THE CASE FOR A CARBON TAX

Former Mexican President Ernesto Zedillo argues that global climate change presents an urgent need for mitigation requiring ethical choices about who will pay and when. He convincingly shows that only universal action will be effective and asserts that a carbon tax, left to each nation to administer in its own way, is the easiest and fairest way to reach that end and thinks other approaches too complicated: “If you're worried about climate change but don't like carbon taxes, think about the messy or even impossible alternatives!”

President Zedillo advocates a tax that is flexibly administered: “…each country could then decide what to do with the tax revenue. Some might make their carbon tax revenue-neutral by reducing other taxes. The regime would allow countries (or associations of countries such as the EU) to comply with the internationally agreed-upon carbon price by means of their own national cap-and-trade systems. It would also let poor countries move toward the agreed trajectory of carbon prices more slowly than rich countries…”

President Zedillo makes good sense except for the universally acknowledged problem of an emissions tax: Electorates don’t like taxes and they don’t like politicians who advocate taxes.

President Zedillo may also be underestimating the messiness of a tax and overestimating the messiness of a cap-and-trade system.

The subject is thoroughly worked at The Carbon Tax Center

Putting a price on emissions takes two subsidies away from fossil fuels. (slide from the Carbon Tax Center - click to enlarge)

Carbon Prices, Not Quotas
Ernesto Zedillo, March 24, 2008 (Forbes)

WHO
Ernesto Zedillo, former President of Mexico/director, Yale Center for the Study of Globalization

President Zedillo's proposal is more eloquent and less specific than this one from The Carbon Tax Center. (click to enlarge)

WHAT
Zedillo makes the case for universal action to mitigate climate change and argues that a tax is preferable to a cap-and-trade system.

WHEN
- Zedillo argues that the world community must act now to prevent harm to future generations but climate change presents a particularly difficult matter to get universal action on because the harm and potential benefits are in the far future.
- Other occasions of unified world action were in times of immediate danger and short term resolution: The formation of the UN after WWII; The General Agreement on Tariffs & Trade (GATT) after the protectionism of the 1930s; The IMF after international monetary chaos; Actions against diseases and pandemics.

A concrete proposal from The Carbn Tax Center. (click to enlarge)

WHERE
Zedillo acknowledges that nations do not like to forego sovereignty but there is a need for universal action on this matter.

WHY
- Zedillo asserts that there is scientific consensus on climate change and a need for universal action to mitigate it.
- There are complicated ethics involved, weighing the needs of the future against the present and the rich against the poor.
- Only an absolutely universal price on emissions will work. If any nations are allowed to opt out, it would cause “leakage” of emissions-intensive activity and likely result in trade wars.
- Complicated systems are likely to fail.
- Systems with costs too low to incentivize the development of New Energy are likely to fail.

A tax is more complicated, and cap-and-trade more workable, than The Carbon Tax Center makes it seem but it's an important debate. (click to enlarge)

QUOTES
- Zedillo: “The reality is that a sacrifice of some sort will have to be incurred by the present generation for the sake of people who will exist many years from now, in richer societies than ours and, most probably, in countries not our own.”
- Zedillo: “Frankly, a Kyoto-type framework--one with global quantitative emissions targets allocated among countries--that meets [all the necessary] conditions is not feasible…”