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We Should Have Imposed a Carbon Tax 50 Years Ago. We Still Should Impose a Carbon Tax

Alan Blinder:

Alan S. Blinder: The Carbon Tax Miracle Cure: President Obama called for a major technological push for cleaner energy: "the Apollo projects of our time." But when the details emerge, it is predictable that his political foes will object to the new government spending and decry the "heavy hand" of government in telling business what to do. Fortunately, there is a marvelous way to square the circle... [leave] decision-making... in private hands... not cost taxpayers a dime... reduce the federal budget deficit... [also]like reducing our trade deficit, making our economy more efficient, ameliorating global warming.... What is this miraculous policy? It's called a carbon tax—really, a carbon dioxide tax—but one that starts at zero and ramps up gradually over time.

The timing is critical. With the recovery just starting—we hope—to gather steam, this is a terrible time to hit it with some big new tax. Hence, while the CO2 tax should be enacted now, it should be set at zero for 2011 and 2012. After that, it would ramp up gradually. Adapting some calculations from a recent paper by Prof. William Nordhaus of Yale, the tax might start at something like $8 per ton of CO2 in 2013 (that's roughly eight cents per gallon of gasoline), reach $25 a ton by 2015 (still just 26 cents per gallon), $40 by 2020, and keep on rising. I'd like to see it top out at more than $200 a ton in, say, 2040—which is higher than in Mr. Nordhaus's example.... What's critical is that we lock in higher future costs of carbon today. The key thing, as the president said, is that "businesses know there will be a market for what they're selling." Think about what would happen. Once America's entrepreneurs and corporate executives see lucrative opportunities from carbon-saving devices and technologies....

No one likes to pay higher taxes. But every realistic observer knows that closing our humongous federal budget deficit will require a mix of higher taxes and lower spending as shares of GDP. Forget about value-added taxes and other new levies you may have heard about. A CO2 tax trumps them all....

I know this sounds like a pipe dream now. America has elected a Republican House of Representatives that, among its first acts, decided that tax increases don't really add revenue and that tax cuts don't really lose revenue—at least not any revenue they are willing to count. These folks are not about to vote for a CO2 tax, even one starting at zero.

But let's remember Winston Churchill's marvelous aphorism: "You can always count on Americans to do the right thing—after they've tried everything else." First, we'll try everything else. But eventually we'll succumb to the inexorable logic of a phased-in CO2 tax. Just watch—if you're young enough to live that long.