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The Global Warming Tax

Thursday, 01 November 2012 05:30

It is common for news reports on efforts to limit global warming with carbon taxes to mention the negative impact that such taxes can have on growth and jobs. In the same vein it is worth pointing out that the costs associated with damage caused by global warming related storms, like Sandy, also will in the long-run slow growth and reduce the number of jobs.

For example, this Washington Post article that noted estimates of the damage from Sandy are in the range of $30-$50 billion could have pointed out to readers that this will have an economic impact similar to a gas tax in the range of 25-40 cents a gallon. This tax will mostly be paid in the form of higher insurance premiums in future years. 

It is important to point out the economic costs of failing to control global warming since many politicians are trying to deceive the public into believing that global warming has no costs. 

Comments (18)Add Comment
Insurance Doesn't Cover About 1/2 of Sandy's Damage
written by Robert Salzberg, November 01, 2012 8:02
Here in Florida many residents have to pay separate flood insurance if you're in a flood zone. With Katrina, floods caused by the wind moving water ashore were largely rejected on first pass by insurance companies that cover wind damage but not water damage.

FEMA is the back up insurance here in Florida and the U.S. The taxpayers are heavily on the hook for re-building the excess damage to infrastructure caused by out-dated infrastructure in areas declared a federal disaster area. Just think about how much quicker the NY subway system could be up and running if the wiring wasn't exposed along the tunnels and was instead contained in PVC pipes which would have prevented much if not most of the water damage to the electrical system.

The larger component of the global warming tax is the hidden subsidies to carbon producing industries that don't pay a penalty for contributing to the destruction of our collective environment and health.

Climate Change Vouchers Can Reduce Exploding Cost of Private Insurance
written by Last Mover, November 01, 2012 8:03
Insurance rates will increase all right, especially those that don't cover flooding that have given insurance companies a free ride for years, because the ones that do will likely be canceled or priced out of sight.

After Romney wins surely there will be a voucher plan installed that allows ripped off customers of private insurance to choose more legitimate options from a wide range of government options.
I hoping
written by Brett, November 01, 2012 8:33
that either Dean or Krugman would lay into this Casey Mulligan column http://economix.blogs.nytimes....lind-spot/

Or are you guys waiting to review his upcoming book?
Citizen, Low-rated comment [Show]
written by f.fursty, November 01, 2012 9:06
Right on. Absolutely. C

I would love to see a quick rundown of who pays under various scenarios. For instance, a carbon tax would be pretty widely distributed in terms of cost, I would think. Oil companies lose out too. However, the cost of rebuilding after storms is presumably more concentrated I certain industries? Insurance. Airlines must get really smacked around.

So: can you give us a sense of who the winners and losers are in various scenarios?
In the long run we're all dead -- or maybe sooner
written by duckmonkey, November 01, 2012 9:39
The climate-change conundrum facing economists (and others serious about the future of humankind) is the following:

1. The current economic system is provoking global warming.
2. Unless radical changes are made quickly, global warming may annihilate the human species.

This is where so many of the macroeconomic solutions offered by Dean Baker, Paul Krugman, and others fall disappointingly short. What they recommend for the most part is that we cure our economic ills – whatever they may be -- with Keynesian-style stimulus. This might have sufficed 50 years ago, but under the current threat of irreversible global warming it is not a comprehensive enough analysis. We could stimulate the economy back to roaring vigor through Keynesian expansion, and we’d still have global warming threatening our survival. In fact, if we got the worldwide economy humming along at top production levels (by taking Baker’s advice), this would only hurtle us more quickly toward doomsday.

CEPR needs to develop a broader vision. As Herman Daly (ecological economist) says, the economy is a subset of the environment.
written by kharris, November 01, 2012 11:09
Making claims about the growth-killing effect of a carbon tax without considering the wider effects on the fiscal balance is either ignorant or dishonest. A tax on carbon burning would either help balance the budget or allow tax cuts elsewhere. It is entirely possible that the net result would be an improvement in economic performance, as well as air and water quality. Any analysis which fails to mention this is simply not worth bothering with.
I agree with the overall point, but...
written by Douglas, November 01, 2012 12:33
No one is saying GW caused hurricane Sandy, only that it likely made it worse. So better to say it's equivalent to some % of the $30-50 billion estimate. Probably closer to a 5 cents a gallon gas tax.

BUT this will increase as GW gets worse.
written by liberal, November 01, 2012 2:23
duckmonkey wrote,
Unless radical changes are made quickly, global warming may annihilate the human species.

