A Catholic Case for Carbon Tax

Smoke rises from Duke Energy's Marshall Steam Station in Sherrills Ford, N.C., Nov. 29, 2018. Governments have an unprecedented "moral duty" to take urgent action to combat climate change, Catholic development agencies said before the U.N. Climate Change Summit. (CNS photo/Chris Keane, Reuters)

“It doesn’t take a hurricane to cause flooding in Miami anymore. In fact, it doesn’t even take a gust of wind.” According to a report in the Washington Post, king tides have been taking a toll on Miami for a number of years, but rising sea levels have made it worse in recent times due to man-made climate change.

As Catholics, we care about climate change because Catholic Social Teaching exhorts us to care for God’s creation, and to make a preferential option for the poor and vulnerable. A more extreme climate threatens lives and livelihoods through hurricanes, droughts, famines, and rising sea levels. Furthermore, poor countries that are low emitters of carbon suffer the most severe consequences of climate change. Pope Francis has repeatedly called on Catholics to care for our common home, most famously through the encyclical Laudato Si’. How can we respond to this integral teaching of the Catholic faith?

In principle, everyone can reduce their carbon footprint by changing their consumption habits or food choices. I applaud people who have modified their lifestyles and sacrificed physical comforts for the sake of the environment. However, change in the lives of a few generous individuals is insufficient to stem the tide of climate change. We urgently need economic incentives on a global scale to drive the rapid change in consumption habits in order to avoid crossing the point of no return in climate change. In the battle against climate change, time is of the essence. 

As we examine our consumption, we need an economic system that accounts for the true cost of resources. The price paid for products is not the actual cost of the product. Often, environmental damage during production, or the cost of disposal is excluded from the actual price of the product. Economists call these costs “negative externalities.” 

For example, the $2/gal price of gas includes the cost of extracting and refining oil and the profit margin of the oil company. It does not include the damage that burning gas causes to the environment, or the healthcare costs of those affected by air pollution. Further, if the carbon emission from burning gas leads to more hurricanes in Florida through climate change, the cost to rebuild homes in Florida is not included in the price of gas. In other words, the environmental costs are paid by those who suffer because of climate change, irrespective of their individual contribution to causing hurricanes through carbon emissions. 

One way to address negative externalities is to add a surcharge, known as a Pigouvian Tax or Subsidy, to these products. The surcharge would have two effects: 1. It would disincentivize the undesirable activity (e.g. discourage driving) and 2. It would generate revenue from producers and consumers to address the negative effects such as pollution.

The term tax is anathema to many Americans, but this is not a tax in the usual sense because it is not a means for the government to raise funds, but merely a way to ensure that consumers of a certain product pay the full cost of that product without expecting third-parties or the broader community to bear the cost of the externality.

The money collected through a Pigouvian Tax on a product could be used in three ways. First, it could be used to clean up or reduce the damage caused by the use of the product. In the case of gasoline, we can use the money to fund tree planting programs, or to fund research in carbon capture technologies, or to fund FEMA to rebuild after hurricanes.

Second, the money from a Pigouvian tax on carbon could be used to facilitate reduction in transportation carbon emissions. More extensive public transportation, well connected bike lane systems, and walkable city neighborhoods are some ways that can ease our transition into a low carbon society.

The third way of using the money from such taxes is to distribute the money equally between all residents. This is a popular option because citizens dislike the idea of the government collecting and spending more money. 

For example, if the US were to charge a $1 fee for every gallon of gas sold in the country, the government might collect about $142 billion per year. Dividing this money equally between all residents in the US would result in a gasoline dividend check of $430 annually per person. Note that someone driving a truck 50 miles a day would pay more than $430 into the system, while someone driving occasionally would pay much less. Thus, the person with a truck may decide to drive a more fuel efficient vehicle or take public transportation. On the other hand, the person who receives more than what she was taxed can spend the money as she wishes. But, based on the economic disincentive of high gas prices, she would not buy a truck. Thus, over a period of time, the proportion of fuel efficient vehicles will increase, with a resulting decrease in overall carbon emissions. This change in driving habits will lower the total consumption of gas in the US resulting in a smaller dividend check as well.

A similar Pigouvian Tax and Dividend on carbon (not only on gasoline, but all carbon emission) has already been implemented to good effect in Canada. With a price of $14 per tonne across Canada, residents received about $200 per person in rebates. My friend Nishant and his wife, residents of Toronto, received a rebate of $360 last year. The money from the rebate can be used to cover the increased price of gas or to purchase more things. But consumers will likely move away from things that are now more expensive due to carbon taxes. Instead, they may spend the money on eco-friendly products less affected by carbon taxes.

The idea of putting a cost on negative externalities can be expanded beyond carbon emissions. For instance, the meat industry could be charged for polluting rivers. Coal power plants could be made to pay for the adverse health effects of particulate emissions. The price of plastics could include the cost of cleaning our waterways from disposal of these products. We need to make industries pay for the mess they generate. 

Putting a price on carbon and pollution is not the only way to inspire care for creation. As Catholics, we are called to care for creation because God invites us to do so. Further, we are morally obliged to examine our actions that harm fellow humans. However, we are living the tragedy of the commons when it comes to climate change, where despite repeated warnings of an impending climate crisis, we behave in a business as usual manner. In this situation, carbon taxes are a nudge to change our lifestyle. Perhaps, we may actually enjoy living a low carbon lifestyle, and will find the carbon dividend check a welcome bonus.

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