The Economics of Climate Policy

Published June 29, 2015

A variety of policies have been proposed, and some of them enacted, to shift people away from fossil fuel use.

Benjamin Zycher, Ph.D., John E. Searle chair at the American Enterprise Institute; Tiffany Roberts, co-founder and executive director of the California Aspire Project; and David Kreutzer, Ph.D., a senior research fellow at the Heritage Foundation, discussed the consequences of these policies at The Heartland Institute’s Tenth International Conference on Climate Change.

Zycher Disses Carbon Taxes

 “The carbon tax is purported to be a tool to achieve efficiency in reducing greenhouse-gas emissions,” Zycher said.

“[Proponents say] greenhouse gases impose costs around the world that are not caught in market prices,” said Zycher.

Enacting a carbon tax, its supporters say, would be more efficient than imposing command-and-control regulations.

Zycher says such thinking is “crassly dishonest, even by Beltway standards.” According to Zycher, a carbon tax “would be hidden in the prices of countless goods and services” and would represent a transfer of wealth from those least able to pay higher energy prices.

Zycher says EPA’s Clean Power Plan is a transfer of wealth—in this case from red states, where most of the coal-fired power plants are located, to blue states, where little energy is produced by coal.

Zycher believes transferring funds and technologies from developed to undeveloped countries will lead nowhere.

“Why are these countries underdeveloped?” Zycher asked. “They are poor because they are corrupt, have no rule of law and no protection of property rights. Putting them on welfare will not change their institutions.” 

California Climate Policies

California’s climate policies are the most ambitious adopted by any states and have had real economic effects. Other states should take notice, Roberts said.

In 2006, then Gov. Arnold Schwarzenegger (R) signed the Global Warming Solutions Act into law, seeking to lower the state’s greenhouse-gas emissions to 1990 levels by 2020. Separately, the California Air Resources Board (CARB) oversees a statewide cap-and-trade scheme.

Roberts says CARB’s program now includes 650 industrial facilities, accounting for 85 percent of the state’s economy. Roberts described CARB’s cap-and-trade scheme as a “revenue device.” A recent auction of carbon credits raised $1 billion, and Gov. Jerry Brown (D) predicts future auctions will raise $2.2 billion.

Noting California has the ninth highest unemployment rate in the country, Roberts said, “You can’t take that much money out of the economy without it not having an effect. Businesses will either have to cut back production or relocate to another state.” 

Energy Taxes Won’t Prevent Climate Change

 “Let’s be honest, the carbon tax is an energy tax,” said Kreutzer in his presentation.

Kreutzer added, “Fossil fuels are critical to supporting modern society. Just compare the quality of a low-energy lifestyle with that of a high-energy lifestyle.”

What will a carbon tax do? Kreutzer asked. “It will not affect the climate. It is not climate policy. It is a revenue raiser for the Beltway.”

Bonner R. Cohen, Ph.D. ([email protected]) is a senior fellow at the National Center for Public Policy Research.