Where Taxes Fail, Rationing Can Succeed in Protecting the Environment

Reader Contribution by Stan Cox
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In my book Any Way You Slice It, I contend that the only way any nation or the world can halt and reverse

the buildup of greenhouse gases in the atmosphere is to have a strict ceiling on fossil fuel consumption and lower it year by year, with fair sharing of resources via rationing. The most commonly proposed alternative to rationing is a carbon tax, but taxation is too indirect, and just as important, too politically toxic, to succeed.

The depth of resistance to such a tax has been amply demonstrated over the past fifteen months in Australia, where a fifteen-month-old carbon-pricing system—widely viewed, with good reason, as a carbon tax—is racing toward its demise. The system was created by the Labor Party with help from the Greens and has been under continuous attack by conservative politicians and business interests. The law’s repeal has been one of the chief goals of the conservative Coalition party, and its fate was sealed when Coalition ousted Labor in last month’s national elections. The tax will remain in effect for months to come, but its days are numbered.

The Australian scheme requires the purchase of carbon permits by the largest emitters, primarily electric utilities. Those costs have largely been passed on through customers’ utility bills, and the revenues generated have been returned in the form of tax breaks to low- and middle-income Australians. Thus, the system bears some resemblance to “fee and dividend” ideas proposed by, for example, climate scientist and activist James Hansen.

The Australian carbon tax will come to an end before its effectiveness can be assessed very well. Total power plant emissions did fall during 2012 to 2013, but it is not clear how much of the reduction can be attributed to the tax. The tax may also have contributed—nobody knows exactly how much—to a record number of firms going out of business in the year ending in March.

Opponents, most prominently incoming prime minister Tony Abbott, have decried its negative economic impact, but it impossible to separate the tax’s effect from those of so many other factors such as the strong Australian dollar. In any case, Abbott—who upon his victory declared Australia once more “open for business”—and other conservatives are not willing to let the experiment run any longer. 

Opposition to emissions reductions Down Under is less rooted in the denial of human-caused climate disruption that it is in the United States. Australians, who have the world’s biggest per-capita greenhouse emissions (nosing out Americans) often feel they’re on the front lines of the eco-crisis. They have endured an almost continuous stream of climate-related disasters in recent years: raging bushfires; routine spring storm fronts with 75 mile-per-hour winds (including the strongest September gust on record); a huge winter snowfall that interfered with storm and flood cleanups; rainfall-induced landslides; a freak tornado in Western Australia; catastrophic 2012 floods that came on the heels of a severe decade-long drought; and summer heat so intense that new colors had to be added to the temperature map last summer.

And then there’s the recently released report from the Intergovernmental Panel on Climate Change, with its
conclusions (as summarized by the Washington Post) that “the planet is warming at an accelerated pace without any doubt, that humans are causing it with 95 percent certainty and that the past three decades have been the hottest since 1850.”

Nevertheless, among those in Parliament ready to line up behind Abbott on the issue are climate deniers and some who are “agnostic” on climate disruption. (A member of the Motoring Enthusiasts party, who won a seat in the election, has declined to comment so far on human-induced climate change or the carbon tax.) And the country’s climate woes have not been sufficient incentive to keep the tax going.

According to Australia’s now-defunct Climate Commission, many other countries have put carbon taxes or trading schemes in place, or will soon do so. But don’t expect sufficient emissions reductions in the absence of explicit physical limits—that is, a solid carbon ceiling ratcheting downward. I recently envisioned what might be the fate of a global carbon tax, in an imaginary “letter” from the year 2071. In this version of the future, worldwide agreement to lower greenhouse emissions had been put in place “back in” 2024, but taxation was not sufficient to achieve the goals:

The initial policies intended to achieve those deep emissions cuts were focused on a global carbon tax, and they flopped. Firstly, the tax was widely regarded as unfair. Despite redistribution of revenues from the tax as a per-capita cash dividend, the world’s poor majority continued to suffer under shortages and inflation, while a rich minority could afford to pay any price to maintain their accustomed lifestyle. Secondly, the policy was largely ineffective. The tax was an indirect mechanism for suppressing consumption by making it more costly, but demand for those critical goods affected by the tax was much less elastic than had been anticipated. In an effort to lift prices high enough to drive down demand among the affluent, the tax had to be increased seven times in three years. But without an explicit ceiling on production or consumption (and with the annual dividend payment providing a strong economic stimulus), greenhouse emissions dipped only modestly, about as much as they had in the wake of the Great Recession of 2008-09. And, crucially, there still was no “floor” to ensure that everyone on Earth had access to sufficient resources. Stronger action was needed.

That “stronger action” could mean only one thing: ecological rationing. For more on this, see my recent presentation to the 2013 Prairie Festival at The Land Institute.

Stan Cox is a senior scientist at The Land Institute in Salina, Kansas, and author most recently ofAny Way You Slice It: The Past, Present, and Future of Rationing (The New Press, 2013).