Larry Summers Calls For a Carbon Tax Now

In a recent op-ed in the Washington Post, former Treasury Secretary Lawrence "Larry" Summers makes the point that, with gasoline taxes at levels not seen in years, this would be an excellent time to implement a carbon tax.

It's not likely that a 25-cent-per-gallon surcharge to help offset the impacts of resulting carbon emissions will draw outrage at a time when gas prices have fallen by over a dollar. Yet, this is the amount that a proposed $25-per-ton carbon tax would cost. The $1 trillion collected from this could be used to fund aggressive development of cleaner technology and to help prepare cities and towns for the many changes that have been predicted.

Summers points out that,  "The core of the case for a carbon tax is the recognition that those who use carbon fuels or products do not bear all the costs of their actions."

Indeed, the only realistic possibility for a successful market-based approach to combating climate change is some mechanism that reflects the full impact of each transaction. "Free" market forces that pro-business advocates often cite are not sufficient because the impact of today's actions may not show up until years from now and in some locale thousands of miles away. Indeed, buying and burning carbon fuels like gasoline, diesel and natural gas today is a bit like driving without a speedometer -- in that we have no feedback on how quickly we are adding carbon into the atmosphere.

Filling up your SUV today could contribute to coastal flooding in Florida 10 years from now, but neither you nor the people who sold you the gas have any connection to this outcome without a mechanism in place to effect this.
Of course, no one likes to pay taxes, and this fact has for years been a rallying cry for conservatives who feel that the government is already too large. They claim that added taxes would only increase the size of the government. First of all, these folks tend to consistently undervalue the role that government plays in facilitating the interactions between businesses, the public and the environment. I've already pointed out that free market forces alone are not sufficient in cases like this. Secondly, a number of proposals that have been put forth for a carbon tax would have all of the money refunded to taxpayers at tax time, with the possible exception of the wealthiest individuals. Some of the proposals could potentially allow for significant reductions in income tax.

Perhaps more importantly, as Summers adds, "That which is not paid for is overused."
These low gas prices are making it harder to justify efficiency measures and renewable supply on an economic basis. The payback period just got a little longer. Hence, another benefit: The implementation of a carbon tax could also stem the tide, which is already underway, of people rushing out to buy large SUVs and pickups, as if these super-low gas prices not were not just a temporary blip on the economic timeline.

There are several reasons why the return to higher gas prices is inevitable. First, although increased U.S. production has put supply ahead of demand, the rapidly growing economies in places like India and China are quickly increasing demand which will soon catch up to supply once again. But even before that happens, the economics of oil production will take over. Oil companies will not sell gasoline at a loss. And these low prices are already close to what it costs to produce the oil, especially when using exotic, deep-earth drilling techniques like tar sands extraction or hydraulic fracturing (aka "fracking") of shale deposits. Geologist David Hughes has pointed out the fact that fracking wells do not last long and when they give out, new wells must be drilled at even greater depths which translates into higher costs.

A carbon tax will shift that break-even point as well.

The mentality that says, "let's buy a gas-guzzler because prices are down," is the kind of thinking we really need to get away from if we are to get to a sustainable existence.

Summers is absolutely right. This is the perfect time for a carbon tax. Now, let's see what the Republican-controlled Congress has to say about that.

Image credit: Flickr/teegardin