Wednesday, July 02, 2008

De facto Carbon Tax is Here

The most efficient way to regulate carbon dioxide emissions is to institute a tax on carbon. This is how many economists and environmentalists see it. However, creating a new tax is a non-starter since it is political suicide in the U.S. to propose any type of new tax even if it replaces an existing tax or funds are returned to the public. This is why complicated cap and trade emissions trading plans are being proposed. Cap and trade avoids the word tax and provides so called market incentives to reduce carbon.

But we now have in effect a de facto carbon tax. We have the tax due to the failure of our political leaders to enact an effective energy policy. Oil is nearing $150 per barrel and gasoline is over $4 per gallon, which is double the price of only a few years ago. The ever escalating price of oil is just like having a carbon tax except for one thing: the money is going to Saudi Arabia, Venezuela and other foreign countries instead of the U.S. treasury. So the U.S. taxpayer and consumer gets no benefit from this tax and it damages our economy.

This de facto carbon tax is having the same effect as a real carbon tax to reduce carbon dioxide emissions. People are driving less and abandoning SUVs for fuel efficient cars. Detroit is scrambling to move from SUV and pickup truck production to high gas mileage vehicles. We don’t need CAFE standards anymore since Detroit is now being forced into building fuel efficient cars due to high oil prices and market pressures. Airlines are trying every way they can to reduce their fuel consumption to save costs. You can see people worried about living in car dependent suburbs and starting to change their driving and living habits. Cities are planning mix-use zoning plans to make walking to stores and work possible again. Mass transit is making a comeback. People are talking about bike trails and riding bikes to work. Motor cycle and motor scooter sales are rising. These are the things we need to do to combat global warming. These are the things a carbon tax is suppose to put in motion. This shows that a real carbon tax would very effective at limiting carbon dioxide emissions.

Who is to blame for this de factor carbon tax. There are many bogeymen. Speculators, OPEC, Congress, President Bush, American saber rattling against Iran, oil companies, auto manufacturers, environmentalists, SUV drivers, the ambivalent American public, new demand for oil from China and India, peak oil, the falling dollar, failure for the U.S. to enact an effective oil policy, terrorism, political instability in many oil producing areas of the world. Probably all of these factors have some part in the current high price of oil. Because of all the varied forces driving up the price of oil, don't expect the price of oil and the de facto tax on carbon to come down anytime soon if ever.

Only effective energy policies can reduce this de facto tax on carbon. I don't think our politicians have the guts needed to bring about the necessary energy policy changes.

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