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I'm not sure I understand. Wouldn't that mean that steel producers just end up passing on more of the cost to consumers in the form of higher prices, resulting in reduced steel consumption? It sounds like a tax would work fine.

By the way, I'm working on the assumption of a carbon price applied on fossil fuels at the source, such as the Energy Innovation Act would include.

Consumption would only be reduced for industries that have a viable alternative. Maybe you can replace steel for some applications, but not all, and for those the costs will be passed on to the consumer who will bear this tax and will have no alternative on the market.

I think that's the point of the carbon tax.

That customers will feel price pressure from their most-carbon-emitting activities and commodities is precisely the point. This will encourage finding alternatives. No demand is entirely inelastic.

The argument isn't that this wouldn't work, its that this would be sub-optimal.

Squeezing extra tax out of poor people who have literally no alternative is not going to be a popular plan. Allowing for a hint of nuance in your public policy would incentivize switching to alternatives where possible, while also incentivizing the development and adoption of alternatives where they don't currently exist.

> Allowing for a hint of nuance in your public policy

I am highly skeptical that is it possible for American legislation's 'nuance' to tilt a simple tax law in any direction but towards enriching the rich and powerful.

I feel like carve outs would be great for lobbyists and the politicians they pay patronage to, but it would destroy the effectiveness of the carbon tax: the industries with enough political power would negotiate exemptions because "there are no economically feasible alternatives" but making carbon-expensive activity economically infeasible is the core purpose or the carbon tax.

Exempting any industry in particular is just corruption.

I absolutely agree. I have no faith that the government would do anything other than half measures at best. I consider policy discussions like this totally theoretical/intellectual

People have thought of this--a popular kind of proposal is to return all the tax money as a dividend to everyone evenly, to ease the financial burden.

I think a carbon tax with dividend actually fits the criteria you are describing pretty well.

Wouldn't this have the perverse incentive of poor people wanting large emitters to keep emitting, because it directly puts food on their table?

In a sense yes, but I wouldn't call that an incentive, any more than I have an "incentive" for Chipotle to give me free burritos. I'm not the one making the decision there. The people who are doing the polluting have the right incentive, and that's what matters.

If the amount of the tax were fixed, the dividend would decrease over time, but the tax gradually increases as we get better and better at doing things without emitting greenhouse gases. The eventual target being net zero carbon. Based on the tax level in the Energy Innovation Act as an example, this is predicted around 2050.

Poor people can still vote. And they will vote against anything that reduces their dividend, even if means voting against things that lower emissions.

As to your second point - moving the goalposts every time progress is made eliminates any incentive to improve. If you're committing to keeping the dividend the same over time, that means you need to keep the tax take the same. And if you're gonna take the same amount of money off me regardless, why should I pay attention to my emissions? In the limit case, of zero carbon, the carbon tax rate is infinite and you're taking a bunch of cash off people for nothing. Somewhere along the way, something has got to give.

How long it takes for the market to produce viable alternatives is an open question.

But isn't it the point to make, e.g., steel and concrete construction include external costs? Vs, e.g. wood? Or renovating buildings instead of tearing down and rebuilding?

You could also have tax paid off over time. E.g. a concrete building that lasts 60 years, vs a stick build that lasts 20. Bricks are frequently recycled, >100 year lifetime.

I'm open to hearing counter-examples, i.e., where there is an external cost to not manufacturing a high CO2 cost product. The examples I've seen so far are really arguments about competition with BRICS economies, and their bizarre exemption from controls.

Yes, but maybe steel is more essential to society than burning natural gas. But natural gas companies make more margin so they can afford the carbon credits, meanwhile steel has tighter margins so it gets passed to the consumer. This means it might disproportionately limit the consumption of things based on how much money they make. This is all fine until construction becomes more expensive because you can’t easily get the steel you need for buildings (what if you were trying to build a clean energy power plant and. Is it’s too expensive?). Some things are essential and need protection from the free market (ex, hospitals have diesel backup generators. Those would become more expensive). You could add a government subsidy for steel, but now you’re stacking laws on top of each other and playing centrally organized government. Which doesn’t work well.

The downside to having separate laws per industry is that you’ll get insane workarounds (see import tariff law). Carbon is carbon — so workarounds are easy. For example if natural gas is taxed higher than steel, you’ll have natural gas companies producing just enough steel to be qualified as steel production companies so that they get the lower rate. Or something like that.

