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Carbon taxes in theory and reality

The other day, I mentioned that France's Constitutional Council rejected a proposed carbo tax for being too chock full of exemptions. The policy had been compromised so far down that it violated the "principle of tax equality," which in France, is enough to get your law disqualified.

I played this as an odd story showing the topsy-turvy world of French politics. But Dave Roberts has a more perceptive take. "One of the purported advantages of a carbon tax over cap-and-trade is that it would be simple," he says. But in France, that theory got tested, and under optimal conditions: France has a more majoritarian political system, a president who's gambled a lot more on the carbon tax than any American politician has done, and an electorate that's much more comfortable with taxation and much less skeptical of global warming. And the result was still a policy that exempted all manner of industries and polluters. So much so that the Constitutional Council actually threw it out.

The carbon tax's advocates are expected to revise the law and take another crack at passage. But making a real-world carbon tax more like an imaginary carbon tax is difficult. "It remains unclear how the bill could be modified to meet the demands of the council without fierce objections from French industry," the New York Times reports. I bet it does.

By Ezra Klein  |  January 4, 2010; 9:45 AM ET
Categories:  Climate Change  
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I guess I don't really get the point of this. Of course carbon taxes are unpopular when you actually make people pay the carbon tax. But isn't that the point? Once you get to the point of only taxing people who don't realize they are paying the tax then it really doesn't have the same effect. If global warming is the biggest problem we face then we need a tax that people know they are paying so they can adjust accordingly. And that means that certain industries need to feel more pain than others- and that shouldn't be mitigated by how much lobbying clout they have.

Posted by: spotatl | January 4, 2010 9:59 AM | Report abuse

Its almost like those supporting an imaginary carbon tax don't want anything done because they realize taxes are hard to create and very easy to cut.

Posted by: endaround | January 4, 2010 10:20 AM | Report abuse

spotatl, I think the comparison Ezra's trying to make is to the debate about a carbon tax versus a cap & trade (or dividend, or whatever) system. The proponents of the carbon tax oppose cap & trade because they say a carbon tax is easier. You just put the tax in place and collect! What the cap & trade people say, however, and what we see born out here, is that a carbon tax can easily be shot through to swiss cheese and get just as complicated as its proponents think a cap & trade system would be. Thus, the chief selling point of a carbon tax isn't something that happens in reality.

Posted by: MosBen | January 4, 2010 10:48 AM | Report abuse

Right- but it doesn't happen in reality because people don't want to pay the tax and politicians are not willing to make politically connected entities do painful things unless its REALLY important. To me the whole point of a carbon tax should be its transparency- people should be making different choices based on this aspect if we want it to be effective. With cap and trade the more political clout you have the less you will be affected by the bill and thats exactly what we shoudl be avoiding.

You are saying that a carbon tax is unpopular because the people who actually need to modify their behavior know they are being forced to modify their behavior. If global warming is important then this should be the route we take.

Posted by: spotatl | January 4, 2010 11:38 AM | Report abuse

"Once you get to the point of only taxing people who don't realize they are paying the tax then it really doesn't have the same effect."

spotatl: This is false. With cap and trade OR a carbon fuels source tax, IT DOESN'T MATTER whether or not people "realize" they're paying the tax. They're simply faced with higher prices based on the carbon footprint of the goods and services they purchase. Which is exactly the point. And as consumers they simply respond to these higher prices by changing their behavior.

Posted by: Jasper99 | January 4, 2010 12:18 PM | Report abuse

The question is really how a country can implement a penalty on emissions without giving the industries of other countries a competitive advantage. It has to be done internationally or it must go in tandem with some kind of protectionist measures.

Posted by: carbonneutral | January 4, 2010 9:25 PM | Report abuse

No, a carbon tax is simpler because it is easier for a court like the French one to analyze and declare the tax unfair. A cap and trade system, for which there are no established norms and in which it is difficult to discern where the political favors are being doled out, would be more difficult for courts and the public to see through.

The French carbon tax is much more aggressive and pushing the envelope more than any proprosal in any country, not because the tax rate is so high but because it forces action or would force action on climate. Cap and trade postpones action or requires governments to supplement cap and trade with government programs that actually do cut emissions.

So, Ezra, I would dampen the Schadenfreude about the French carbon tax. It highlights the issues that any effective carbon policy is going to have to face sooner, we hope, rather than later.

Posted by: michaelterra | January 6, 2010 2:06 AM | Report abuse

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