Argument: A carbon tax would not damage an economy

Issue Report: Cap-and-trade versus carbon tax


Paul Volcker, former chairman of the U.S. Federal Reserve, speaking to the U.S. Chamber of Commerce in Egypt: [The argument that taxes on oil or carbon emissions would ruin an economy is] “fundamentally false. First of all, I don’t think [such a step] is going to have that much of an impact on the economy overall. Second of all, if you don’t do it, you can be sure that the economy will go down the drain in the next 30 years”. He said this is reference to the 2006 UN Intergovernmental Panel on Climate Change. He added, “What may happen to the dollar, and what may happen to growth in China or whatever pale into insignificance compared with the question of what happens to this planet over the next 30 or 40 years if no action is taken… The scientists seem pretty well agreed that [global warming] is still potentially manageable if we act decisively, beginning now into the next decade or so, by taking measures that are technically and economically feasible.”[1][2]

“Little damage from carbon tax, report says”. June 6, 2007 – About an internal report prepared for the Canadian Conservative government.

William Schlesinger. “Carbon Tax Provides Fairest Incentive For Curbing Global Warming”. May 16, 2005 – “A carbon tax does not necessarily mean a net increase in our cost of living. Carbon tax revenues could be directed to general government expenditures, so that income tax rates could be reduced for all Americans — or perhaps those at the lower income levels. Importantly, our current income tax structure provides no personal choice to reduce our tax; indeed, the more we earn, the more we pay on April 15.”

“Is It Time for a New Tax on Energy?”. Wall Street Journal. 8 Feb, 2007: “A majority of economists polled by the Wall Street Journal during Feb. 2-7, 2007: The government should encourage development of alternatives to fossil fuels, economists said in a survey. But most say the best way to do that isn’t in President Bush’s energy proposals: a new tax on fossil fuels. Forty of 47 economists who answered the question said the government should help champion alternative fuels. ‘Economists generally are in favor of free-market solutions, but there are times when you need to intervene,’ said David Wyss at Standard & Poor’s Corp. ‘We’re already in the danger zone’ because of the outlook for oil supplies and concerns about climate change, he said. A majority of the economists said a tax on fossil fuels would be the most economically sound way to encourage alternatives. A tax would raise the price of fossil fuels and make alternatives, which today often are more costly to produce, more competitive in the consumer market. ‘A tax puts pressure on the market, rather than forcing an artificial solution on it,’ said Mr. Wyss.”

“Doffing the cap”. The Economist. 14 June 2007: “Taxes are also more prone to ideological caricature, particularly in America, where many conservatives argue instinctively that all taxes are bad. Too many politicians pretend that carbon taxes will hurt consumers more than a cap-and-trade scheme, even though the cost of carbon permits will be passed on to consumers just as quickly as a tax.”