22 November 2010

Politics as impossible, edition #1005

"Of course, it would be a major innovation for US government to stop subsidizing the very activities we are trying to regulate….but I digress."

I'm skeptical that a carbon tax would get any greener lights than a cap-trade bill would, but it's at least economically more efficient and makes a lot more sense for fiscal reasons (it's less complex to administer). The trouble being that like with food, we subsidize the hell out of energy. Including the very energy we would ultimately be taxing (fossil fuels). A simpler first step might be to focus on ending these subsidies along with corn ethanol and possibly even other alternative energy projects, which ultimately receive a pittance relative to oil and coal. This would have the effect of already ending a lot of gaming and rent seeking and reducing some wasteful spending. I'm pretty sure we could still use a carbon tax to deal with the externality effects of pollution alone, much less any global warming impacts, and to start to close the deficit (a straight gasoline tax hike is on the table for this reason too, though the government uses that revenue on infrastructure, especially roads, thus raising the amount of gasoline used in a strange cyclical process).

But one crucial point seems to be that there are massive subsidies on oil and coal around the globe and instead of focusing on ending these government price distortions, many activists are busy trying to tax them instead. I'm not sure what benefit is to be had to extract part of the economic rents being extracted already from the system for your own peculiar special interests (solar or wind power generation or natural gas even). It would seem like a better idea would be to try to level the playing field first off instead. Maybe the idea is that energy overall should just be more expensive. But I'm pretty sure that's a non-starter.
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