Choosing policy is tremendously difficult. We could deliberate all day. despite what I’ve said, a carbon tax is better than doing nothing, and we would be wise to start creating/increasing carbon taxes already.

If a) steel is more essential to society than burning natural gas and b) steel production is carbon-intensive, then an across-the-board carbon tax has two effects.

1. In the short term it makes steel more expensive. But because steel is essential, we still use it, it just costs a little more. If you're building a clean energy power plant, or making a generator for a hospital, some of the tax revenues could go to you, to make those things still affordable.

2. In the longer term, there are now huge financial incentives to either reduce the carbon consumption of steel production, or to replace steel with something which uses less carbon. Which is what you want.

If we look at just steel:

Your implicit assumption is that companies are willing to pay more for steel. An increase of just a single digit percent more to the price of steel is enough to be completely uncompetitive with overseas steel production, which would inevitably lead to the closing of all local manufacturing capacity of steel.

Steel production is also a commodity critical to national security. Losing access to foreign steel due to war or other concerns would literally bring the country to its knees for the duration of the encounter.

Shifting all local manufacturing capability overseas to where there is less regulation sounds good, until it doesn't... as we saw during the pandemic. The world would have looked a lot different today if Chinese manufacturing had closed or decreased for more than a few weeks (roughly Jan-Feb, much of which coincided with the usual Chinese New Year shutdown that is typically planned for).

But shouldn't carbon tax equally apply to imported steel? It wouldn't make any sense to only apply it to domestic.

So, I can see one obvious issue here. How do you know that what they say about their steel's carbon load is true? This goes double as they're incentivized to lie to you, you have minimal control over what happens in their country and worse, the incentives go all the way up to the nation states level, as being carbon neutral is counter to growth.

1. creates an insanely huge web of tax breaks, silver lining is that we would have a lot more accounting positions.

2. Replace steel? I see how this rationale works, we strive to replace X for something that generates less carbon, this ought to work to some extent until nothing more carbon neutral exist.

Here's the thing. Nobody wants to admit that solving climate change will involve reducing the standard of living of a lot of people. Some things will be more expensive, and people will consume less. If you think about it, without massive technological innovation, how could it be any other way?

They don't want to admit it because it's not clear it's true. Except perhaps for cars, because we need to drastically reduce vehicle miles travelled as we can't swap out our fleet fast enough and transportation miles are the biggest, hardest to solve sector of US emissions. Personally, if regulations allowed more living without cars, I think we would all have massively higher quality of life. The suburban lifestyle of living on a tiny island that can only be left with a car has drastically reduced most people's health, left them isolated, and has effects like making it so kids no longer play in streets. Allowing more people to live in neighborhoods where their daily errands and school drop offs could be met by short walking or biking trips would drastically improve their quality of life, instead of piling the family into the SUV and spending hours in traffic everyday.

For the rest of the word, we are having that massive technological innovation right now that will increase quality of life globally. For electrifying the developing world, micro grids with renewables and storage will be immensely cheaper than building our massive transmission grids and large centralized production.

Industrial sectors have the least clear path to decarbonizations, as well as sea-freight and flight, but if we can solve electricity and transportation in the next decade we have a few years so solve these far smaller sources of emissions.

There is a lot of reason to be worried, but there's also a ton of reasons to be hopeful. GDP is already decoupling from emissions, and I think as we decouple it further, we will find a higher quality of life for the vast majority of people, both in developed or developing nations.

It's not going to be a dystopia, and yes, urban design/zoning in the US is absolutely terrible. I hate it. I could rant about it for hours.

But if we have to drastically reduce ground freight and shipping emissions to reduce co2 emissions enough, which we do, goods will be more expensive. And it's also not free to switch private cars to EVs. If goods in general are more expensive, then peoples' money goes less far.

To be clear, I am in favor of this. Maybe you can make the very wealthy eat the cost, but somebody has to pay for it, and I can't see how it doesn't result in lower mean quality of life.

> we can't swap out our fleet fast enough

Average age of a car in the US is 12 years. The fleet gets swapped out naturally pretty quickly, and slight incentives would accelerate that. It's faster than swapping out electric generating capacity.

The other side of that is that we can't ramp EV production quickly enough to cause that swap out to happen any time soon, at least as far as I understand the industry.

