Three cheers (sort of) for carbon taxes: a review of recent books on climate change economics and policy.

Citation metadata

Author: Yoram Bauman
Date: July 2021
From: Business Economics(Vol. 56, Issue 3)
Publisher: Springer
Document Type: Book review
Length: 2,854 words
Lexile Measure: 1460L

Document controls

Main content

Article Preview :

Aronoff, Kate, Alyssa Battistoni, Daniel Aldana Cohen, and Thea Riofrancos: A Planet to Win: Why We Need a Green New Deal Verso, 2019

Lomborg, Bjorn: False Alarm: How Climate Change Panic Costs Us Trillions, Hurts the Poor, and Fails to Fix the Planet

Hatchette Book Group, 2020 Metcalf, Gilbert E. 2019 Paying for Pollution: Why a Carbon Tax is Good for America

Oxford University Press, 2020

A classic economics joke has some academics stranded and starving on a desert island. A can of beans washes up on the shore, and the economist in the group figures out how to open it: "Let's assume we have a can opener!"

A variation on this joke aptly summarizes the strengths and weaknesses of three recent books about climate change economics and policy. This time the setting is a melting iceberg in the Arctic. Bjorn Lomborg, the "skeptical environmentalist", insists that everything--including the polar bears--will be okay. Some Marxist scholars disagree, arguing that the situation calls for (what else?) a glorious revolution. And a neoclassical economist delivers the obvious punch line: "Let's assume we have a carbon tax!"

The best of these books is Paying for Pollution: Why a Carbon Tax Is Good for America, by Gilbert Metcalf, an economics professor and expert on carbon taxes. If economists ran the country, this book would be required reading for anybody who wanted to understand American climate policy.

Metcalfs writing is clear and compelling: "Putting a price on pollution is a clean, market-based approach that incentivizes homeowners, factory owners, investors, and millions of people across the country to make informed decisions that align the benefits of our fossil fuel use with its full costs." Like many other economists, as well as groups such as the Climate Leadership Council and Citizens' Climate Lobby, he argues for a revenue-neutral carbon tax, and in particular for carbon tax revenues to be returned to Americans as a per-capita "dividend". His estimates are that a U.S. carbon tax starting at $50 (roughly $0.50 per gallon of gasoline and 5 cents per kilowatt-hour of coal-fired power) would reduce emissions by perhaps 50% by 2050, and would generate about $200 billion a year, enough for a dividend of $2500 for a family of four. Relative prices of products would change based on their carbon intensity, household budgets would be cushioned from the financial impact of carbon taxes, and a border tax adjustment would maintain international competitiveness for energy-intensive trade-exposed sectors like agriculture and manufacturing.

Metcalf argues that a carbon tax is superior to cap-and-trade (the other way to put a price on carbon) and to non-price approaches like fuel economy standards. Especially thought-provoking in the context of ongoing discussions in the U.S. about race and inequality is his discussion of how SU Vs and other light trucks ended up on the receiving end of a loophole in fuel-economy standards in the 1970s:

Worrying that higher costs due to stringent fuel economy regulations would cut sales, Chrysler threatened to shut down a truck assembly...

Source Citation

Source Citation   

Gale Document Number: GALE|A673455238