In a Wall Street Journal op-ed, an all-star panel led by former Federal Reserve chairmen, Nobel laureates and presidential advisers from both parties recommended that the United States adopt a $40-per-ton carbon tax and increase that tax annually until the nation reaches its goals for greenhouse gas emissions – presumably those spelled out in the 2016 Paris Agreement.
In the cultural bubble of economics, markets work perfectly, information is good enough to make sensible plans and an omnipotent regulator ensures everyone follows the rules.
Sadly, the real world does not work that way.
Consider free trade. According to the theory of comparative advantage all those workers in Middle America displaced by imports from China and other Asian nations should be employed as West Coast software engineers or heading for Amazon facilities in Long Island City.
Instead, we have urban decay, prostitution, opioid addiction and endemic poverty throughout much of the Rust Belt. I wonder how many of those economists who signed the recent op-ed ever bothered to drive to places like Wilkes-Barre, Pennsylvania, and stroll down Main Street.
Climate change is real enough – atmospheric temperatures are up by nearly 2 degrees Fahrenheit since latter decades of the 19th century and CO2 and industrial emissions are the primary culprit. How much further those go – with or without a universal carbon tax – is difficult to project. What is clear is that we are not headed for an economic Armageddon.
Assuming a high emissions path – thanks to fairly slow improvements in energy efficiency and other technologies – the U.S. economy in 2090 will be at least three times larger in real terms than it is today. With GDP at $61 trillion, the annual costs imposed by higher atmospheric temperatures would be a manageable $510 billion.
The latter is likely to be less but where the burdens are visited, those will be severe.
Coastal floods and ferocity of storms along the East and Gulf Coasts and wild fires in the West are already escalating, but insurance companies, with armies of climatologists, are having fits trying to model where and how much further their prospective risks will increase. At the same time, fresh water supplies are becoming more valuable and the target of speculative investors, like the Harvard endowment, and agricultural land in Canada’s Prairie Provinces more productive and valuable.
Still mitigation – such as building sea walls in cities like New York and tougher building codes in Texas – and relocating populations from many high risk areas will be less expensive than a carbon tax, because the tax would have to escalate to draconian levels and impose unconscionable risks to accomplish the Paris Agreement’s objectives.
To substantially reduce the trajectory of carbon emissions globally, about 100 kilowatt hours of electrical generating capacity – about 3.3 kilowatts per year over 30 years – will be needed. The Merkel government in Germany has pulled out all the stops on renewables and found it can only accomplish about one-fifth its annual share – and it is a highly advanced society with the best engineering expertise.
Consequently, a massive buildout of nuclear power would be required for a universal carbon tax to accomplish a meaningful reduction in the path of projected greenhouse gas – not just in industrialized countries but also in the developing world.
If Japan with its superior organization could not avoid the Fukushima Daiichi nuclear disaster, do we really want to build out a pervasive network of nuclear reactors including places like Venezuela and the Sudan?
China, which is the largest source of greenhouse gas emissions, has reversed course and is building new coal fired facilities that will almost equal total existing U.S. capacity. Provincial governments in Canada and the Yellow Jackets in France are opposing national carbon taxes of one sort or another.
If the United States took the economists’ advice, it would be free trade all over again – America and some European nations would play by the rules while others would not. More jobs would be lost to China and other destinations in Asia. Global emissions would rise not fall as those nations generated the necessary electricity with cheap coal, and the costs to the U.S. economy of a carbon tax would far exceed the benefits.
Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. © 2019, The Washington Times, LLC.