Paulson’s Carbon Tax: Wrong Model, Wrong Problem, Wrong Solution

COMMENTARY Energy Economics

Paulson’s Carbon Tax: Wrong Model, Wrong Problem, Wrong Solution

Jun 24th, 2014 4 min read
Katie Tubb

Policy Analyst

Katie Tubb is a policy analyst for energy and environmental issues in the Thomas A. Roe Institute for Economic Policy Studies.

Henry Paulson, Secretary of the Treasury under President George W. Bush, takes a leaf from King Solomon to build his moral case for a federal carbon tax. “There is a time for weighing evidence and a time for acting,” he begins. Perhaps going for credibility by association, Mr. Paulson’s argument comes across as rather reasonable—until you consider the bigger picture, which admits evidence outside the politically correct box in which Mr. Paulson is writing.

The Wrong Model for Identifying and Managing a Crisis. Mr. Paulson argues that “we” (presumably, the federal government) are making the same mistake with global warming as with the 2008 financial crisis by “fail[ing] to rein in the excesses building up in the financial markets.” Of course, he omits any mention of the government’s significant role in creating the crisis. Faced with a largely government-created problem, Congress addressed it with Dodd–Frank, a solution equivalent to breaking a leg to heal a broken foot. Claiming to be a savior on a white horse, the government sold the story that the marketplace was the problem.

Mr. Paulson says that “we’re making the same mistake today with climate change.” Indeed we are. Too many in Washington are too quick to fix an alleged “failure” in the marketplace (which is incidentally made up of American businesses and their customers) with a carbon tax, cap-and-trade system, or regulatory scheme that mysteriously helps allies, enshrines crony capitalism, or micromanages the economy and innovation to fit desired outcomes.

The Wrong Problem. Mr. Paulson says the warming signs of global warming are clearer and growing more urgent, but is vague on exactly what those signs are. He conveniently refers to future floods, droughts, tornadoes, hurricanes, and violent storms. Inconveniently, the data from the government and elsewhere simply doesn’t support this. Even the Intergovernmental Panel on Climate Changes does not claim that these weather events are increasing in frequency.

From a broader perspective, there’s the question of how sensitive the climate is. The science is absolutely not settled on the connection between carbon dioxide emissions and climate sensitivity. In other words, carbon dioxide may not even be the problem, assuming there is one. For instance, there doesn’t seem to be any correlation between the U.S. Climate Extremes Index and carbon emissions—the third highest ranking year on the index was 1934. At the time, America was in the middle of another financial crisis, the Great Depression. Yet how does that correlate with carbon dioxide emissions?

The Wrong Solution. Instead of science informing policy, significant evidence indicates the reverse. Even if Mr. Paulson were right, he argues that “the solution can be a fundamentally conservative one that will empower the marketplace to find the most efficient response”—a carbon tax. That’s a catch-22 if there ever was one.

While proponents are quick to note how much carbon dioxide emissions will be prevented, few mention how this will affect global temperatures. Even the Environmental Protection Agency has admitted that a carbon tax would do essentially nothing to reduce global temperatures. But a carbon tax would choke economic opportunity—the best means people have to adapt and protect themselves—while enriching a select and politically connected few. For example, the Boxer–Sanders bill of 2013 would have cost $3 trillion by 2030 if Congress had been foolish enough to pass it. The carbon tax is just another progressive “sin tax” that would hurt everyone who uses energy, runs a business, or buys things that require energy to produce.

No matter how the revenues from a carbon tax are used, the burden would fall disproportionately on Americans in rural communities and the poor. Meanwhile, China, India, and others will be building power plants to provide reliable and inexpensive energy to more people, including millions who do not yet have access to electricity, in efforts to lift their people out of poverty into better, healthier standards of living.

Mr. Paulson attempts to claim the moral high ground when he says anyone who disagrees with him is a “fool” at best and “perverse” at worse. Yet federal policies that are promoted in the name of stemming global warming but that would do almost nothing to reduce global temperatures are pious falsehoods.