I’m deeply curious about the implementation of a carbon tax on large corporations, as it seems like an economically straightforward means of beginning to combat climate change on a larger scale. However, I’m not certain of the specifics/variety of carbon taxes which have been proposed and also lack a sufficient knowledge of economics to know if there are any difficult-to-discern downsides to the concept (My education is in ecology so I’m only seeing benefits of such an idea). I’d love to be more educated on the topic, and know why it hasn’t received widespread acceptance yet.
In: Economics
Fossil fuels are really cheap. Incredibly cheap. Even gasoline, an oil product that requires advanced refining before it’s trucked to cities hundreds of miles away and sold to consumers, is still cheaper per gallon than milk. Fossil fuels are also incredibly efficient – a few gallons of gas can drive twice as far as a fully-charged electric car, and its refining byproducts can make enough plastic for hundreds of consumer goods.
This means that a company that wants to avoid burning fossil fuels will pay a massive premium and could never compete with another company on price. Not only will the competitor’s product be cheaper, but they can do all kinds of fuel-intensive strategies, like outsourced manufacturing, international and cross-country sales, and cheap disposable materials that are simply impossible for a carbon-free business.
The carbon tax is effectively an artificial cost increase that makes these carbon-intensive strategies more expensive. While they don’t ban fossil fuels outright, they reduce the competitive difference between carbon-free and carbon-intensive from impossible to difficult.
What the government does with the money is irrelevant. The important part is that sustainable manufacturing and logistics becomes cheaper relative to carbon-intensive operations.
There are lots of problems with a carbon tax. The hardest is implementation – companies can’t be trusted to accurately report their emissions, and the EPA is way too understaffed to constantly sample tailpipes and smokestacks. It’s just too easy to cheat.
The second is global economics. A consequence of our peaceful, internationally-distributed world is that if one country’s laws are expensive, you can move to another country. If you’re paying a lot of carbon tax to manufacture in Michigan, just manufacture in Guandong instead and pay a smaller tax to import the product. This presents a political snafu – either coordinate literally the entire world into a unified carbon agreement, enrage a friendly nation by imposing tariffs, or watch your country’s manufacturing leave town for cheaper factories which may be even worse for the environment.
There’s the political pressure. A successful carbon tax will increase companies’ operating costs – it’s unavoidable, since low-emissions fuel and polymers are massively more expensive than petrochemicals. Products and services will become much more expensive, and companies will need to close factories and lay workers off to contain their costs. Households will lose even more disposable income, and many will be literally priced out of commuting to work or buying consumer goods. The average citizen and the largest corporations are motivated to eliminate the tax, making it a nightmare to enact and defend.
From a microeconomics perspective, a carbon tax basically obliterates the low-end consumer segment. The materials, parts, and logistics become so expensive that it’s not even worth offering the product.
Finally, probably the hardest to crack, is the military. The Pentagon reported that 80% of America’s federal fuel consumption is by the various military branches. Even in peacetime, the military’s logistics, manufacturing, peacekeeping operations, readiness exercises, and general saber-rattling release a lot of gas. Arguing that the country should weaken its defensive ability, or multiply its costs along with the NATO peacekeeping force, UN peacekeepers, and other military organizations overseen by the US, is political suicide, let alone poor geopolitical strategy.
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