Why not just tax unclean energy production?

With increased awareness of global warming, various governments have been putting forth all kinds of schemes that attempt to combat it - increasing minimum fuel efficiency standards, outlawing incandescent light bulbs, giving tax subsidies to hybrid cars, instituting a speed limit on the German autobahns, and so forth.

These would all undoubtedly have an effect, but they are imprecise solutions that introduce distortions. For instance, if an electric car powered by solar energy speeds down the autobahn at 200 mph, it would be doing no harm to the environment, yet it would still be outlawed. Likewise if someone developed a lightbulb that fit the legal definition of ‘incandescent’, yet ran at 95% efficiency - or a diesel engine that gets better mileage than a hybrid (which exists already).

So, rather than come up with all these flawed schemes to regulate specific instances of energy ‘waste’, why hasn’t anyone proposed simply taxing production of unclean energy? Let the market figure out the rest - if unclean energy costs more, people will either switch to clean energy, or switch more efficient lighting, drive slower, buy hybrids, and so forth all on their own, without any need for government intervention and micromanaging of consumer choices.

This would eliminate all distortions, and address the problem at the root. Consider the study that came out recently stating that, over the vehicle’s lifetime (manufacturing to scapping), a Toyota Prius will consume over twice as much energy as a Hummer H1*. When the California legislature gives Prius owners tax breaks, they’re actually indirectly causing additional harm to the environment. This would never happen if we taxed unclean energy directly - the Prius’s cost would directly reflect the environmental cost of its manufacture.

  • Yeah, I know, that study might not be entirely accurate - but the point is made just the same.

Oops, forgot a part.

The problem with trying to buy environmentally-friendly products today is the lack of available information. Sure, a compact fluorescent bulb might last longer and consume less power in your house - but how much unclean energy did it take to design, how much to manufacture, and how much to dispose of? Currently, that’s very hard to determine. Of course, I already mentioned the Prius example.

By taxing unclean power, we would make prices convey that information. Products that are produced with unclean energy would cost more money than equivalent products produced with clean energy. Simple.

It seems like this with this policy, competition and the drive for lower prices would do more for efficiency and clean energy than government meddling ever could.

Because this would make too much sense.

Seriously, the problem is that this approach would expose numbers to public view. How much incentive should we give to switch from incandescent bulbs? If we tax inefficient light bulbs, that number is public. But if we simply ban inefficient bulbs, the exact cost to the nation is hidden from public view. So things like CAFE standards are attempts to get the public to pay a cost for a supposed public good without realizing exactly what that cost is. So mandating that automakers have a certain average MPG doesn’t “cost” anything, whereas if you slap a $1.00/gallon tax on gasoline everyone can see exactly how much they are paying. Guess which ones the politicians and bureacrats prefer? And even big business prefers the untransparent regulations, because they are barriers to entry. Big companies are rent-seeking, and a thicket of regulations might be unpleasant, but if all your competitors face the exact same thicket it reduces competition, no company not already in the business would be willing to face that thicket.

Just wanted to bump this as I think its a worthwhile debate and I’m interested in seeing if anyone else has any thoughts. I can’t think of why such a simple scheme isn’t used either…pretty much what Lemur866.


I agree that such a carbon tax is a good solution. However, a cap-and-trade system for carbon dioxide emissions is a similar market-friendly solution…In fact, in many ways it is very similar to a carbon tax. It also has the advantage of allowing us to set quantifiable goals for emissions reductions.

Oh…and here is one critique of that Prius vs. Hummer study. Basically, it is hogwash.

So firewood would be taxed:
A cord of wood: $120 + $120 fuel tax. :wink:

Well, firewood is a biofuel. It depends on how you want to structure your carbon tax, but you could count firewood as carbon-neutral since all you’re doing is releasing the carbon the tree absorbed while it was growing. However, firewood doesn’t just release CO2, it also produces lots of particulates and other crap, so you might want to slap a pollution tax on firewood even if we rule it carbon-neutral.

And spend the tax on what, exactly?

The UK recently raised ‘carbon taxes’ on all short-haul flights departing from the UK. And they will spend this money on what, exactly? Nobody knows.

If the government gets to be dependent on that tax income, then wouldn’t the government be required (to protect it’s revenue source) to encourage the behavior the tax was intended to stamp out?

Of course, if I knew what the tax would be spent on, then I’d be more likely to accept it, but taxation seems to me to always increase, never decrease, and once you tax something you ALWAYS have to tax that thing or else find something else to tax equally to ensure the revenue keeps coming for the government.

I don’t want to be too critical of the idea, because in the long term it probably makes sense, but there’s a few short-term problems I can point out.

First, a lot of today’s energy production would be subject to what would probably be the maximum amount of taxes instituted for this purpose. The US is still dependent on coal for electricity, lots of homes in the Northeast use fuel oil for heating, and so on. In the short term, we have a chicken and egg problem: taxing dirty energy means increased energy bills for just about everyone (which I don’t think most people would support as a good thing); but in order to make the market mechanisms function to discourage dirty energy production, there probably ought to be a cost incentive to do so. So on one count, you’re making consumers pay more for energy while they really don’t have any choice in the short term about what types of energy they’d prefer.

Second, on a cynical level, is a negative incentive the most efficient way to move to a cleaner energy supply? If Neverland Gas and Electric built a large coal plant 10 years ago, and the expected life of the plant is, say 40 years, it hardly makes sense for a company to invest billions into a next-generation clean coal gasification plant, taxes be damned. And hey, all these costs are going to be passed on to consumers who really don’t have a choice whether their lights get turned on by the dirtiest coal plant in the world or the cleanest fusion energy – we’re stuck with the juice that is pumped into our house.

A carbon tax is a good solution. For economists it’s the obvious solution and it has been suggested for a while. Sweden introduced one* in 1991.

So why is it so difficult? Because (1) environmental protection of this sort is a global public good; and (2) there are large transitional costs. That is (1) whatever amount is provided can be consumed by literally everybody regardless of contribution; and (2) lots of people have made decisions which would make them lose under particular schemes to address the problem.

With a global public good there are going to be big differences in valuations and big disputes about who pays what (and people are going to lie about both). And governments (because they need to pay attention to both those who value pollution abatement highly and those for whom pollution reduction will be costly) will be tempted to (knowingly) adopt bullshit positions. A hairshirt position - where consumers who would like something to be done about carbon emissions are faced with costly but largely symbolic changes in their own purchases - is appealing to governments. They can appear (to local folks) to be keen to address climate change without actually committing to bear much of the cost or political damage.
*[sub]Admittedly, not an ideal one. But the point - that it’s been known for a VERY long time that there was a problem; that an increase in the price of emitting carbon was the answer to that problem; and that a carbon tax was a way of making that happen - remains.[/sub]