More on How To Make a Carbon Tax a Generational Win-Win

Last April, Laurence Kotlikoff, together with three distinguished colleagues, published a long, highly mathematical working paper on how to make a carbon tax a “generational win-win,” that is, something that can benefit those of us who are alive to day as well as our great-grandchildren. Both Kotlikoff and I think the answer is “Yes,” but for different reasons.

Earlier, I published a commentary on Kotlikoff’s working paper here on Medium. In the meantime, he has written a shorter, much more readable version of his “win-win” thesis for the Milken Institute Review. The editor of MIR asked me for a comment on the new version, which has now been published. Here is what I said:

In his Milken Institute Review article, “Leaping the Divide,” Larry Kotlikoff identifies a key problem of political economy that complicates efforts to slow climate change: a large part of the costs of the transition to a low-emission economy must be paid upfront as the economy retools, while the greatest benefits will become apparent only decades, even centuries, down the road. That makes costly policies like taxing emissions to spur green investment a hard sell.

Kotlikoff would like to fix that. Somehow, he says, we need to make a carbon tax a “generational win-win” that would “give all generations an equal stake in the policy.” If so, we would not have to rely on the weak reed of intergenerational altruism to build a successful political coalition behind a climate action plan.

Can it be done? I agree with Kotlikoff that it can, but I have serious reservations about the way he proposes to do it. Let me explain.

Starve-The-Beast Libertarians Should Beware the Rule of the Clan

Tyler Cowen thinks that libertarians are waking up to the idea that the problem we face is not that the state is too big, but rather, that it lacks the capacity to do what needs to be done. That, in his view, is to “maintain and extend capitalism and markets.” He coins the term “State Capacity Libertarianism” (SCL) to refer to this post-anarcho-capitalist perspective.

Writing for this site, Sam Hammond offers three motivations for the transformation of old-fashioned libertarianism into the new kind. I would like to suggest an additional motivation, drawn from Mark S. Weiner's 2013 book, The Rule of the Clan.

The “starve the beast” doctrine embraced by many traditional libertarians holds that depriving the government of the resources it needs to go about its business will increase personal freedom and strengthen markets. That would make sense if the default alternative to state capacity were a free-market utopia like those portrayed in the Galt’s Gulch chapters of Atlas Shrugged or in Robert Heinlein’s The Moon is a Harsh Mistress. Unfortunately, as Weiner explains, the default alternative is something less attractive to lovers of freedom and individualism.

The EPA's SAFE Vehicle Rule is a Triple Play of Regulatory Ineptitude

In 2018, the EPA released a proposal called the SAFE Vehicle Rule, with SAFE standing for "Safer, Affordable, and Fuel Efficient." The rule featured an aggressive rollback of Obama-era fuel economy rules for motor vehicles. The original version would have frozen corporate average fuel economy (CAFE) standards at 37 miles per gallon, rather than allowing them to rise to 54 MPG, as would happen with no new action.

Since that time, the agency has been working on a revised version. Although the revision has not yet been made public, the Washington Post has published a description of it, in the form of a letter written by Senator Thomas Carper (D-Del). If the details given in the letter and the Post article are accurate, the new rule is both weaker and even less defensible than the original version.

For those who like CAFE standards, the new rule might look like a step in the right direction. Rather than freezing fleet mileage standards at 37 mpg, it would allow them to increase by 1.5 percent per year until they reached 40.5 mpg by 2030. But, as I pointed out in an earlier commentary, a policy that supplemented CAFE standards with a carbon tax, or even replaced them entirely with such a tax, would do even more to cut greenhouse gas emissions.