In a recent editorial advocating taxing carbon dioxide emissions, the New York Times claimed that taxing carbon dioxide emissions would hurt neither businesses nor consumers; yet they proceed with their own argument to illustrate otherwise.
The ridiculousness of the Times’ editorial is first illustrated in its title: “Proof That a Price on Carbon Works”.
First of all, why does the media insist on referring to it as “carbon”? Calling carbon dioxide (CO2) “carbon” is like calling water (H20) “hydrogen”. It’s just silly. Maybe “carbon” sounds dirtier than “carbon dioxide”? After all, we’re supposed to regard CO2 as a “pollutant”, but we all learned in elementary school how “carbon dioxide” is food for plants and something we all exhale, so there’s that cognitive challenge for propagandists to overcome. Maybe calling it “carbon” instead of “carbon dioxide” is intended to overcome that obstacle to get people thinking about it, ludicrously, as a “pollutant”.
That aside, second, notice how the Times refers to it as putting “a price on carbon”, as though taxing something was the same as pricing it. Perhaps we ought to refer to the amount of income individuals owe to the IRS each year as the government’s “price” on their labor?
The editorial begins:
Lawmakers who oppose taking action to lower greenhouse gas emissions by putting a price on carbon often argue that doing so would hurt businesses and consumers. But the energy policies adopted by some American states and Canadian provinces demonstrate that those arguments are simply unfounded.
So taxing CO2 emissions wouldn’t hurt businesses or consumers?
After having made that bold claim, the Times admits a little further down the page that both taxing and capping CO2 emissions “effectively raise the price of using fossil fuels”.
How can it be both true that taxing CO2 doesn’t hurt business or consumers and that it would increase energy costs?
The Role of Market Prices
The editors seem to think that businesses wouldn’t be hurt because they could just switch over “to generate more energy from low-carbon sources like solar, wind and nuclear power” — as though there would be no cost incurred to do so. As though it was as simple as just flipping a switch to turn off coal production and turn on whichever alternative.
This brings us back to prices. Prices are extremely important. They are critical to a functioning market as they indicate the supply of and demand for a good or service. If solar and wind power were an efficient means of producing energy, there would be profits to be had from it and hence an incredible opportunity for companies to invest in the required infrastructure to produce it. But harnessing the sun and the wind, as much as we might wish otherwise, is not yet an efficient means of producing sufficient amounts of affordable energy. This is obvious: if it were otherwise, there would be no need for the government to heavily subsidize these industries in order to keep them afloat.
This introduces a further negative feedback into the economy: since these companies are able to remain in business due to taxpayer subsidies, they don’t have to rely on entrepreneurial innovation to attract investment in order to do the same. Hence, rather than pushing these industries forward, subsidizing them is likely holding them back.
Now, perhaps the Times editors would argue that since coal companies could receive 345 times more subsidies per unit of production to switch to solar or 52 times more to switch to wind, therefore it wouldn’t hurt their business to do so. But, then, what about the consumers?
Here’s what the Times editors seem not to want to see: Subsidies don’t make solar and wind power more affordable; they just shift the increased cost burden.
As a simple logical truism, government bureaucrats making decisions at best arbitrarily (assuming the best of intentions and no cronyism) do not know better than the market with its pricing system how to efficiently direct scarce resources towards productive ends as determined by consumer demand.
The fact that these subsidies exist ipso facto means that those resources would be better directed elsewhere, which means that the inefficiencies introduced into the market as a result of their existence are hampering the increase in society’s standard of living.
And this misallocation of resources disproportionately harms the poorest among us.
The Times’ Exhibit A: British Colombia
The Times editors do backflips to try to reconcile their irreconcilable self-contradiction that taxing CO2 emissions does not harm consumers while acknowledging that it would increase energy costs. As proof of concept, they point to British Colombia, which started taxing CO2 emissions in 2008. They admit right off the bat that, consequently, “People pay more for energy….”
So how is it, then, that having to pay more for energy doesn’t hurt the consumer? The Times editors argue that the BC system “is essentially revenue-neutral”. What they mean is that while they pay more for energy, the Province has at the same time cut personal income and corporate taxes, including tax credits for those with low income. “Researchers have found that the tax helped cut emissions but has had no negative impact on the province’s growth rate,” they assert.
But turning to the editors’ own source, one finds that it contradicts their own claim that taxing CO2 emissions won’t hurt businesses, as it states that “certain emissions-intensive sectors have faced challenges” as a result (hardly a surprise).
Furthermore, it is a fallacy to argue that since under this policy, while consumers do pay more for energy, they pay less in in other taxes, and therefore they are not harmed. The argument presented by the Times and their source simply begs the question, which is: Does having a tax on CO2 emissions make consumers be better, the same, or worse off than they would be otherwise?
The BC example the editors point to, as much as they would have us believe otherwise, doesn’t answer this question. As a natural experiment, it doesn’t control for this single variable.
But logic does give us an answer, provided by the nature of the BC policy itself: Clearly, in the absence of the accompanying tax cuts, the CO2 tax would harm consumers by increasing their energy costs — hence the need for those tax cuts to try to justify the policy and make it palatable to the public.
Furthermore, logically, the consumers would be even better off yet if they had those tax cuts on personal income and corporate taxes as well as not having to pay higher costs for energy.
In sum, the Times editors’ claim that the BC example proves that taxing CO2 emissions hurts neither businesses nor consumers is false, as facts and logic dictate.
Their other examples don’t serve their argument any better; they are just additional examples of claiming no additional burden exists based on the sleight-of-hand of shifting the additional burden around.
Hence, they assert that businesses and consumers are not harmed in “jurisdictions using the cap-and-trade approach like California, the nine Northeastern states and Quebec” because some of the revenue generated from auctioning permits to emit CO2 is “dedicated to helping low-income families cope with higher energy costs.”
According to the Times editors, the example of BC, Quebec, and US states with a cap-and-trade policy are “a template for the rest of the world” for how to reduce CO2 emissions without harming businesses or consumers. In truth, they are a template for the rest of the world for how to reduce society’s standard of living below where it would otherwise be, with the increased costs disproportionately harming the poorest among us who must allocate a far higher percentage of their low income on energy.
The Times‘ claim that intervening in the market in such a way as to increase the cost of energy doesn’t hurt either businesses or consumers is simple cognitive dissonance.