Think Out Loud


Revenue and environmentalism: Can a carbon tax help the environment and fund social programs?

[This post was inspired by a recent New York Times article, “Carbon Taxes Make Ireland Even Greener”; published December 28, 2012]

Climate change is the biggest issue in environmentalism today.  Scientists and more and more politicians are advocating drastic changes in industrial production, in energy sourcing, and in consumer behavior to minimize the problem.  Although some have argued that businesses can “green” themselves and save money in the long term (e.g. by insulating buildings to cut down on heating and air conditioning costs), the greater consensus seems to be this: that environmental protection is at odds with economic growth, and economic growth will almost always take priority.

The United Nations Framework Convention on Climate Change (UNFCCC) that sponsors the Kyoto Protocol has taken the initiative to try to reconcile the two.  In the US, this system is known as “cap and trade”, wherein the government or some other authority sets a limit, or cap, to allowable  greenhouse gas emissions for a company, region, or country.  Then the participants that emit less than the cap can earn “carbon credits”, which they can sell to participants whose emissions exceed the cap.

Cap and trade advocates hoped that by introducing a profit incentive to reducing emissions, greater strides toward mitigating climate change would follow.  But as the first round of Kyoto commitments came to a close, the data shows that the overall success in reducing emissions by participating countries was more than offset by the increased emissions from developing countries, especially China.

I’d rather not lose all faith in a market-based system to mitigate climate change, but the uninspiring first round of Kyoto begs the question: might there be a better way?

A carbon tax is one possible alternative that has been in effect in Ireland since 2008.  The carbon tax immediately raises the prices of consumables that contribute to climate change, for instance oil, natural gas, and kerosene.  The size of the tax per consumable relates to its level of carbon emissions, so less harmful fuels are taxed less.  Ireland also implemented a more rigorous recycling program and curbside waste collection fees based on the weight of the trash.  These added costs give a clear incentive for consumers to change their behavior.  The Irish have been buying greener cars, recycling more than ever, and reducing their usage of fossil fuels where they can.  In turn, industries have had to respond to the increased emissions/tax consciousness of the Irish consumer; car manufacturers, for example, know that only fuel-efficient vehicles will sell well in this market.

And what are the results of this carbon tax in Ireland?  The New York Times reports a 15% drop in emissions over the three years since its inception, continuing to decrease even as the Irish economy started to recover from worldwide recession.  And what about the economic consequences of the tax?  If industries are forced to pay higher fuel costs, they might lose some of their competitive edge (because they can’t sell their products as cheaply).  This seems to confirm the common assumption that environmental protection is bad for business.

And yet, Ireland’s carbon tax has raised a grand total of 1.3 billion Euros.  Increased revenue from the tax enabled Ireland to avoid raising income taxes.  This money can feed the country’s deficit, and in better economic times it can help feed any number of important social programs (like education or healthcare, which often sustain deep cuts in austere times).

Even the International Monetary Fund has recommended that Ireland expand on the successes of its carbon tax program:  More taxes.  More government revenue.  More climate change mitigation.  But is this the solution for everyone?

Unfortunately, a carbon tax is political suicide in the United States.  US culture, it seems, simply cannot stomach the idea of new taxes … even if it means chipping away at the national deficit, preventing big cuts to essential social programs,  and helping to reduce the potential disaster of climate change.  As recent reports about America’s “fiscal cliff” dominate the news waves, perhaps some Americans will learn to look critically at their priorities and at the potential solutions that are succeeding elsewhere.

And they won’t get much help from Down Under. Australia’s prime minister Tony Abbott has just nixed his country’s carbon tax, accusing it of stifling incentives for industry. Time will tell whether or not this scheme of political priorities is wise.


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This entry was posted on January 2, 2013 by in Uncategorized and tagged , , , , , .
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