Thursday, February 01, 2007

Global Warming and Externalities Tax

I mentioned yesterday that I was considering a change in focus for this blog.

One change I hope to make is to focus less on talk, and more on action. Many of my weekday blogs will contain a requested action and reasons for that action.

For example, this week I would like to recommend arguing for an externalities tax rather than caps to control greenhouse gasses.


(1) Write to your federal Representative or Senator - or, if you live outside of the United State, contact the appropriate government leader, and explain that you would prefer that the government impose some sort of externalities tax on industries that contribute to global warming, rather than ceilings or caps on emissions.

(2) Make the same recommendation to any person or group you have contact with to promote popular support for a tax over a cap.


The Senate is considering several pieces of legislation, all intending to put mandatory caps on greenhouse gasses. An externalities tax (and, I will argue, an “unjust profits tax”) on companies that contribute to global warming makes far more sense.

Reasons for Action

The Economic Case

Desires are the only reasons for action that exist. Good desires are desires that tend to fulfill other desires. Good desires are the only desires we have reasons for actions to promote. (I will not repeat this in every post, but it is the fundamental principle of desire utilitarianism on which I base the posts in this blog.)

Basically, it is rational to add one more of something whenever the benefits of adding one more exceed the costs. For example, it is rational for a society to build one more car to the degree that the social benefits of one more car exceed the costs. However, with each car built, the benefits decrease and the (opportunity) costs increase. So, it is not rational to build an infinite number of cars. Yet, neither is it rational to build none.

Applying this to global warming, it is rational to produce a unit of green house gas in the atmosphere when the benefits of the activity that produce that increase exceed the costs of producing that unit of greenhouse gas. The level at which costs exceed benefits is the level at which we should freeze greenhouse gas concentrations.

Of course, this theory faces a lot of practical problems. We do not know precisely what the costs and benefits are. We know even less what the costs and benefits will be in the future, since this depends on technology that does not exist yet.

Yet, these facts are exactly the facts that argue for a tax over a carbon emissions cap. The things we do not know means that we can only guess at the level where additional greenhouse gasses will do more harm than good. Congress might pick a number that is too low, costing us the benefits of the activity we are forced to give up. Congress might pick a number that is too high, failing to prevent suffering that could otherwise be prevented.

More importantly, changes in technology may argue for changes in the number. If Congress has set the number, then any change that responds to new technology would require a huge political debate. Changes may take a great deal of time, during which our society will be operating under legislation that does more harm than good.

A tax, particularly one that is tied to output, will provide the organization with an incentive to invest in GHG-reducing technologies whenever the benefit from the technology (in terms of cost savings) exceeds the cost of the technology. Entrepreneurs are allowed to investigate whatever options they can dream up. If there is no way to reduce emissions efficiently, then we learn to live with the results. We will still be better off than we would be cutting emissions where the costs of the cut exceed the benefits.

Ideally, the value of the tax will be tied to the costs of the damage done by greenhouse gas emissions. Its purpose will be to raise money for research and for compensating people for the harm suffered.

This is not a perfect solution. Then again, doing nothing is not a perfect solution. Caps are not perfect solution. We will not discover a perfect solution. The best we can hope for is to discover the least imperfect solution. Because an externalities tax puts innovation and entrepreneurial skills to work solving the global warming problem, it is the least imperfect solution.

The Moral Case

Those Who Do Harm, Pay

There is a moral dimension to this in that if one person performs an act that harms another, it is the person who does the harming who should pay for the costs, not the person harmed.

Putting the burden on the person harmed is a type of wealth redistribution scheme. In this case, it redistributes the wealth from the poor (who cannot afford to avoid the costs) to the rich (who gain the income from selling a product that causes harm to others).

This should not be a tax on customers, but a tax on those industries that create products that contribute to global warming. One reason is political - such a tax will be easier to sell. Another reason is efficiency - there are certain economies to be had by having the tax computed by a smaller number of entities. Those industries will have a choice to absorb the costs and take a reduction in profits, or to pass those costs onto customers and thereby modify customer behavior.

