IN AN ideal world, our leaders would acknowledge the danger of climate change and seek the best way to combat it. If they did, they would easily find an answer that is effective and progressive: The latest bulletin from the International Monetary Fund maps what it would take to restrain warming to tolerable levels without wasting massive amounts of money or unnecessarily harming workers, companies and households.
In our far-from-ideal world, President Trump can’t even acknowledge the problem, and the Democrats who call for immediate action seem to be running from the best solutions.
The IMF reiterates what economists have long understood: Enacting a carbon tax is “the single most powerful and efficient tool” because pricing mechanisms “make it costlier to emit greenhouse gases and allow businesses and individuals to choose how to conserve energy or switch to greener sources through a range of opportunities.” Politicians should favor choice and flexibility over central planning. “People and firms will identify which changes in behavior reduce emissions — for example, purchasing a more efficient refrigerator versus an electric car — at the lowest cost.”
By contrast, “regulations might not leave sufficient flexibility for households and firms to find least-cost options.” Regulators might not foresee or support novel technologies, and intrusive rules “motivate firms to collude with officials to alter or evade the regulations.” They also provide weak incentives for companies to invest in a wide range of better technology, because only the state’s favored approaches to decarbonizing the economy would be rewarded. For these reasons, regulatory and other alternative approaches cost society some 50 to 100 percent more than a carbon tax for the same environmental benefits.
The IMF found that the average global price is a paltry $2 per ton of carbon dioxide, while the world requires a $75-per-ton global carbon tax by 2030 to keep warming below the 2-degree Celsius threshold scientists advise. Electricity prices would rise 70 percent on average — though only 53 percent in the United States — and gasoline prices 5 percent to 15 percent in most places.
But that’s the picture before one considers what the money raised by a carbon tax could do. If governments recycled the revenue back to low-income and vulnerable people, and cut economically inefficient taxes — such as income taxes — a $50-per-ton carbon tax would feel to the economy more like $20 per ton. The plan would help low-income households and place a higher burden on the upper-income bracket. There could also be money for essential research and development to aid the energy transition.
So is this the plan that the Democratic presidential candidates have embraced? If only. Though former vice president Joe Biden and former Texas congressman Beto O’Rourke have cautiously acknowledged the importance of carbon pricing, they are far more specific in their ideas for spending lots of money. Sen. Elizabeth Warren (D-Mass.) recently adopted a regulate-and-spend program. And Sen. Bernie Sanders (I-Vt.) would have the federal government establish its own utilities and build its own power-generation facilities, from scratch, according to, yes, a central plan.
The science does not change because politicians deny that humans are warming the planet. Likewise the economics do not change because politicians find them ideologically or politically inconvenient.