While in Pittsburgh, in addition to staying with cyclist Tim Kelly, Bill and I visited some our friends in town, and I stayed with my friends Kip and Aaron (meanwhile, Bill stayed with his friends, April and John Paul) . My friend Aaron, shown on the right in his Pittsburgh apartment, recently finished his PhD in environmental economics (you can call him ‘Dr. Swoboda’ if you like) and is now a professor at the University of Pittsburgh (here is his blog). Over a drink, I asked Aaron how he would make us reduce our carbon dioxide emissions.
“A revenue neutral carbon tax,” he told me.
The idea is to put a tax on carbon dioxide emissions, so that we have incentives to reduce our use of fossil fuels. This means energy from coal would cost more, as would gasoline. To make a difference, Aaron suggested that each gallon of gasoline might cost 50 cents to a dollar more. Aaron liked this solution because people who reduce their use of fossil fuel would be rewarded.
The revenue neutral part means that taxes elsewhere would be cut. For instance, income tax might be reduced. (The tricky part is that poorer people spend a much higher percentage of their paycheck on energy and gasoline, so they would be hurt more by a carbon tax – thus, their taxes would have to be cut much more). If done correctly, everyone would pay about the same amount of taxes, only now we would have a bigger incentive to pollute less and switch to non-greenhouse gas producing energy. Ok – yes, gas prices are already high, but this tax would be different, becuase instead of the money going to oil companies, the money would go towards lowering your taxes elsewhere.
I will admit that we got into a bit of an argument, as I argued that we should also have higher efficiency standards, and that we need more policies than just a tax to encourage us to be more efficient, to which Aaron replied that such efficiency standards were government interference when a carbon tax would be much simpler and have the same result.
I still believe in efficiency standards (as they are more politically viable as well), but why shouldn’t we take some of Aaron’s advice? Why not put a tax on things we should consume less of? Doesn’t a tax on gas and fossil fuels make some sense, especially if it is balanced with tax cuts elsewhere?