A Carbon Tax Is Not Enough

Economists really like putting a price on carbon to limit global warming. This can be done, for example, with a tax on carbon emissions. The idea is that emitters will have to pay money whenever they engage in an activity that causes emissions. Ideally, the paid amount is equal to the damages that will be caused by the emissions. People will then emit less, because it became more expensive and the state will have money to invest in adaptation or to just lower other taxes to make the carbon tax politically more palatable.

Compared to other measures, like mandating producers to leave carbon in the ground or energy-efficiency regulation, a tax has many advantages:

• It encourages to cut emissions in the most effective way
• it incentivizes technological progress
• It shows consumers and producers the real price? of products and activities
• it serves as a single focal point for negotiations
• It can be adjusted in response to new information

On the other hand, there are some important limitations. First, it is quite hard to measure emissions, because not all of them are caused by large facilities which can be easily monitored. Second, to minimize distortion, the tax rate has to be the same everywhere around the world with no exceptions. This would require close international cooperation and money transfers to help people in poor countries pay the tax.

Just focusing on a carbon tax also draws attention away from important considerations of justice. A carbon tax is forward-looking; it makes everyone pay the same price for using the atmosphere’s capacity to absorb CO_2. But we should also look backwards: Who caused the problem? Who benefitted from past emissions? Who is in the best position to fix the problem? To account for these considerations, a carbon tax has to be flanked by additional policies, for example by tax credits or direct money transfers to poor people in developing countries. Politically, direct transfer programs are a hard sell. Their track record is mixed at best with development aid being one of the prominent examples.

Another, justice-related, problem with a carbon tax is that we don’t know in advance how its burdens will be shared. Although everyone pays the same for emitting, not everyone might have the same ability to avoid emissions. This concerns mainly companies. Those who can easily switch their production technology will have an advantage over those who are dependent on emission-intensive technologies. An example for this might be conventional ranching vs. organic ranching. Conventional farmers can, for example, opt to keep their cattle in stables and install carbon scrubbers. Organic ranchers are required to allow them to graze outside, thus resulting in higher emissions.

An international strategy to fight global warming should thus be pluralistic. It should combine instruments to achieve emission cuts in the most efficient with an allocation of burdens based on considerations of justice. As a sidenote for hard-nosed moral sceptics: Even if one believes that developed countries don’t owe anything to developing countries, considerations of justice can still play a role in promoting their much-needed cooperation.