The Carbon Tax Is Dead, Long Live the Carbon Tax: Tyler Cowen

Often the most important results of any election come in the initiatives and referendums. And one striking result from Tuesday’s election is that voters in Washington state, a Democratic stronghold, soundly rejected a proposed carbon tax by a margin of 56 to 44 percent. This raises the prospect that the carbon tax may be dead as a policy for the time being, including at the state level. As my Bloomberg Opinion colleague Liam Denning writes: “We can debate the magnitude of the vaunted blue wave, but there was definitely no green wave.”

Like many economists, I have long supported the idea of a carbon tax, and still do. Government has to tax something. So why not tax those activities which generate social costs, in this case through disruptive climate change? It is a very intuitive argument that has persuaded many economists on both sides of the political spectrum.

But a carbon tax is just not a popular idea with American voters, of either party. It is hard to argue that the Republican Party or the conservative movement has a stranglehold over the politics of Washington state.

Furthermore, this defeat isn’t just a one-off. 2009’s American Clean Energy and Security Act — a cap-and-trade bill in Congress similar to a carbon tax in its essentials though not all of its exact mechanisms — failed even when Democrats controlled Congress and the presidency. The momentum in Canada, typically considered more left-wing than the U.S., also is running against carbon taxes. In 2014, Australia voted to repeal its carbon-pricing law. Washington state itself rejected an earlier carbon-tax proposal, coupled with a cut in the state sales tax, in 2016.

The broader data are striking. According to a World Bank estimate, 23 countries have carbon taxes of some kind, while 176 have targets or support for renewable energy alternatives. It’s hard to avoid the conclusion that the carbon tax just isn’t a big political winner.

In the American context, I don’t view the unpopularity of the carbon tax as merely reflecting the influence of special interests. The American people apparently feel that government ought to be able to solve this problem without imposing a new tax burden on them.

For all the talk about disillusionment and cynicism in American politics, this view represents a strange kind of optimism. If this issue really is so important, some voters must be thinking, surely you politicians can find a way to solve it without making us pay for everything. Don’t we give you enough money already? There is something admirable about this attitude, even if it doesn’t apply best to this particular case.

Imagine a world of cheap electric cars, much more solar and wind power, better mass transit and more plentiful (and green) nuclear power. Many Americans would be much better off in this scenario, even without climate change as a concern. Voters are demanding that it be given to them free of charge.

Of course, there is an argument that this is naïve and dangerous “free lunch” thinking. A more sophisticated interpretation is that American voters feel they have gotten a raw deal from their politicians on many previous issues, and are bargaining for a better solution.

The economist can respond, correctly, that a carbon tax will ease the path to greener outcomes, and that other taxes can be cut as recompense if necessary. But it seems right now there is not enough trust for such a grand bargain to be struck. In fact, a lot of voters probably want both a net tax cut and a greener future.

The doomsday wing of the carbon-tax movement has long faced a tension in its proclamations. On one hand, it argues that relatively modest carbon-tax proposals will bring significant gains for the global climate. On the other, some of the more extreme advocates argue that without such taxes, the climate will take a disastrous turn. The reality is that carbon taxes would simply be accelerating the natural course of technological progress — electric cars in five years rather than 15. That’s a net social benefit, but it is unlikely to make the difference between environmental balance and doom.

In any case, democracy isn’t playing along with the idea of accelerating progress through a direct tax hike. Voters seem to want the progress without the pain — and not just on climate policy. It seems they are saying the same about both Obamacare and taxes more generally.

Economists should not give up our analytical arguments for a carbon tax. But maybe it’s time for a change in tactics. These new approaches might start with the notion that we can address climate change without transferring more money from voters to politicians.