap, thereby diverting the costs directly to the big polluters (and their consumers – in this regard I agree with Fyfe that this is only proper and fitting). With the credits coming from the government, this is essentially a carbon tax too.

So, both are a form of tax on carbon emissions. In either form, the big pollutants have an incentive to reduce their carbon emissions, whereas the smaller polluters are less affected.

The difference: In cap&trade, you set a (flawed) cap, wherein using the carbon tax you set a price on carbon – but why would this set price be any less flawed than the cap? A tax of 0 would have no impact, and so it is clear that a tax set too low would not provide enough incentive for emissions cutting. The result could well be a higher total carbon output than desired, and just like cap&trade, the political weather may well foil attempts to adjust the tax.

So, which is better? To me, it seems more prudent to set a (flawed) cap that directly aims at the emissions level and letting the credit price be regulated by the market, than setting a (flawed) tax rate which aims to indirectly reduce emission levels – same idea, but the straight tax is a blunter instrument here.

I’d appreciate your analysis on the matter, especially if you see a flaw in my reasoning.

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