Carbon tax or Green New Deal?

Published in Columbus Dispatch, March 15, 2019 by Brent Sohngen

Ohioans are about to get another taste of carbon taxes if legislators approve some amount of a gasoline-tax increase as proposed by Gov. Mike DeWine. The legislature will never call it a carbon tax, but under the governor’s original proposal, Ohio’s tax would be equivalent to $46 per ton of carbon dioxide. That’s almost exactly the size of a carbon tax proposed recently by a bunch of high-powered economists, who suggested it as the best way to solve our climate problem.

Most of the recent press, of course, has been about the Green New Deal proposal by U.S. Rep. Alexandria Ocasio-Cortez, D-N.Y. How do a carbon tax and the proposed Green New Deal differ? The Green New Deal appears mostly aspirational, given that it calls for a carbon-free economy in 10 years’ time, and it seems to favor traditional command-and-control regulatory approaches for achieving its goal.

A carbon tax, in contrast, puts society on a path toward a more sustainable future where we use less carbon for the things we do, but makes no requirement that anyone stop using fossil fuels.

And it lets people choose how to spend their money. Consider your use of electricity. Right now in Ohio, about 60 percent of electricity is produced by coal, a carbon-intensive source of energy. A $46-per-ton carbon tax would increase electricity prices by about 2.2 cents per kilowatt hour, or around $220 per year for the typical consumer in Ohio. While we could all continue buying coal-fired electricity, at least until the last coal plant shuts down, we would start shifting towards greener options because they have a lower tax.

If carbon taxes increase over time, household payments will not increase because the mix of fuel used to produce electricity will change. Because both natural gas and renewable energy are less carbon-intensive than coal, the carbon-tax portion of our electricity bills will decline despite rising carbon taxes. And, perhaps even more important, the costs of natural gas, solar and wind power have continued to fall rapidly due to innovation, so higher carbon taxes would have minimal effect on total household electricity costs in the future.

In contrast, a command-and-control approach could be disastrous for consumers if it pushes renewable options onto the grid too quickly. There is still considerable uncertainty about how renewable assets can be deployed on the landscape and how the electricity grid can be structured to handle them.

Carbon taxes are also the best idea for transportation. Our driving habits are entrenched and public transportation is expensive in the Midwest because people are really spread out. But even in cities with ample public transportation, driving remains critical because people choose to do it. Carbon taxes will encourage development of new technologies for driving, including electric cars, but we are more than 10 years away from widespread adoption of those technologies even with high carbon prices.

The food sector is another area where the argument for a carbon tax is strong. Food choices are about as personal as any choice can be, so regulating what we eat is a really bad idea. But farming, even local organic farming, is energy intensive and has large emissions of methane from cows and nitrous oxide from fertilizer, two of the most-potent greenhouse gases.

A $46-per-ton carbon tax applied to fertilizer and cows would cost farmers $7-$8 per acre per year, and $3 per cow per year. The tax would increase food costs by 1 percent to 4 percent, depending on an individual’s dietary preferences. But compare that to a Green New Deal that eliminates beef because cows are a potent emitter of greenhouse gases.

There is no doubt that it is important to solve the climate problem, but it is just as important to be economically rational about it. The command-and-control associated with the Green New Deal would cost too much. A carbon tax, applied more broadly than just to gasoline, could achieve the same thing albeit much more cheaply and over a bit more time.