The standard argument from opponents in the continuing debate over carbon taxes is the grudging admission that while they might reduce carbon emissions, the taxes ultimately fail because they kill jobs.
A recent Bloomberg editorial goes a long way to dispelling the latter part of that argument. Where they are implemented, carbon taxes—also known as environmental tax reforms (ETR)—succeed in reducing greenhouse-gas emissions. “The next question is whether that success is bought at the expense of jobs and incomes,” Bloomberg says. “The answer is no. As long as the tax is well-designed, it can cut emissions at little or no economic cost. And that is a conservative assessment: In practice, a carbon tax has been shown to provide an economic boost. The reason is that the revenue raised by a carbon tax can be used to cut other, more damaging, taxes.”
That’s because, generally speaking, taxes make economies less efficient. But there are degrees of damage, as the editorial explains: “Taxing ‘bads,’ such as pollution, actually improves the allocation of resources, whereas taxing ‘goods,’ such as labor, reduces the economy’s capacity to produce. In principle, therefore, using the revenue from a carbon tax to cut other taxes can yield a double benefit: reducing pollution and expanding the economy.”Click to continue reading »