And Now, the Case Against a Carbon Tax

Speaking of carbon taxes, the best argument against them probably has nothing to do with either global warming or tax policy. The best argument is: why bother? The simple form of this argument is that world production of oil is near its peak and can increase only slowly in future years. However, demand is going to stay high, especially in developing countries, and this is going to cause the price of oil to skyrocket. Or, more likely, to yo-yo up and down as oil-induced recessions give way to economic growth, which in turn raise oil prices and cause another recession, rinse and repeat. If that by itself isn’t enough to spur lots of research into alternative energy sources, then a carbon tax isn’t likely to make much of a difference.

For a more sophisticated and analytical form of this argument, Stuart Staniford has you covered today. His conclusion after crunching some numbers:

I think the IMF’s growth projections [4% global growth per year -ed.] are seriously improbable. What is going to happen instead is that people will keep trying to grow without getting much more oil efficient, that won’t work, oil prices will go through the roof, another global recession, or at least a major slowdown, will ensue, and then people will begin in earnest the work of starting to transition away from oil dependence.

I can’t tell you the timing precisely. It could easily be this year, it could be next. It’s even possible that some other global crisis will intervene first (like the credit crash of 2008 did). But I will say categorically that there’s no way we are going to get through 2016, as the IMF projects, with business-as-usual economic growth.

This seems roughly correct to me. I think a carbon tax is a good idea anyway, since it provides revenue, helps spur research in rich countries, and might even smooth out the economic bumps a little bit. Still, if you buy this view of global petro-economics, it probably makes about the best case possible for not bothering.

UPDATE: Ryan Avent points out via Twitter that oil isn’t the only source of carbon emissions, and fossil fuels like coal and natural gas are less susceptible to the boom-and-bust cycle that’s likely to dominate oil in the future. So even if a carbon tax didn’t have much influence on global oil consumption, it might have an effect on coal and natural gas consumption.

That’s all true, and it’s one reason I support a carbon tax even if we really are near peak production of oil. Bottom line: I don’t think the boom-bust argument is a good case against a carbon tax, just the best case you can make.