The Future of the Carbon Tax

At the beginning of this chapter I said that the U.S. needs to cut its carbon dioxide emissions by 75% just to keep world emissions constant—if we allow the rest of the world to catch up. Yet in my carbon tax calculations I assumed that the reduction in carbon burning would be less. We have a contradiction.

This is intentional. I don't want to immediately cut carbon burning by 75%. It would be a huge burden on the economy and likely unnecessary. The world hasn't caught up yet, so we have time. And the world can likely withstand a few years of carbon dioxide emission growth as long as it is followed up by shrinkage.

Actually, a near-immediate 25% reduction in carbon burning would be considered ambitious by many environmentalists. It is more than the Kyoto Treaty calls for.

The bigger environmental benefit of a carbon tax is not the immediate conservation, but the market created for real long term solutions. At a doubling of retail energy costs, many existing alternative energy technologies become economically viable: passive solar, flat plate collectors, hybrid cars, and maybe even more exotic technologies such as photovoltaics, electric cars and Stirling engine hot water heaters.

But such technologies will take time to deploy. In fact, it may be better not to deploy such technologies too fast, as better solutions are still in the laboratories. For example, light emitting diode technology is catching up with fluorescent light technology, and LEDs don't contain mercury. Photovoltaics are also improving rapidly. Rushing can be wasteful.

But in a decade or two we will see carbon emissions down by 50% or more if we replace either the income tax or FICA with a carbon tax. And when this happens we may not be able to raise sufficient funds via a carbon tax no matter what the tax rate. At that time another tax will be needed to supplement a carbon tax.

For Social Security, a national sales tax would make sense. A sales tax has the same regressivity as FICA, but unlike FICA a sales tax encourages the working class to save.

For the income tax, the problem is more challenging. You can find many ideas to help answer this challenge in other chapters on this site. And even should they prove insufficient, and the income tax must be reinstated, the effort would still be worthwhile. The economy could use a vacation.

And there are yet other carbon tax options .