Global warming might be bad, yes, but where's the analysis that it would annihiliate the human species?
global warming & the economy
written by mel in oregon, November 01, 2012 2:55
global warming threatens to eventually cook the planet, but there are other issues that aren't discussed by bloggers or politicians such as the threat of nuclear war, the population explosion, what will happen when there is no oil left with no real substitute. i think the last three are greater threats. the economy will never will be like it was in the 50s & 60s, which for whites only was a great time to climb into the middle class & enjoy the good life. that time is long gone & will never return. but here in oregon, we have a great college football team, another one that's very good, & an nba team with a tremendous amount of upside. plus we have a great outdoor, beautiful state with great people. the best thing america could do would be to build up our infrastructure so that catastrophies like sandy wouldn't hurt people so much. global warming cannot be stopped as the carbon-dioxide we've already put in the atmosphere will be there for several centuries. we don't have any answer for that, so the best solution would be less reliance on cars, greener technologies, & revamping our infrastrucure, along with keynesian stimulus so the 150 million people in this country that are hurting are helped. of course it's a pipe dream, with so many religious nuts around, they welcome armageddon.
written by fuller schmidt, November 01, 2012 3:25
I wish I knew enough psychology to know how Matthew Sailhardy can be so sure that scientific consensus is nonsense.
for further reading
written by Ethan, November 01, 2012 4:03
The USS Economic Impacts of Climate Change and the Costs of Inaction (48 pages of text, notes, and citations) can be found at http://www.cier.umd.edu/documents/US Economic Impacts of Climate Change and the Costs of Inaction.pdf
$3 a gallon tax was last estimate I saw....at a minimum
written by pete, November 01, 2012 4:26
To make a significant change in carbon poop

I think Robert Frank had a nice reality piece in the NYT on this couple of months ago. The taxes could easily offset a lot of other taxes, income and payroll, allowing folks to be able to actually afford solar and wind energy. I don't know why economists don't point this out, that carbon taxes are revenue. Still would be a significant drop in measured GNP, but likely not in real social welfare. Of course, while China, India and Brazil would almost surely not impose such harsh measures, production would shift there, and actually carbon emissions could increase. Insofar as they become less dependent on exports, a likely scenario, then tariffs ain't gonna do the trick.

Regarding annihilation, that would be more likely under global cooling which was our last fear in the 80s. Warming is fine for growing things. Cooling would be bad, see, e.g., the effects of Krakatoa in the 1890s. And of course 1,000 years ago Greenland was Green. I heard that England will be superior for wine in a few decades, v. France...

Regarding insurance, you cannot get insurance on the coast in the Bahamas. On the other hand Florida encourages folks to live on the coast and the state has a unified fund to cover these risky builders forthcoming losses. Silly policy.
Too cavalier with the welfare of our less fortunate neighbors?
written by Rachel, November 01, 2012 10:29

So we are in such a hurry to effect a questionable change that many of our factories must be dismantled and shipped to Brazil and China, along with the jobs of our less fortunate neighbors, while we (or at least our less fortunate neighbors) are obliged to import products now likely to be of more dubious quality? Products that we used to make, under better supervision, here? And this is supposed to improve social welfare? And give us free solar panels into the bargain? I doubt it.

So why all the enthusiasm for very rapid change? The benefits cannot be substantial, and the cost, in wasted capital and damaged lives, is substantial. Something's wrong here.
Thinking the Unthinkable
written by duckmonkey, November 02, 2012 3:06

In response to "liberal," who said: Global warming might be bad, yes, but where's the analysis that it would annihilate the human species?

You'll note I said "may annihilate," not "would annihilate."

A possible scenario looks like this:

1. Climate change pushes up temperatures, intensifying severe weather, degrading environmental conditions, disrupting weather patterns worldwide.

2. Social and economic systems collapse. Starvation, mass migrations, pandemics....

3. Conflict over scarce resources occurs, and humans do themselves in (before the climate change itself does the trick).

There is widespread consensus among climate scientists that #1 is occurring and will intensify. What this intensification will lead to is, of course, subject to debate since prophecy is a dicey business. But given the blood-soaked history of humanity, it is not likely to be pretty.

In response to “Rachel,” who wrote: “So we are in such a hurry to effect a questionable change that many of our factories must be dismantled and shipped to Brazil and China . . . .”

First, we aren’t in a hurry to do anything, which is part of the problem. We are largely in denial. Second, shifting production to other countries won’t solve the problem.

written by liberal, November 02, 2012 6:54
duckmonkey wrote,
Social and economic systems collapse.

OK, it's certainly true that worsening environmental conditions could do this. But it could happen without worsening environmental conditions, and if an inability to solve collective action problems (and other problems of governance) weren't so pronounced, it seems doubtful that global warming could do in humanity.

I.e., global warming would seem to be neither a necessary or sufficient condition for our species demise.
written by liberal, November 02, 2012 6:59
mel in oregon wrote,
but there are other issues that aren't discussed by bloggers or politicians such as the threat of nuclear war, the population explosion, what will happen when there is no oil left with no real substitute. i think the last three are greater threats.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.