Experts and pundits say that the best way to stop climate change is internalizing its costs. They suggest slapping a tax on carbon emissions which will encourage people to produce less of it.
They are correct. A carbon tax is the ideal solution to climate change. It is simple to create and generates money for the government. But there’s the simple problem that people don’t like taxes. Voters in Washington have twice rejected putting a fee on carbon as it would mean higher gasoline and electricity prices. In 2014, Australia’s newly elected right wing government repealed an unpopular carbon tax that had been imposed by the previous Labour government. The fact of the matter is that people prefer Rube Goldberg bureaucratic solutions where the costs are hidden, and that’s not a new thing.
During World War 2, the government needed to force citizens to consume less so that materials could be freed for war. There would have been 3 ways to do this
-Have the government simply write a check for all the war materials it needed, the resulting inflation would’ve forced down consumption
-Have the government dramatically raise taxes, particularly those on consumption. This would’ve encouraged people to buy war bonds with their money instead
-Have the government ration consumption, impose price and wage controls to stop inflation, and outright ban the production of consumer goods such as automobiles and refrigerators
We chose number 3, although we did a little of number 2. People don’t like taxes and they don’t like inflation. With rationing and production controls enforced by various agencies such as the War Production Board and Office of Price Administration. It was a bureaucratic mess to enforce with black markets and retailers who ignored the price limits, but it worked and was the least bad solution in the eyes of the public.
Fast forward 30 years, the US is in the midst of an energy crisis and the government feels the needs to force people to use less gas. They could’ve raised the gasoline tax, but that wouldn’t have been popular. So instead they imposed Corporate Average Fuel Economy standards, or CAFE. By 1985, each car brand had to have an average fuel economy of 27.5 mpg. This solution was again bureaucratic and complicated, but it worked in forcing automakers to sell smaller cars and reducing oil consumption. The EPA would also slap on energy efficiency standards for refrigerators, air conditioners, dehumidifiers, heat pumps etc. These more energy efficient appliances and cars were more expensive to make, but because there was no explicit tax, Americans didn’t care.
And so, it will probably be this way in our solution to climate change. We will set many complicated rules that will do the job in a way that hides the costs. We see this in Nevada which voted to require 50% renewable energy by 2030, we see it in the Netherlands, which voted to ban coal fired electricity.
It is time that policymakers understand that voters want the costs of climate change mitigation to be hidden and change their ideas accordingly.