Tuesday, September 19, 2006

Praise for Al Gore

I've seen this mentioned in a couple places, particularly the Environmental Economics blog. Apparently Al Gore is promoting taxes on greenhouse gases (CO2, Methane, etc.) as a replacement for payroll taxes.

This is really brilliant. It makes the taxes politically easier to accept, both for politicians and the public. It takes advantage of the "double dividend"--the twin payoff to the government of tax revenue and an improvment in social welfare due to the reduction of a negative externality. I think it also emphasizes that a sensible global warming policy doesn't have to make us a lot poorer. Granted, it will probably make us a bit poorer (if only because economic growth will be slower), but this will to some extent be made up for by shifting our consumption to other goods (which requires less input from dirty energy).

The only thing I worry about is that a CO2 tax would probably be more successful than most people (particularly industry) think. We will probably get higher CO2 reductions at lower cost than anyone expects. If this is the case, we may end up getting much less tax revenue out of this than would be sufficient to cover the loss of payroll taxes. In other words, the elasticity of CO2 emissions may be high enough that this might not be revenue neutral. And as time goes by, it's likely to become more elastic (as technologies for reducing emissions improve).

Still, it's a wonderful almost win-win idea that should get more attention. I never expected I would have so much praise for Al Gore, but...if he somehow manages to pull this off--if he manages to get policymakers to implement such an idea--I would consider him absolved of all his sins, from his bizarre defense of NAFTA (in which he argued the right position for the wrong reasons) to the hilarious "reinventing goverment" nonsense that was doomed from the start, to even the "the internal combustion engine is the worst invention ever" stuff.