I recently posted the most recent column by Tim Harford (one of my favorite economics writers) on my facebook page. While the piece is actually a critical analysis on how behavioral economics is used (and misused) to inform public policy, I received a few comments on the implications of the quote I posted to introduce the piece (that taxing carbon consumption is a good idea). Allow me to comment on the implication that taxing carbon consumption is actually a good idea.
Not everyone agrees. In 2010, behavioral economists George Loewenstein and Peter Ubel wrote in The New York Times that “behavioral economics is being used as a political expedient, allowing policy makers to avoid painful but more effective solutions rooted in traditional economics.”
For example, in May 2010, just before David Cameron came to power, he sang the praises of behavioral economics in a TED talk. “The best way to get someone to cut their electricity bill,” he said, “is to show them their own spending, to show them what their neighbors are spending, and then show what an energy-conscious neighbor is spending.”
But Cameron was mistaken. The single best way to promote energy efficiency is, almost certainly, to raise the price of energy. A carbon tax would be even better, because it not only encourages people to save energy but to switch to lower-carbon sources of energy. The appeal of a behavioral approach is not that it is more effective but that it is less unpopular.
Thaler points to the experience of Cass Sunstein, his Nudge co-author, who spent four years as regulatory tsar in the Obama White House. “Cass wanted a tax on petrol but he couldn’t get one, so he pushed for higher fuel economy standards. We all know that’s not as efficient as raising the tax on petrol – but that would be lucky to get a single positive vote in Congress.”
Enter the world’s first and only Stand-Up Economist, a comedian with a PhD in economics who works primarily on environmental policy. (For those who haven’t taken an undergraduate economics class, the first five minutes are – supposed – to be funny, the last five minutes are serious.)
For those of you who still think that humans are not causing climate change, consider this policy as a way to cut other taxes, such as the payroll tax, and decrease unemployment by creating jobs for the some 3.8 million Americans who have been unemployed for over six months.
For those of you who have believed for years that humans are destroying the world we live in, consider this policy a way to actually get a tax on carbon emissions through congress.
It is an almost-perfect policy. Ultimately it pushes through a truly effective policy that (regardless of your feelings about environmental science) does two things: It (1) replaces taxes on things we like and need more of, i.e. employment, with (2) a tax on something that we don’t like or are apathetic about, i.e. carbon pollution.
Through a policy such as this we can preserve the environment AND help our economy get back to where it once belonged.