Monday, July 15, 2013

Why Libertarians Should Support a Carbon Tax—Even if They Can’t Love It

In the first two parts of this series, I discussed the reasons why both conservatives and progressives should love a carbon tax, and why many of each political persuasion do. In this third installment, I take up the more difficult case of libertarians.

There is no way that a good libertarian could love a carbon tax, or any tax, for that matter. Classical liberal principles hold that the state should play a role in economic affairs only when there are problems the cannot feasibly be handled in the private sector. Even those who support a role for the state in, say, criminal justice or national defense, do so only reluctantly. They secretly pine for a libertarian utopia like that in Robert Henlein’s The Moon is a Harsh Mistress, where even those functions were the responsibility of the marketplace.

Nonetheless, I think it is possible to make as good a case that libertarians should support a carbon tax as that they should endorse a government role in courts or the military. Here are some reasons why.

The polluter should pay

To begin, the principle that the polluter should pay has long been a part of libertarian theory. In his 1962 classic, Man, Economy, and State, Murray Rothbard expressed it this way:
In so far as the outpouring of smoke by factories pollutes the air and damages the persons and property of others, it is an invasive act. . . . Air pollution is not an example of a defect in a system of absolute property rights, but of failure on the part of the government to preserve property rights.
A person whose pollution harms another’s person or property should pay for the resulting harm. People do not pollute just for the fun of it. They do so because polluting, when unrestricted, is a cheap way of disposing of wastes. Paying for waste disposal is just as much a proper cost of business or household management as paying for any thing else—energy, labor, transportation, or whatever.

A polluter cannot escape the duty to pay for harm to others simply because it would be expensive to avoid polluting. Yes, it may cost more to build a smokestack with a filter than one without, or more to treat sewage than to dump it directly into a river. Beyond some point, the harm, at the margin, may be less than the cost of abatement, in which case releasing pollutants into the environment may be the economically efficient decision. Efficient or not, however, the polluter should still pay for any remaining harm done even after the efficient degree of abatement has been carried out.

All this leaves open the question of how to ensure that the polluter pays. First, though, we need to address another important issue.

Are greenhouse gas emissions really harmful?

Specifically, we need to ask whether carbon dioxide and other greenhouse gasses (GHGs) are, in fact, harmful pollutants. If they are not, libertarians are off the hook: No harm done, no payment due, no need for a tax. However, if you are tempted to seek that escape route, you need to ask yourself, which comes first? Are you evaluating the relevant science objectively, or is your judgment of the scientific evidence influenced by an a priori aversion to taxes or other government interventions?

The libertarian icon Friedrich Hayek saw attitudes toward science as one of the key distinctions between libertarians (he preferred the term “liberal,” in the European sense) and conservatives. In his famous essay, “Why I Am Not a Conservative,” he wrote:
Personally, I find that the most objectionable feature of the conservative attitude is its propensity to reject well-substantiated new knowledge because it dislikes some of the consequences which seem to follow from it—or to put it bluntly, its obscurantism. I will not deny that scientists as much as others are given to fads and fashions and that we have much reason to be cautious in accepting the conclusions that they draw from their latest theories. But the reasons for our reluctance must themselves be rational  and must be kept separate from our regret that the new theories upset our cherished beliefs. . .  By refusing to face the facts, the conservative only weakens his own position.  . .  Should our moral beliefs really prove to be dependent on factual assumptions shown to be incorrect, it would hardly be moral to defend them by refusing to acknowledge facts.
He was not writing specifically about climate change (the example he gave was the theory of evolution), but his point applies. We should separate our rational evaluation of climate science from our regret that human responsibility for climate change might upset our cherished beliefs about the ability of a market economy to operate justly and efficiently without the intervention of government.

Mere uncertainty is not enough. Some aspects of climate science are almost universally accepted,  for example, that concentrations of GHG in the atmosphere influence the climate and that human activity has affected concentrations of GHG. Other points are not fully settled, for example, the sensitivity of global temperatures to a doubling of CO2, the interaction of natural and anthropogenic climate drivers, and the relationship between climate change and specific weather events. However, complete certainty is not required in this case.

