A libertarian makes the case for a carbon tax

This is part two of my interview with libertarian carbon-tax supporter Jerry Taylor. It has been edited for length and clarity. See here for part one.

The current GOP strategy on climate change is denial and delay. But a growing number of libertarian and right-leaning thinkers are finding that strategy untenable, choosing instead to acknowledge the problem and advocate for what they see as the most market-friendly solution: a carbon tax.

Niskanen Center

Jerry Taylor.

A leading voice in this ... well, "movement" is probably too strong, call it a stirring, is Jerry Taylor, formerly of the libertarian Cato Institute, now leading his new libertarian Niskanen Center.

Taylor has proposed a grand bargain of sorts: in exchange for the elimination of EPA carbon regulations and state renewable energy mandates, Congress would adopt a substantial and rising economy-wide carbon tax, made "revenue-neutral" by reducing other taxes.

I chatted with Taylor in the Niskanen offices last week. The first part of our conversation covered the state of right-leaning opinion on climate change; this part covers the politics and policy issues around a carbon tax.

David Roberts: Let’s talk a little bit about policy. What happens if the risks of climate change clash with libertarian policy principles?

Jerry Taylor: The idea that libertarian principle is organically opposed to action on climate — I just don’t buy that, even for one second. I think it’s the opposite: the more principled libertarian you are, the more you should support doing something about climate change.

Libertarians believe in protecting persons and property from invasion by other parties. The only role of government in the libertarian world is to protect the persons and property of individuals. It doesn’t matter whether the threat comes from a burglar, a rampaging gang, or a smokestack.

Many arguments libertarians offer in this debate are not only divorced from libertarian principle, they’re opposed to it. For example, it's fine to consider cost-benefit analysis, but it sure as heck has nothing to do with libertarian principle. I think you can be a libertarian and embrace cost-benefit [analysis] for lots of different reasons. But the more principled your defense of property rights and individual liberty, the higher the bar should be for you to sign off on pollution trespass, or trespass that imposes risk.

DR: If you open libertarianism to diffuse, incremental risks imposed by one party on another, where do you stop? Isn’t it true that most industrial activity has some effect on the health and property of others?

Murray Rothbard, rockin' a libertarian bow tie. (Wikipedia)

JT: In libertarian ideology and theory, Murray Rothbard plays a pretty central role. And he has made two arguments that are at odds with one another.

He wrote a book many years ago, For a New Liberty, in which he took the absolutist view: he argued that if you issue pollutants that cross my property line and do harm to me or my property, or even if you’re just trespassing against my preference and I can prove there’s a risk, I should be able to shut you down. Simple, straight, clean libertarian argument — the problem is that if you take it seriously, you’ll shut down industrial civilization.

"The more principled libertarian you are, the more you should support doing something about climate change"

So he then took another bite at the apple in an article for Cato Journal in 1982, called "Law, Property Rights, and Air Pollution," in which he argued, Okay, that should be the standard rule, but you have to prove harm in the here and now — not someday, not in the future, not maybe, but now. You also have to be able to identify who caused the harm. It’s not good enough to say it must’ve been one of eight different coal-fired power plants; you have to identify the exact party to the transgression.

If you can prove concrete, non-negligible harm in the here and now, and you can identify the party, then you can shut them down. If you can’t do these things, oh well, it’s just the price of industrial civilization. That [effectively] means no pollution control, because virtually nothing is going to meet that standard.

So he has two very unsatisfactory positions. Matt Zwolinski recently surveyed the world of libertarian thought and theory about how to deal with pollution, and he found that virtually all of it is unsatisfactory. The absolutist libertarian position leads to the end of industrial activity; the [second] Rothbard position leads to no pollution control whatsoever. [Zwolinski] says libertarians need to think harder about this, and until they do, they can’t really engage in this conversation as libertarians.

DR: You’re proposing a carbon tax — at what level, to start with?

JT: I haven’t picked anything yet. The Niskanen Center is in the business of politics, and politics is the art of the possible. What I might think is the ideal carbon tax may be completely untenable politically.

We have to stipulate that we do not know what the "right" price for carbon emissions is, and we will wait until the end of time if we are going to insist on knowing with any certainty. Our best guesses have big error bars on them.

But I am not at war with IPCC narratives. If keeping global temperatures within 2° Celsius of where they were at a certain baseline is the desired objective, then you want a carbon tax that will do that.

Sanford et al. (2014)

Two degrees: it won't be easy.

You could equally well justify an argument that says, Our best guess about most likely outcomes, married to the nondiversifiable risks associated with catastrophe scenarios, suggests that the price of the risk is X. Price it that way.

It turns out that if you go in either direction — either a tax that gives you reasonable certainty about not crossing certain concentrations, or one that reflects our best judgments about what our risk might be — you produce a pretty high carbon tax, higher than the one being discussed by Adele Morris at Brookings or by most politicians.

DR: What do you mean by high? Ballpark it.

