July 19, 2009

Why Libertarians Should Support a Carbon Tax

When people list reasons for having a strong central government, one of the reasons they most frequently give is the need for environmental protections. Air and water pollution frequently effect huge numbers of people across large geographic areas (in the case of greenhouse gasses, the entire world) and so, it is thought, we must have a strong central government that can regulate emissions and such.

A typical libertarian response to the 'what about the environment?' question is to argue that there should be unlimited civil liability for environmental damage. The current system isn't working particularly well and, libertarians are always repeating, there has been great success in decreasing water pollution in the UK by class action suits from fishermens' groups against polluters. (I can't personally vouch for the veracity of this claim, but my fellow libertarians are always repeating it.) Furthermore, this system ought theoretically (in an idealized free market) to make the cost of pollution to polluters equal to the social cost of the damage they are doing: in order to avoid a lawsuit, they will need to get the consent of all affected parties. If they succeed in buying off all the parties, they do so because each affected party thinks that her life is all-things-considered better living in a polluted area with the cash (she might spend some of it to clean up the pollution, of course) than without it. If someone pollutes without getting advanced permission from all the affected parties, punitive damages could also be levied for purposes of deterrence.

There are two problems with applying this model to the case of greenhouse gas emissions: (1) the whole world is effected, and (2) nearly everyone in our country contributes. An obvious solution to problem (1) is to have a class action suit filed by the attorney-general on behalf of the whole country. The money would be collected and used to do whatever is possible to reduce the effects, as well as to compensate those most effected (e.g. farmers whose land becomes unusable; one might also subsidize food, etc., that becomes more expensive as a result). Such a lawsuit would have to name nearly everyone in the country and divide responsibility between them. Furthermore, lawsuits would have to be filed year after year as polluting activities continued. As a result, this would amount to a horribly inefficient way of levying a carbon tax. Why not skip the lawsuit, and just have a carbon tax in the first place?

From this line of reasoning, I conclude that libertarians who believe the basic claims of the standard scientific view on global warming should support a policy in which the government attempts to quantify the damage done by carbon emissions and determine what can be done to mitigate or reverse it (perhaps getting their figures approved by a court to help prevent abuse) and then divides this cost between individuals and corporations in proportion to their greenhouse emissions by means of a tax on all forms of fossil fuel.

Posted by Kenny at July 19, 2009 8:49 PM
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Comments

I would add a few footnotes.

1) The original cause of the market failure is the failure of society to exercise its property rights over clean air. Any libertarian correction to pollution must legaly assign (or perhaps merely acknowledge) the property rights over clean air, so that polluters know who pay damages to. As Kenny pointed out, since everybody gains some benefit from clean air, a representative government is an appropriate venue for negotiating with polluters over the right to pollute clean air.

2) If the cost of any given quantity of pollution is known, then a cap-and-trade setup where the permits are auctioned by the governmnet is morally and economically equivalent to a carbon tax. I say morally equivalent because both a tax and a cap-and-trade setup are merely assigning property rights over clean air for the purpose of negotiating the price of polluting it. I say economically equivalent because, if a cap is set at the efficient quantity of pollution, then polluters will pay the efficient price to pollute. Likewise, if polluters are taxed at the efficient price of pollution, then polluters will pollute the efficient quantity. Significant differences between a carbon tax and cap-and-trade only arise when there is uncertainty about the social cost of pollution.

Posted by: pferree at July 20, 2009 7:33 AM

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