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The Honolulu Advertiser
Posted on: Friday, January 5, 2007

COMMENTARY
Taxing greenhouse emissions a poor idea

By Sam Batkins

For Americans who aren't eager to open their W-2s yet and prepare for another laborious tax season, a new global warming report might make paying taxes all the more burdensome.

The report wasn't issued by any among the litany of alphabet soup agencies in Washington, but by Her Majesty's Treasury Department in England. Known as the Stern Report, it details the impact of climate change and what is needed to abate levels of carbon-dioxide emissions that are deemed hazardous to global temperatures. Although it does recommend incentives for energy innovation and removal of barriers to energy efficiency, the Stern Report also calls for steps that would devastate taxpayers.

The report's recommendations are especially sweeping, by explicitly endorsing price controls for the cost of carbon emissions and contending that "taxes can set the global price of greenhouse gases, and emitters can then choose how much to emit."

This statement is suspect, because taxes are by definition compulsory — there is little "choice" involved. When money is taken from individuals and firms, they have less to spend, save and invest, which affects other businesses, consumers and employees.

Price controls — imposing a cap or a floor on costs of goods and services — have been attempted since the dawn of human commerce and produce similarly adverse effects. President Nixon's policies provide one example of this. From the time he instituted wage and price controls in 1971 to their end by 1974, inflation more than doubled — to 11 percent annually.

Whether through taxes or price controls, the Stern Report concedes that its agenda would deliver an economic shock.

"Trying to abate rapidly in the short term — when the capital in industries emitting greenhouse gases is fixed and technologies are given — can quickly become costly for firms, as the marginal cost of abatement is likely to rise sharply."

So just what is this cost?

The Congressional Budget Office issued a report in 2002 on policy initiatives that could curtail gasoline consumption. One of the proposed ideas was a modest 4.3-cent gas tax increase. The CBO calculated that this would result in an average yearly increase of $44 for consumers in low-income states. Imposing all of the carbon-control policies touted by the Stern Report on a national scale would, according to the Cato Institute, cost about $1,154 per U.S. household: a steep amount for most consumers, who are already contending with high gas and other energy prices.

The CBO estimated that the lowest income group spends an astounding 11.4 percent of their income on gasoline — mostly in rural areas where public transportation is scarce. Artificially rigging higher prices at the pump would only worsen this burden on those who are least able to cope.

Worldwide, the expense is much higher. The report notes, "Ultimately, stabilization — at whatever level — requires that annual emissions be brought down to more than 80 percent below current levels."

What are the costs of such a drastic reduction? The Stern Report says costs to the global economy could reach upward of 2 percent of GDP by 2050 — a seemingly small share that would actually translate to more than $266 billion this year — and much more in the future.

And with a new study from the United Nations showing that livestock contribute a larger share of greenhouse gas emissions than transportation, this expense might be for naught.

Few could argue that the Stern Report is deceptive. It explicitly suggests that drastically curtailing carbon-dioxide emissions through price controls and taxes will have profound economic consequences, yet that is precisely what it recommends.

U.S. policy-makers who want to grapple with global warming should give most of the Stern Report a cold shoulder. Taxpayers, already stressed over April 15, will be grateful.

Sam Batkins is deputy press secretary for the National Taxpayers Union. He wrote this commentary for the McClatchy-Tribune News Service.