The most important feature of a carbon tax is that it start small and get progressively larger over the next thirty to fifty years.
Carbon tax isn't about fairness or justice. It's about making investors feel safe allocating long term dollars into alternative energy r&d over a timeline long enough to allow a real transition. A gradually increasing carbon tax is the simplest and surest way for the government to catalyze innovation.
Bloomberg says a current discussion in Washington is for a $20/ton carbon tax increasing by 6% a year. That's $33/ton in 10 years, $60/ton in 20, and $350/ton in 50 years.
Exactly -- slow and steady increases are fine (in inflation, taxes, etc.); it's risk which might strand capital assets which destroys and economy. Unfortunately, modern democracy (at least in the US) doesn't seem to do long-term sustained slow and steady anything; it's always wait wait wait then overcorrecting (or correcting more in the wrong direction). The Fed, which is quasi-independent, is one of the few organizations which seems to exert constant slight pressure, and that's complicated by the dual mandate.
The argument is that the cost of extracting the energy and transforming it into a usable source does not match the cost it does to the environment once that energy is used. That's what the carbon tax is for. It's for the carbon (pollutants) you produce not for the energy you use. Hence why it's called a carbon tax and not an energy tax.
Exactly. By capturing externalities correctly you'd encourage use of inconveniently located less-polluting energy sources in some cases, in preference to easily transported (or conveniently located) more polluting fuels.
(or, my favorite, easily transported, non polluting nuclear...)
A correctly-structured carbon tax would make a new NG plant relatively more attractive vs. continuing to operate a coal plant without the tax. (both fossil fuels, but NG is more efficient).
Also I think it shouldn't be a straight carbon tax, but an "environmental externalities tax". I personally care far more about other forms of pollution (especially localized) than CO2; I don't think global warming is a non-issue, but it's not the #1 environmental issue. Point sources of particulates, NO2, etc. should be taxed as well as maximum emissions specified (obviously a steel mill should be allowed to emit more, and pay for it, at full production in an efficient way, than a badly adjusted oil-fired school furnace, even if the school chooses to ignore economic rationality.)
If you make all energy more expensive, people will use less of it than they would otherwise. That's already a win. You're also creating a pain point that people will innovate around, and improving the ROI on investing in better energy sources.
The fact is, once alternative energy sources are at par, or even slightly above par, with fossil fuels, it will be a net win to switch to them. But the economy won't do so unless the price of fossil fuels reflects that.
> people will use less of it than they would otherwise
The trouble is that the economy is directly tied to energy usage. Force lower energy usage, and the economy suffers.
The cost of virtually everything is directly tied to the cost of energy. What costs money in lettuce? Mainly the trucks used to plant, harvest, and ship it.
What's your cost with trucks? Energy. What costs money there? The metal, and the assembly. The metal is free - it's in the ground. What costs money is the energy used to get it out of the ground and refine it.
Assembly? That's more machines, trace it back and it boils down to the cost of energy.
Salary? Also energy, since people need money to buy stuff.
What costs money in making alternative energy? Energy again. So raise the cost of conventional fuel, and alternative also costs more. It's impossible to win!
Use the carbon dioxide tax to fund alternative energy and people will fake it, like in Germany. They outsource the carbon dioxide costs to China, then ship that energy to the country in the form of solar panels. Those solar panels will not pay back their energy costs for decades. (Although if they do last that long it will be a win. But in the medium term it's a loss.)
You just can't force this stuff. You have to let the energy sources develop naturally, and let people use them due to price, not because you force them.
Energy prices only reflect the immediate traceable costs of that energy, not the costs of the externalities of carbon production. Making something more expensive changes cost-benefits and changes incentives.