There are many areas of both private life and public policy where we act to avoid harm that is not certain to occur, or, if it does occur, is not easily quantified. We accept limits on driving while intoxicated even though there is a good chance that any individual drunk driver will make it home from the tavern without hitting anyone. We allow victims of assaults or negligent acts to sue for pain and suffering even though placing a monetary value on the pain is highly inexact. By the same token, we should be willing to accept restraints of GHG emissions if we think the preponderance of evidence suggests that they are harmful, and to place an estimated value on the harm even if we know it may only be an approximation.

If you have looked dispassionately at the relevant science, and you are satisfied, based on the preponderance of evidence, that GHG emissions pose no risk, so be it. Otherwise, read on.

How should polluters be made to pay?

If we accept the principle that polluters should pay, and accept that GHG emissions are a form of harmful pollution, we still have to deal with the issues of how polluters should be made to pay.

For many libertarians, the preferred approach is to rely on private negotiations backed by the right to take legal action for the pollution-related torts of trespass, nuisance, or negligence. If toxic fumes from a neighboring factory damage your health or your property, sue the owners for damages or ask for an injunction requiring them to stop. A 1982 paper by Rothbard, “Law, Property Rights, and Air Pollution” describes this approach in detail.

Unfortunately, the tort law approach to making the polluter pay works less well as the number of pollution sources and victims grows. Yes, you, or you together with a group of close neighbors, can very likely get somewhere with a lawsuit against pollution from a factory next door, easily traced to its source. However, when there are many sources, some of which are far from the many victims, it is difficult to show that pollution from any one source caused the harm to any one individual, even if the harm is collectively large. That is often the case with air pollution, not only climate change, but also urban smog or acid rain.

When a large number of sources and remote victims make the tort law approach unworkable, we have to choose a second-best approach. Our options include regulations that require specific technologies or impose source-by-source emission standards, placing a price on pollution by means of a tax or cap-and-trade mechanism, or doing nothing.

Command-and-control regulations, which are both intrusive and inefficient, are the least attractive alternative to libertarians. Doing nothing would be the preferred alternative in cases where the harm was trivial. When the harm is not trivial, a policy that puts a price on pollution should be the preferred approach.

This is not the place to get into a long discussion of the relative merits of pollution taxes vs. cap-and-trade. Briefly, it seems to me that on libertarian grounds, pollution taxes are less objectionable than cap-and-trade for three reasons. First, they are arguably the more economically efficient alternative. Second, they are less complex and less open to political favoritism and corruption. Third, revenue from pollution taxes can be used to reduce marginal rates on other taxes that produce well-known distortions of market incentives, such as payroll taxes or corporate profits taxes.

The bottom line

The issue of climate change is a source of cognitive dissonance for libertarians. It creates a tension between the principle that pollution is an unjust assault on the persons and property of others, and the principle that disputes are best resolved through private negotiations and civil law. Some libertarians, like many conservatives, manage to suppress the dissonance by convincing themselves that greenhouse gas emissions are harmless. If they are unable to do that, it is reasonable for them to support the least intrusive, least inefficient government intervention available to deal with the problem. In my view, that alternative is a carbon tax. Even if it is a tax that libertarians cannot love, it is one they should support.

This is the conclusion of a three-part series. The first two parts were Why Conservatives Should Love a Carbon Tax—and Why Some of Them Do and Why Progressives Should Love a Carbon Tax—Although Not All of them Do

For more on the topic of this post, see my book TANSTAAFL: A Libertarian Perspective on Environmental Policy,  and also my two-part post on Austrian Environmental Economics.

Addendum: About a year after I wrote this, Jerry Taylor, formerly of the Cato Institute, founded the Niskanen Center, a libertarian 501(c)(3) think tank that works to change public policy through direct engagement in the policymaking process. The center's blog Climate Unplugged quickly became a leading source for libertarian support of a carbon tax and libertarian critique of conservative views on climate change.

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