JT: I’ve seen some pretty good studies on what happens when you marry the Weitzman fat-tail [risk] scenarios to conventional social-cost-of-carbon calculations. They take your optimal carbon tax, in today’s dollars, anywhere from, say, $70 to $80 a ton to a couple hundred dollars a ton.

DR: What if a carbon tax that turns out to be politically possible is well south of $70? Why should those concerned about climate change trade in these other [regulatory] tools for an insufficient tax?

JT: It’s almost certainly well south of that. If you’re concerned about climate change, and the carbon tax produces less emission reductions than [EPA carbon regulations and state clean-energy mandates], then no, it would not be a deal worth embracing for you.

"I don’t know when a window of opportunity for a carbon tax will open, or how it will open, but I guarantee it will open"

You could still say, The reason I might accept that deal is that the cost of emission reductions under the regulatory status quo is extremely high. And the high price of marginal emission reductions is so important to voters; they will be willing to buy less emission reductions in the future if every increment is really expensive. If a carbon tax can produce emission reductions at a fraction of the cost per unit, then that reduces the marginal cost of being more ambitious down the road. Perhaps that trade is still worthwhile for you.

But put that aside for a second. Let’s assume you simply want to make sure the carbon tax gives you at least as much and preferably more emission reductions than the status quo. Well, it turns out a pretty small carbon tax can do that.

According to Charles Komanoff at the Carbon Tax Center, an economy-wide carbon tax of $1.15 a ton, increasing by $1.15 a year, will give you the same emission reductions as the Clean Power Plan [the EPA's plan to regulate power plants]. That seems a bit low to me, but even if he’s off by a couple orders of magnitude, it’s still pretty small.

When you look at other studies on a $10 carbon tax, a $15 carbon tax, a $20 carbon tax – well within the realm of the politically possible — they all produce more emission reductions than the [current] baseline.

I’m looking forward to seeing more research on this in the future, but it looks like a carbon tax that gives you the same emission reductions as EPA regulations is in the single digits. A double-digit carbon tax almost certainly outperforms the status quo.

DR: What about the argument that historically we tend to overestimate the cost and underestimate the benefits of EPA regulations? Do you just not buy that?

JT: It’s true, but not necessarily relevant here. The emission reductions that follow from the Clean Power Plan are predicated upon an iron march through goals and timetables, hitting targets over the course of the next 15 years. The EPA’s track record of ensuring that regulatory accomplishments meet goals and timetables — it’s just horrific. It took 20-odd years for the New Source Review standards to come into law after Congress said, "Thou shalt release standards for new sources of emissions."

These gentlemen agree that EPA has trouble with targets and timetables. (Photo by Win McNamee/Getty Images)

DR: You can’t entirely blame EPA for that.

JT: You cannot, but the point is we have an Administrative Procedures Act [which ensures public participation in, and judicial review of, administrative rule-making] that is just built to delay. That’s not to say we shouldn’t have an EPA, but when you delegate to EPA the job of issuing regulations and you develop ambitious and aggressive timetables, you will always be disappointed.

I can guarantee you the Clean Power Plan will not give the emission reductions advertised, simply because [EPA] will not meet its goals and timetables. Lawsuits are going to screw it up, administrations are going to slow walk, there is going to be no end to the problems associated with it.

DR: What if clean energy becomes cheaper faster than people think? Will that inspire states to move faster?

JT: That’s quite possible. You could make a reasonable argument — I’m not entirely sure I would make it — but you could make a pretty good argument that prior to 1970 or '80 or so, states were less inclined to adopt aggressive anti-pollution policies than the federal government. But today, it’s entirely the opposite. You do not often read of states that want to opt out of the Clean Air Act or the Clean Water Act. What you generally read are states that want to go further.

DR: Well, red-state governors support bills that would cripple or abolish the EPA.

"It’s hard for me to fathom why a GOP governor would take Mitch McConnell’s advice"

JT: These are symbolic. It's messaging legislation. The most topical example of this right now is, Will states file an implementation plan for the Clean Power Plan? If you are a governor and you say, "No, my state will not file the state implementation plan. I will let those dang federal regulators take responsibility," what have you really done? You've increased the cost of the regulations.

Now why did they make that decision? Because they want to gut the EPA? No, they made that decision because they would rather have the EPA take political ownership of these regulations than them.

That’s a political calculation; it has a hell of a lot more to do with internal GOP politics than any genuine sense of what a state might do if it were freed and able to set up its own regulations.

DR: Still, it does seem from the case of Medicaid expansion that red-state governors are willing to accept a lot of pain and forgo a lot of gain based on political considerations.

JT: It’s hard for me to fathom why a Republican governor would take Mitch McConnell’s advice. [McConnell urged states to refuse to submit implementation plans under the Clean Power Plan.] It’s hard for me to fathom why anybody in the business community or anybody in the right-of-center donor community would support it.

