Latest posts by H. Sterling Burnett (see all)
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Some on the political right are floating a new “supply-side” idea for reducing carbon dioxide emissions without creating more market distortions: clean tax cuts. Proponents of the cuts want to reduce or end all taxes on investments in technologies that reduce greenhouse gas emissions.
In theory, tax cuts on so-called “clean” technologies should dramatically increase investments in these industries, because investors would not have to pay taxes on the profits. Because taxes would still be paid by companies using fossil fuels to produce electricity or churn out popular products not as energy-efficient as alternative models in their class, stock prices would fall and investment in them would wane. Proponents have described it as “an all carrot, no-stick” approach to reducing carbon dioxide emissions.
There are multiple problems with this approach, the most glaring of which is, as an old mentor of mine used to say, “There’s never a good time to do the wrong thing.” One can pursue more or less efficient means to cut carbon dioxide emissions: coerced emission reductions through command-and-control regulations, a carbon tax, cap-and-trade, and now clean tax cuts. The latter may reduce carbon dioxide by larger amounts, more quickly, or with less negative effects on the economy than the other options, but why bother? The only reason to discourage the use of fossil fuels is to prevent dangerous climate change. Yet, the best evidence—as opposed to dubious computer model predictions—suggests humans aren’t causing the climate to change in ways even remotely threatening to human health or environmental integrity.
Almost every testable projection made by computer models concerning the impacts of greenhouse gas emissions on the planet has been proven wrong. Hurricanes aren’t getting worse; sea level rise has slowed; Antarctica and the Arctic are adding ice; scientists can show no species to have been lost due to climate change; droughts continue to wax and wane as they always have; and crop production continues to set records. Even actual measured temperatures are much lower than computer model predictions, indicating global temperature is most likely less sensitive to greenhouse gases being added to the atmosphere than computer models suggest.
If humans aren’t causing apocalyptic global warming, there’s no good reason why governments should manipulate energy markets, even with a supposedly efficient clean tax cut.
Discouraging fossil fuels is an especially bad idea because expanding the use of fossil fuels is almost certainly the quickest, surest way to decrease poverty and increase economic progress in the United States and abroad. Further, higher carbon dioxide levels are demonstrably beneficial for plants, increasing agricultural yields, improving plants’ water use efficiency, and greening Earth by shrinking deserts and expanding forest cover.
More than one billion people don’t have access to regular supplies of electricity today, with millions dying from preventable cardiopulmonary diseases each year from indoor air pollution caused by their use of wood, charcoal, dung, and other flammable materials used to light and heat their homes. Millions more die prematurely from a lack of access to safe drinking water, modern transportation, and hospitals with working electric lights, medical equipment, and refrigeration. In the West, we take these necessities for granted, but they were all brought about on a large scale by the use of fossil fuels. The use of coal, gasoline, natural gas, and oil makes modern life possible. Where fossil fuels are in regular use, people are wealthy, and where their use is absent, poverty, disease, and hunger are rife.
In addition to the inanity and immorality of efforts to restrict the use of fossil fuels, clean tax cuts face practical political hurdles. Proponents say they do not wish to bankrupt the fossil-fuel industry; they instead hope the clean tax cut will wean the nation off of fossil fuels gradually, providing a soft landing for coal, gas, and oil companies and their workers. Accordingly, the proposal suggests phasing out other subsidies and mandates. The intent is to encourage people to use cleaner energy while minimizing market distortions.
I agree that energy subsidies and mandates should be ended, but the clean tax plan contains a significant Achilles’ heel: Wind and solar power aren’t profitable without significant subsidies and mandates. Depending on the location and source of generation, the electricity they produce is up to five times more expensive than electricity generated using fossil fuels, and that’s with the subsidies and mandates. Take the latter away, and they are big money losers. If you take away the subsidies and mandates, investors won’t have to worry about paying taxes, because they will be writing off huge losses. As a result, although green tech companies may embrace a clean tax cut plan, they will do so only alongside the special treatment they already receive, not as a replacement for the politically created economic advantages they have already won.
Clean tax cuts are a solution in search of a problem, and they would only impose an additional distortion on energy markets. The truly clean approach is to get rid of all subsidies and manipulations to the tax code, a move that would allow the energy mix to reflect economic realities.