Tuesday, July 22, 2008

Pickens, Realpolitik, and the Labels of Cap & Tax

T. Boone Pickens burst onto Al Gore’s stage this week with his urgent call for massive fuel switching by the US away from “foreign oil” and toward wind, solar, and natural gas. Parts of the blogosphere and MSM have been aflutter about the climate change possibilities being considered in the US—note, for example, Mike’s post over the weekend! There are, of course, several different reasons to be worried about “peak oil” and the future of this, our most important, energy source. Pickens seems most interested in the financial and security concerns of paying $700 billion a year into OPEC economies just to fund our addiction. In a nutshell, he wants to build massive wind farms in the center of the country (where there’s a lot of wind) so that we can switch all of our natural gas supply to vehicles and thereby reduce our demand for oil by ~ 40%. This, of course, can only happen with an unprecedented effort from the federal government.

Now, as Mike pointed out, asking the federal government to do anything anymore that involves the word “tax” or the word “regulation” is probably an exercise in political sadism. Note, though, that Gore and others who focus on our overuse of oil because of its link to climate change have been rightly pointing out that there is no “low cost” path on energy in the future. Every option is going to cost dearly and probably cost more if government regulation doesn’t foreclose at least some of the many opportunities there will be for price gouging.

So this is my query. Why hasn’t the ‘carbon tax’ movement started switching to the word “fee”? Americans are just as bombarded by fees as they are by taxes, yet no one ever puts “fees” in that box with “death.” Isn’t it because fees sound avoidable and tailored to behavior, something people intuitively feel able to control and/or suffer the repercussions willingly? Carbon “fees” could be saddled on only some emitters, the biggest or most inefficient let’s say. And they could be generalized and set by legislation or regulation. Lots of fees are more standardized than taxes (consider the rhetorical appeal of the “flat tax”). Would this semantic maneuver make a political difference?

It might. Cap and trade would be, by most estimates, harder to start up, costlier to manage, more likely to produce big distortions from the lumpiness of firms and various market structures, and more likely to entrench flawed judgments about programmatic goals. Compared to cap and trade, a tax—er, fee—on the emission of greenhouse gases like carbon dioxide looks like child’s play. And as to the fairness of only getting some and not all emitters, it strikes me that the assumptions on cap and trade are usually just that. Not everyone will be granted the allowances—or even need them. They are usually earmarked for only certain “firms.” Setting the “fee” on these actors instead of letting the auctions for allowances do so will put some price predictability into our carbon-shrinking plans—assuming the government can do any of this. I have to say that I remain dubious: the Earth needs more than a good lawyer these days. It needs a top-flight corporate communications strategist.

Posted by Jamie Colburn (PS: final NEPA post still in progress.)