I have to disagree with Mark Thoma regarding the equity advantage of mandates (like CAFE standards) over taxes on carbons and other bads. I think he misses two points: equity can be credibly built into the tax, and mandates and taxes (or permits) are not mutually exclusive.
For simplicity, let’s assume that the policy on the table is a carbon tax, overlooking the advantages (in this case) of a tradeable permit system. Requiring 100% auction of permits would be equivalent to a tax under full certainty, but in an uncertain world—the one I woke up in this morning—a permit system would nail down the atmospheric impacts at the expense of price volatility, while taxes would do the opposite. But we will ignore this for now and talk only of taxes.
My first point is that a tax system could be introduced with the stipulation that all (or a very, very high percentage of) proceeds be rebated to citizens on a per capita basis. As Boyce and Riddle show, this would be highly progressive, benefitting a solid majority of us on a net basis (even after subtracting higher prices from rebate income). Yes, the rich could still whiz by on the freeway in their supersized guzzlers, but ordinary folks could take comfort in their ability to buy more of the non-carbon-emitting stuff. They might even think, as the behemoth roars by, “That’s another dollar in my pocket.”
Thoma worries that low income people might worry that a future administration and congress might tinker with the rebate formula. Maybe, but it’s our job to nudge perceptions as close as possible to reality. Consider Social Security: we have seen multiple attempts in recent years to eviscerate the program, but they have been turned back every time, for a simple reason: most of us benefit from SS and would lose out if it were privatized. The same goes for a rebate plan. If it is written in as a basic entitlement, once the rebates start rolling the program will be virtually impregnable.
Second, I am sensing an emerging competition between tax (or permit) advocates and those pushing higher standards. There is no reason for this to happen, and each should stand or fall on its own merits. For instance, students of energy efficiency, like Gar Lipow, tell us that there is lots of low-hanging fruit—big improvements in efficiency at no net cost or even producing a net benefit. The purpose of a standard would be to circumvent information gaps, coordination failures and the like. A tax doesn’t change any of this; on the contrary, by enlarging the pool of innovations that can ultimately pay for themselves, a tax can justify an even more stringent efficiency standard. On the reverse side, a well-designed efficiency standard can help the public better cope with the demands of a tax. True, a bad standard can be an efficiency-loser, but we don’t want this beast with or without a tax.
Keeping an eye on the bottom line, once we get a new congress and a new president in 2009, a national climate change program will be on the table. We are likely to get a carbon cap: a permit system that limits carbon emissions, with the cap going down on a yearly basis. We have to stay very focused to avoid fine print that will weaken the effect of the program or steer the huge amount of money involved into the pockets of the upper class. But we should also use the opportunity to look for regulations that target bottlenecks and irrationalities in the market: better energy efficiency in transportation, land use, the built environment.
Why either/or?
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What bothers me is the notion that everything has to boil down to individual economic incentive. The Clean Air Act and the Clean Water Act did not have at their core the idea that we should just rearrange matters such that markets could work their magic, they were a recognition that in certain areas and most specifically those of environmental externalities that markets had failed and that the time had come for some government coercion. The lesson was 'clean up or else' and by and large it worked, corporation begged and whined all the way but in the face of a Federal Court order did what they were told.
I can understand certain orthodox economists whimpering 'Road to Serfdom' but surely a more left leaning group can at least be open to progress through direct government regulation.
U.S. ‘stuck in reverse’ on fuel economy
Overseas, primarily in Europe, there are 113 vehicles for sale that get a combined 40 mpg, up from 86 in 2005. Combined gas mileage is the average of a vehicle’s city and highway mpg numbers.
Adding insult to injury is the fact that nearly two-thirds of the 113 highly fuel-efficient models that are unavailable to American consumers are either made by U.S.-based automobile manufacturers or by foreign manufacturers with substantial U.S. sales operations, such as Nissan and Toyota. Here we are earnestly told that higher fuel standards are just job killers, there is just no way (and by the way cut us some slack on our health care costs). In Europe these same companies can and do produce cars that meet even higher standards than anything proposed here. Why? Because the various governments told them they had to. And so they did.
I am not an advocate of command and control everywhere, but it is a hell of a thing that progressives have backed so far away from the idea that government should have a direct and if necessary coercive roll in delivering social and economic justice.
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