You worked really hard to put together a red-state legislature with a red governor. Why? Because you want policy to be less economically burdensome. You have all these ideas about limited government, and now you have an opportunity to exercise all of that power, to [design] a low-price regulatory regime relative to what you otherwise might’ve had, and what do you do? You say, "Ah, I want nothing to do with this game. We’ll punt it to EPA regulators."

Even if Mitch McConnell wins his war against the regulations, which he may very well — just from a narrow, technical perspective, the regulations are on pretty shaky legal ground — the EPA will go back to the drawing board and write new regulations, which will still be driven by the endangerment finding and will still accomplish reductions of greenhouse gases. And states will likely not be allowed to use the lower-cost options they were afforded in [the Clean Power Plan]. So the EPA’s going to come back with more expensive regulations. Yay, Mitch McConnell!

Unless he can figure out some way to remove the endangerment finding, then he’s just stalling for time. And I don’t know any Republican strategy to do that. Even winning the White House won’t get you there; if you do it, you’ll be subject to lawsuits in which environmentalists will ram the academic literature right down the administration’s throat in front of a federal judge.

DR: The proposal you put on the table, the conservative case for the carbon tax — is it just a shout of hope in the wilderness? Or do you see a pathway from here to there?

JT: I see several pathways. Things don’t stay frozen. One thing we know about politics is that windows of opportunity for major policy change do not open on demand, and they do not open frequently, but they do open. And the other thing we know about them is that they open on timetables that are mysteries to mortal men. So I don’t know when a window of opportunity for a carbon tax will open, or how it will open, but I can guarantee it will open.

Remember when these two agreed on climate change? (YouTube)

Go back in time to the health-care debate. In 1978, Jimmy Carter has major Democratic majorities in the House and the Senate. He wants a health-care bill. They mess it up. The window of opportunity for health-care reform closes for 12 years or so until it opens again for Bill Clinton. Once again they mess it up. So the window closes again in 1994. It stays closed until Barack Obama, more than a decade later.

But when it opens for Obama, everything’s changed. Why? Because now there’s a consensus about how to go about this. Thanks to the Heritage Foundation, a model was put on the table and adopted in Massachusetts. They showed it could work. Even though there were still a lot of people who support single-payer — they saw that, politically, this is vetted and can succeed in practice. If you didn’t have policy reform in place, well-vetted, already having worked the political terrain, it wouldn’t have happened.

Now, back to carbon. I could see several windows opening.

One: another big sit-down with regard to deficit and public debt. That has happened periodically in this country, and it’ll happen again, mostly because the trajectory of the public debt, after dropping for the past couple years, is going to go right through the roof. The demographics on entitlement programs are pretty overwhelming. And it’s going to require tax increases. There’s no way around it. Where are those tax increases going to come from? [Taxing carbon] is certainly better than taxing income, profits, or labor.

That’s one possibility: they need revenue, and carbon taxes can provide revenue.

Another way it could happen is in the form of tax reform. Conservatives really, really want corporate income tax cuts and reductions in marginal rates on income taxes. Democrats desperately want a carbon tax. You can say, This is how we’re going to do it — we’re going to pay for the corporate income tax cut through a carbon tax. That way, it all evens out and nobody has to screw up their nose.

A third avenue is if the Clean Power Plan, or whatever replaces it after it’s tossed, starts getting traction — state implementation plans are being filed, regulations are being enforced. Those are going to incur some serious costs and a big hit to a lot of companies. It’s not the end of the economy, by any means, but it’s not an insubstantial expense.

Well, it would not be unimaginable to have the oil, gas, coal, and other industrial sectors going to a Republican president — or even a Democratic president — and saying, "We can’t do this. There are better routes." And in fact, support for a carbon tax is the rule, not the exception, in the oil and gas sector.

Now what’s the right going to say? You’re going to look pretty silly talking about how a carbon tax is the death of the fossil fuel industry when the fossil fuel industry is supporting it. So that’s a third scenario.

That leads you to scenario four: Hillary Clinton gets elected in 2016 with a Democratic Senate, which is almost certainly going to happen, and the House stays the same, just moves a little [Democrat]. And [Clinton] is convinced that we need a far more ambitious program to reduce greenhouse gas emissions.

It's very hard to get more through the regulatory process without busting the system, so she goes for a carbon tax. The Democrats would all line up behind it, I’m sure. All you need to do is pick up five or six Republicans in the Senate and 20 or 30 Republicans in the House.

"I won't stop until I get a carbon tax!" (Screenshot)

So it's not impossible to imagine that the arguments I make, that other people in my community make, that oil, gas, and coal make, would not at least denude opposition enough that there might be a jailbreak of five or six Republicans. Especially if Hillary just won. The main threat to the GOP right now is the fact that they are on a path that leaves them a permanent minority party. They will become like the Republican Party of California if they don’t change on immigration, if they don’t change on environment, if they don't change their mode of governance in Washington. That stuff appeals to a very aggressive group of powerful voters, grant you, but they’re no longer a majority. I think most of the leadership in the GOP knows this.

So those are four options off the top of my head. There might be more. I’m an optimist.

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