A Wrongful Profits Tax

Imagine a case in which a hit-and-run driver gets caught after hitting a person at a street corner and leaving the scene of the crime. After being caught, he releases a statement saying that the reason that he left the scene is because it was convenient and profitable for him to believe that the pedestrian he hit was not harmed. This story came to light when the driver was caught trying to conceal evidence that linked him to the crime. Furthermore, the hit-and-run driver had government officials, including the mayor, working with him to bury the truth about the accident, in the hopes that the information would not come to light.

This is not a paradigm of moral virtue.

This situation describes the case that the Bush Administration and several companies, not the least of which being Exxon-Mobile – find themselves in.

Corporate Responsibility

Exxon–Mobile and other companies engaged in a calculated campaign that effectively invested millions of dollars to convince people to act in ways that would ultimately end up causing trillions of dollars of damage to themselves and others, for the sake of putting billions of dollars into the pockets of these investors.

The moral crime is that a number of companies conspired to hide scientific fact behind a smoke screen of demagoguery and deception. They hired companies and established or funded 'think tanks' made up of liars-for-hire who mastered a set of tools fine tuned by empirical research to be effective means of deception. Yet, they faced a situation in which immediate action could significantly have reduced the amount of damage that global warming could do. By getting people to put off doing anything to solve the problem, these companies sought to make money, while doing trillions of dollars worth of damage to future generations.

Ultimately, when all is said and done, the executives of these companies will have committed a crime as destructive, in terms of both the destruction of real property and loss of life, as Hitler’s War or Stalin’s Purges, all for the sake of money in the bank.

Yet, there will be no war crimes, no Nuremburg trials. The villains in this case, unless they grow a conscience and voluntarily offer retribution for their moral crimes, will die wealthy.

The Bush Administration as Accomplice

This week, the House of Representatives committee held hearings on the degree to which the Bush Administration joined in this collusion, pressuring scientists to hide the facts on the trillions of dollars and countless lives to be lost, while their campaign contributors continued to haul in profits.

Today, the International Committee on Climate Change released its 2007 report. One of the phases of this report is for government officials to “buy off” on the scientific findings. In short, politicians have been given the power to determine scientific law – or, at least, to determine what will be said about scientific law. Again, the Bush Administration has gone to work defending those clients who spend millions of dollars to do trillions of dollars worth of damage to others so that they can become billions of dollars richer. In short, they are still demanding that the scientific reports do not contradict political and economic expedience for their customers.

It is ironic that, on the same day the Bush Administration was performing this service for its client, Exxon-Mobile posted a record $40 billion in profits.

I have written against any windfall profits tax in the past. I have compared a windfall profits tax to a major’s decision during a time of famine to punish anybody in the town who dares to hunt or gather food for the village. At a time of desperate need, a society wants to reward such people, not punish them.

However, in the name of justice, the Federal Government has good reason to level a tax against companies such as Exxon-Mobile, taking back some of their billions of dollars in profits and using that money to avoid the trillions of dollars in damage that these companies were more than happy to allow others to suffer.

This is not a windfall profits tax. These companies are not being taxed for making honest profits. This is an unjust profits tax – a tax on profits gained through a campaign of deception engineered to cause people to sacrifice their own interests and the interests of their children. This tax would not target profits. It would target deceivers – in the hopes that future generations will have a better grasp of the moral contemptibility of profiting through deception that does harm to others.


Typically, I am opposed to sending letters to Senators and Representatives. Typically, they do no good. To get a Senator or Congressman to change his stand on any issue, one has to make it profitable (in terms of votes) for them to take that position. This means convincing voters to support the Senator who holds that position and withholding support of any who do not.

The part of the action statement that talks about contacting one’s representative is just a way of letting them know that there are other, better options. The more important point is to drum up support for such options by promoting them in the presence of others.

Another important step to take is to make sure that companies cannot profit from campaigns of deception that do trillions of dollars worth of damage to customers. We will have a better society to the degree that corporate executives such as this do not exist.

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