Who Would Pay a Carbon Tax? Everyone.

The idea of a carbon tax is gaining popularity in may circles. From environmentalists to pundits the idea is catching on. The theory behind a carbon tax is that by raising the cost of using carbon based energy sources consumption would go down and innovation would go up. Naturally, if the cost of using coal, oil, and gasoline go up, people would be less inclined, and able, to use them. As important, as the cost of using carbon based energy sources goes up, there would be motivation to use alternative energy sources to the extent that higher carbon prices either spur innovation, or, more likely, the cost of using alternative energy sources becomes more reasonable in comparison. By diminishing our dependence on carbon based energy sources we will not only clean up our environment and improve air quality, we will also will also increase our geopolitical maneuverability by reducing our need to maintain cordial relationships with nettlesome regimes on whom we rely for energy. Free from our need to do business with such countries we could at last pursue our interests unfettered by economic necessity. This is not only an illusion, it is a dangerous illusion.

First, let me address the notion that increasing energy costs will improve life in the U.S. Central to this notion is the belief that increasing gas prices will only affect traffic and environmental matters. The air will be cleaner. Our cities will become denser and with that mass transit will become more feasible. People would take to riding trains or riding buses when they travel rather than drive their cars. In short, the U.S. would finally become more like Europe. We will have dense urban centers surrounded by pastoral county sides spotted with quaint villages. In those dense urban centers people will ride the subway or take buses to get to work. After work, they will stroll around their tight, urban neighborhoods or take a short walk down the the corner grocer to pick up what they need for dinner. Along the way they can stop and chat with their neighbors who they have come to know since they have abandoned the solitary life of auto driving. This is a picture that might be found in dense cities like New York or Boston. It is also a picture that will never be found in the sprawling cities west of the Mississippi.

This is a dangerous notion primarily because the price of gasoline is not limited to drivers. If carbon tax was limited to only those who used automobiles or ran factories, there might be some merit to the idea of a carbon tax. But it is not. The indirect costs of higher fuel prices would be considerable. Cities would have to raise taxes to offset the increased costs if higher fuel prices. City fleets would cost more to operated. City buildings would cost more to heat and cool. Roads would cost more to pave. Power plants would cost more to operate. Utility rates would have to rise.

Then there is the economic ripple effect of higher fuel costs. Everything that is hauled, towed, and carried from one place to another would become more expensive. Whether it is hauled by train, carried by truck, or transported by plane, the cost of moving that item would go up. When the cost of moving an item goes up, the cost of buying that item goes up. Even if you live in a solar powered house and wear canvas shoes you will wind up paying for higher energy costs. Everyone will.

If a carbon tax is expanded to include everything that relies upon fossil fuel for its production and maintenance, then a whole new frontier is opened up. Fertilizer relies on oil for its production. Plastic relies upon oil for its manufacture. Roads rely on oil to be paved. Buildings rely on oil and coal to be heated and cooled. Factories rely on the electricity produced by power plants to operate. There just are not enough alternative energy sources in the U.S. to keep our industry running. Until we have wind powered factories served by solar trains and trucks and staffed by workers driving electric cars, we will need oil and coal. Even if a viable new source of energy was discovered tomorrow, none of us will live to see it replace the carbon based fuels that keep the U.S. running. If a practical automobile that ran on alternative fuel was designed it would still take years for it to become affordable enough for the average American to afford it. Even then it is unrealistic to think that the average American would purchase a new car when it wasn't necessary. Of course, the government could make it necessary through coercion. Most likely, it would. Liberty, economic or otherwise, is rarely a barrier to those who would remake the world.

The other benefit heralded by many is the freedom energy independence would provide the U.S. in foreign affairs.Up to now, the U.S. has had to maintain cordial relationship with countries and regimes on which it relies for energy. We have frequently had to do business with nations that have political objective at odds with our own. Most of our difficulties in the Middle East stem from our inability to dispense with dealing with energy producing nations in the region. If it weren't for oil, the U.S. could simply underwrite and defend Israel and write the rest of the region off. Lacking any economic leverage and military potency, the Muslim world could be safely ignored and left to its quarrelsome self. This too is a dangerous fantasy.

Even if the U.S. is able to somehow to achieve energy independence in the near future, the rest of the world will not. Fossil fuels will be in great demand by the world for a long time to come. Just because the U.S. no longer needed to buy oil from the Middle East, economically expanding nations like India and China would. If the U.S. chose to use its energy independence to free itself from the Middle East brier patch, it would only create a vacuum that would quickly be filled by others. As long as the Middle East needs to sell oil to the U.S., it has to do business with us. Without economic leverage of our market, we will only have diplomacy and military force to affect matters in the region, which is to say we will only have military force. If, and when, that military force is balanced, whether by Iran, China, or some other power, we will have no leverage in the region. That alone is a prospect that should keep neocons awake at night.

A carbon tax would be felt by every American. The increased costs generated by a carbon tax would be felt disproportionately by those least able to afford it. Many Americans do not have room in their budgets to pay for the highers costs that would inevitably result. There is nothing in this country that will not be affected. Plastic bags, tires, fertilizer, surgical gloves, shoes, you name it, will all become more expensive because, even if a commodity does not require a carbon based product for its manufacture, transporting it does.

Those at the forefront of the alternative energy and carbon tax movements do not fret over what it will cost the nation. They can afford a dollar here and fifty cents there. Much of America can't. Policy makers and pundits will still be able to fill up their gas tanks and afford to turn the AC down to 70 in the summer time. Most Americans will not. Many in the political class can park their cars and take the subway to work or walk to the local grocery store. Most of America can't.

The U.S. economy in inextricably bound up with oil and other fossil fuels. It will continue to be so for decades to come. If you want to throw the economy in the tank, raise gasoline prices by $1 a gallon or the cost of electricity by a few cents a kilowatt and see what happens.

Ideas are nice and clean. They smoothly take into account all variables and possibilities. It is only when they come into contact with reality that trouble begins. When reality doesn't conform with the idea something has to give and it is always reality that has to yield.  The idea of a carbon tax makes sense in the mind of the person who holds it. The consequences of trying to impose that idea on reality are simply details to be worked out by the technocrats. As for society, it will believe whatever it is taught to believe and act however it is taught to act. They will gladly bear the burdens a carbon tax would place upon them once they learn all the marvelous things that tax will do for them and behold all the marvelous new technology that would ensue even if they have to get by with less. At least that's how the theory goes.