Christina Harper, in the business and finance practice at the firm of Morgan Lewis, has published an article assessing the most prominent options that the US might use to deal with greenhouse gas emissions as a factor in global climate change, Climate Change and Tax Policy, 30 B.C. Int'l & Comp. L. Rev. 411 (2007). The article provides an overview of the current consensus on the human factor in global climate change, and points out the different national responses, from the countries that have supported the Kyoto Protocol to the US, which is both a major polluter and a significant holdout on taking international action to reduce carbon dioxide, with its air conditioning for hot desert summers, heat for Midwest winters, and love of the automobile/lack of public transportation. She goes on to describe the primary options for regulation of greenhouse gas emissions--command-and-control regulation, economic incentives such as tradable permit schemes, and green taxes (for example, a carbon tax which is an excise tax on the carbon content of fuel).
One of the interesting items in the paper is the summary of a Danish business professor's analysis of the attitudes towards each of these major modes of intervention of private industry, state governments, regulated industries and environmental groups. Gert Svendsen at the Aarhus School of business in Denmark concludes that:
- private industry prefers permit markets for the flexibility and the possibility of grandfathering current industries, making it harder for future competitors to enter the market
- state governments prefer green taxes because they maximize revenues that can be used to create self-sustaining environmental protections
- regulated industries (public utilities) generally prefer green taxes or command and control regulation as a quid pro quo for maintaining existing monopolies, and
- environmental groups will cooperate with industry out of self-interest (This last claim raises Harper's hackles (justifiably so), as she notes that it seems both cynical and unsubstantiated by recent research).
Harper makes the case that green taxes (either direct taxes on emissions or indirect taxes on inputs or final products) work because they both 1) punish bad behaviors (like sin taxes on cigarettes) and create a financial incentive designed to change behavior towards more desirable results and 2) channel good behavior and influence the choice of resources. In the US, she notes, many analysts believe that the tax on chlorofluorocarbons was the most important of the 1989 legislation, even though the Clean Air Act also put a cap on their production with a phase-out by 2000. Some Eurpoeans have suggested that high environmental taxes could both raise significant revenues to fund important environmental projects and boost employment by shifting the burden of taxation away from labor and towards the taxed industries, but she notes that "most policymakers" believe the employment boost is unrealistic, because any tax will have economically distortive effects.
There's a good bit of descriptive material in the paper, that will provide a resource for anyone thiking about the proper role of excise taxes in general, and carbon or environmental taxes in particular, in a national tax system. However, there's not much analysis. Part V, labeled "Deciding between green taxation and emissions trading", attempts to make the case, but seems to be merely an extension of the prior section. It looks at whether permit trading or taxes are "politically achievable". It repeats the primary arguments made by various constituencies (governments are concerned about competitiveness; private industry says green taxes may cause economic damage; industries will simply be more likely to comply with permit trading schemes than indulge in evasive noncompliance). And it makes a fairness argument for taxes over permits, that give the industries that tried hardest to reduce emissions before the advent of permit trading the "short end of the stick" when grandfathering is based on a percentage of historical emissions.
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