If we are at 100% of new vehicles being electric in 2030, I'd be surprised but also ecstatic.

Having EVs dominate new vehicle sales in 2030 would require an annual growth rate of ~50%. This is plausible.

Here's the thing. Nobody wants to admit that solving climate change will involve reducing the standard of living of a lot of people.

I don't think that's necessarily true. It will be expensive to switch to renewables, certainly, but the ongoing externalities and subsidies for fossil fuels are already extremely expensive to society. Even if you completely ignore climate change, the costs in terms of healthcare and QALYs just due to air pollution alone are tremendous.

We have the technology we need to solve climate change already, the problem is not that people aren't willing to make the necessary sacrifices, the problem is that it's hard to get past societal inertia and overcome entrenched special interests.

> but the ongoing externalities and subsidies for fossil fuels are already extremely expensive to society

Not really, that’s why it’s an externality. The damage in the US caused by climate change is maybe a few billion annually in increased hurricanes right now. That’s only like $10/person a year.

This is why it requires getting people to understand the future damage that will be caused. What’s happening now isn’t enough to justify doubling electricity costs, etc because most citizens aren’t feeling any pain from climate change.

> the costs in terms of healthcare and QALYs just due to air pollution alone are tremendous.

CO2 != “air pollution” in the sense that causes health problems.

Exactly.

In France we had a Citizen's Convention for Climate (CCC), basically a citizen's jury of 150 people tasked with finding solutions for the climate crisis.

One thing was extremely clear from their proposals: people are absolutely willing to have strong climate laws passed as long as they only constrain other people. Usually these other people being vague shapeless corporations, because it feels like any cost that they bear isn't a real cost.

Maybe a climate change solution won't reduce anyone's standard of living, but maybe it will. If we're content to say "we have to stop polluting activities unless someone's livelihood depends on it in which case we'll do something else", we're screwed. Every polluting activity has someone's livelihood depending on it.

You claim that “the price will have hugely different consequences for steel than natural gas production” as if that’s a problem so big that we should agree with you that a carbon tax is not a great solution. Why is that so bad - isn’t raising the price of steel exactly what a carbon tax should do?

I think the idea is that the steel/gas price changes would be disproportionate to their real carbon uses.

How would that happen?

If the price is set on carbon, I’d expect it to be proportionate.

I'll have to read the book because I thought this was actually the strength of the method not a weakness - that difficulty to decarbonize means it'll either push alternatives that are easier to into the market or allow the market to pay the cost to do the difficult changes in the most efficient way it can find.

I think we also need trade agreements to consider carbon tax, otherwise you would have unfair competition.

The current systmt is really distorted. Coal from Germany/Australia/US is taxed differently to coal from China/Indonesia. Products made from brown coal energy in China are untaxed. Chinese steel production using coal from Australia results in Australia having a carbon debt, but not China. If a ship is made with Chinese steel, no tax. Made with American/EU steel? Taxes.

If a ship burns the filthiest high sulphur bunker oil then it pays no more tax than a sail boat.

We can't fix climate change with exceptions for everyone.

A carbon border price was in Biden's campaign platform and it would be one of the best political moves he could make. US industry has a big advantage in carbon intensity over China, so a price would advantage domestic industry and at the same time put pressure on China to clean up faster. Both of these are big political problems for Biden.

Book criticizes failed market based efforts. (Duh.) Carbon pricing is a tax, not a market solution. (Right?) Further, most recently, carbon pricing policy proposals have been decoupling price from impacts, in recognition that good policy accommodates good politics.

So it seems to me the authors of carbon pricing proposals agree with this book, and pivoted accordingly.

This is the reality of carbon taxes as implemented in some Western European countries and Canada. A generic tax that applies to a limited set of activities then a sector-by-sector specific plan for most large industries depending on a lot of factors.

I suppose I should really read the book. But I am suspicious. To me having a carbon tax emphatically does not mean embracing some "capitalism solves all problems" ideology. Direct intervention is still needed, but direct intervention works best in conjunction with carbon taxes. You don't want the market trying to "route around" your direct intervention because there is no incentive to play ball.

See https://rooseveltinstitute.org/wp-content/uploads/2020/07/RI... for more of that.

If anything, it's actually this sort of nuclear subsidy that could be too hands off --- if it's like a 1990s throw money at ISPs for fibre with no strings attached tpye thing. I would say Carbon tax and nationalize the nukes.