Is a Carbon Tax Really Too Expensive?

Edward Lazear, a former economic adviser to George W. Bush, argues today that cutting carbon emissions enough to mitigate global warming is a lost cause, and we are better off pursuing a strategy of "adaptation" to a fiery new world. This is why pessimists should not be in charge.

Let us assume, for the sake of argument, that Lazear is making a good-faith case for giving up on fighting climate change based on pure economic motives, rather than making a bad-faith attempt to fight environmentalism on the Wall Street Journal editorial page. Lazear begins by projecting nearly three decades worth of growth for emerging economies like China, and argues that even with gains in energy efficiency, a larger and more prosperous China and other nations will almost certainly be emitting far more carbon than they are now. Can America cut its carbon emissions in a meaningful way, to offset possible growth from other countries? Lazear says no. He dismisses various straw man methods (locally sourced food, public transportation) as insufficient. And when he comes to the one method that would actually prove effective on a grand scale—a carbon tax—he has this to say:

Very high carbon taxes or severely restrictive cap-and-trade policies might provide substantial motivation to conserve. These could reduce carbon-intensive consumption and motivate a switch to lower carbon power sources like nuclear. But these actions are undesirable because of their adverse effects on the economy. Australia instituted a $22 per ton carbon-dioxide tax in 2012. It repealed the highly unpopular measure this July, mainly because of its economic costs and perceived ineffectiveness. Research and development are worthwhile. But they can be wasteful and ineffective—recall Solyndra—and if R&D is to be government sponsored, all developed countries should participate in funding.

So Lazear essentially admits that a carbon tax could succeed in providing the necessary motivation to cut carbon emissions to target levels, but then immediately dismisses the solution as "undesirable" because it would cost too much. His evidence: Australia tried it, and it was unpopular. That seems rather thin, considering we are talking about the future of life on earth. A carbon tax is not money that is tossed into an oven and burned. It is a tax to discourage an undesirable activity (carbon emissions), the proceeds of which can be used to fund a more desirable solution (the government-sponsored clean energy R&D that Lazear refers to ever so briefly). A carbon tax is a way to redirect economic activity away from a harmful activity and towards a more positive activity.

Would this tax's "adverse effects on the economy" prove too onerous, in the context of global warming? A little perspective: the U.N. Intergovernmental Panel on Climate Change estimates that pursuing Lazear's preferred strategy of adaptation to climate change (that is, just allowing it to happen, and dealing with the consequences) could be costing the world $100 billion per year by 2050. Even the highest estimates of the losses of Solyndra, which Lazear finds so profligate, are less than $1 billion. In the name of economic efficiency, Lazear is willing to accept a guaranteed future of tens of billions of dollars a year worth of weather disasters, crop losses, and human displacement in order to avoid a tax that might... negatively impact the coal industry and occasionally fund a solar panel company that doesn't work out.

"It is time to end the delusions and start thinking realistically about what can and will be done," Lazear concludes. What can and will be done is a matter of human will. Giving up the fight before it starts does not make you a realist. It makes you a fatalist. Edward Lazear will probably be dead by 2050. If you will still be around then, you might have a more expansive view of what is realistic.

[Photo: AP]