President Barack Obama is reportedly considering a tax on carbon emissions to help cut the U.S. budget deficit. As many know, I am leery of the use of higher taxes in this country and countries like France in the midst of this economic crisis. However, this is one tax that I have long favored — not as a method of deficit reduction but as an effort to force companies to internalize some of the costs of pollution. The key, however, is to allow companies to reduce such taxes by reducing their emissions, creating an incentive to decrease pollution.
The Germans have a comprehensive system for imposing such costs on manufacturers. For example, Germany reduces garbage dramatically by forcing companies to pay for some of the ultimate disposal costs of packaging. In the United States, manufacturers use over-sized boxes and containers as well as large amounts of plastics to improve the appearance of products. This material is simply discarded and fills our dumps and landfills. In Germany and other countries, such packaging is taxed to reflect the ultimate costs to society. This has resulted in far less waste in packaging in Europe where companies tend to be equally creative but more careful in the use of material.
The proposed tax would start at $20 a metric ton of carbon dioxide equivalent and rise at about 6 percent a year. I would like to see a more tailored approach for companies that focuses on the cost of their externalities rather than simply taxing as a method to reduce the deficit.
The current problem with cap-and-trade is that “brokers” are flush with credits and the price is falling to buy the right to pollute. Nevertheless, many have argued for a cap-and-trade on greenhouse gases.
If done correctly, a carbon tax could offer a direct incentive to adopt greater methods of emissions reductions. Rather than rely on solely command-and-control systems which specify things like scrubbers, companies could find creative ways to reduce such emissions and avoid the tax.
What do you think?