Here's the economic argument against, from conservative economist John Cochrane (try to check the tribalism and focus on the arguments), who used to be a proponent of carbon taxes.
The standard vision in policy discussions assumes infinite substitutability. As soon as the cost of clean energy is lower than the cost of carbon-emitting energy, everyone substitutes completely to the latter and the oil and coal stay in the ground. This is the key question. What the graphs make clear is that the majority of carbon must stay in the ground (or go back there) if we want to avoid a large temperature rise. (Again, I do not quibble with the climate side of the models here. Whether the large temperature rise actually hurts GDP is a separate issue, which I'll return to in the next post.) But as long as the elasticity of substitution is finite, as here, then the carbon comes out of the ground. As you use less and less, the remaining uses become more and more valuable, so it's worth it, privately and to society, to keep using it although at lower scale.
This follows from a model that implies that even extremely high carbon taxes will only post-pone 4 degrees temperature rise by 50 years or so.
So I learn from this that a key focus for R&D is not so much on lowering the cost of alternatives, but increasing their substitutability for fossil fuels. Just because the cost of solar cells is plummeting does us little good. We need to increase their substitutability. This consideration once again points to nuclear and carbon capture and storage as really important technologies. We're really talking about how to replace coal-fired base-load electric plants in parts of the world that badly need electricity. Nuclear and capture and storage, though they might not be the least expensive, seem to offer much better substitutability options. That both are forbidden topics in climate debates is sad. Substitution also involves other large carbon emitters. It's hard to make steel and concrete without emitting lots of carbon.
This thought emphasizes a point that Bjorn Lomborg hammered away on in many different ways during a previous presentation: Simply making carbon more expensive will not work.
> only post-pone 4 degrees temperature rise by 50 years or so.
This sounds awesome. How is this an argument against?
I don't understand the substitutability argument. Yes, we need to spend a lot of effort making non-carbon mechanisms to substitute for carbon mechanism. To do that, we need an incentive for this research. The carbon tax is a good incentive.
Carbon tax is also politically neutral -- it doesn't care whether you substitute with nuclear, carbon capture or something prettier.
Got any more arguments for a carbon tax disguised as arguments against it?
I am not an economist, but I'll point out that all of these economists would respectfully disagree with John Cochrane: https://www.econstatement.org/
Including 28 Nobel laureates, former Federal Reserve chairpeople, and a few thousand other economists.
But intuitively, I do agree that simply making carbon more expensive won't work. You have to take the money and inject it back into the economy in a way that alleviates the regressive nature of a plain carbon tax while making the revenue available to boost the low-carbon economy. Carbon dividends, if you trust most economists, is the most efficient way to do that.
you need to pay out the earnings of the tax to the population again. This way the population easily can substitute consumption with usually more expensive alternatives
I'm not sure why Cochrane's so obsessed with using taxation (oh - he's an economist. OK.)
Most fossil-fuel burning is going on in power plants. By diverting power generation to renewables, you remove the demand; fossil fuel prices fall, prospecting falls, extraction falls.
Yes, I know, there's flight, shipping and personal transportation. But power generation is most of it. And I'd just like to see less flight, shipping and personal transportation.
The standard vision in policy discussions assumes infinite substitutability. As soon as the cost of clean energy is lower than the cost of carbon-emitting energy, everyone substitutes completely to the latter and the oil and coal stay in the ground. This is the key question. What the graphs make clear is that the majority of carbon must stay in the ground (or go back there) if we want to avoid a large temperature rise. (Again, I do not quibble with the climate side of the models here. Whether the large temperature rise actually hurts GDP is a separate issue, which I'll return to in the next post.) But as long as the elasticity of substitution is finite, as here, then the carbon comes out of the ground. As you use less and less, the remaining uses become more and more valuable, so it's worth it, privately and to society, to keep using it although at lower scale.
This follows from a model that implies that even extremely high carbon taxes will only post-pone 4 degrees temperature rise by 50 years or so.
So I learn from this that a key focus for R&D is not so much on lowering the cost of alternatives, but increasing their substitutability for fossil fuels. Just because the cost of solar cells is plummeting does us little good. We need to increase their substitutability. This consideration once again points to nuclear and carbon capture and storage as really important technologies. We're really talking about how to replace coal-fired base-load electric plants in parts of the world that badly need electricity. Nuclear and capture and storage, though they might not be the least expensive, seem to offer much better substitutability options. That both are forbidden topics in climate debates is sad. Substitution also involves other large carbon emitters. It's hard to make steel and concrete without emitting lots of carbon.
This thought emphasizes a point that Bjorn Lomborg hammered away on in many different ways during a previous presentation: Simply making carbon more expensive will not work.
https://johnhcochrane.blogspot.com/2021/07/rossi-hansberg-on...