David R. Henderson  

The Public Choice Behind Carbon Taxes

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Jerry Taylor of the Niskanen Center, who co-authored an excellent piece, "Energy," in The Concise Encyclopedia of Economics, has a post titled "Oil and Gas Industry Opinions about Climate Change."

He writes:

My colleague Sarah Hunt pointed out yesterday that public opinion is more supportive of government action against greenhouse gas emissions than conservatives might like to believe. While one might put that in the basket of "Things I Already Know," another opinion survey from last spring is a bit more interesting. To wit, even oil and gas insiders have been persuaded of the seriousness of climate change risks and the need for government to act.

I admit that I did find it surprising. But then I looked at Question 6. Then I got a lot less surprised.

Half of the surveyed people who work in the oil and gas industries want to restrict coal, one of their main competitors. That's public choice 101.

What is Jerry Taylor's conclusion? He writes:

The important take-away, from my perspective, is that the industry that is among those most effected [sic] by government policy to address climate change is populated by actors who believe that climate change is real, industrial emissions are an important driver, the risks are significant, and the best means of addressing those risks is with a carbon tax. Given that they have no obvious reason to want to believe any of those things, motivated cognition is an unlikely explanation for those beliefs.

But they do have an "obvious reason" to want to hobble their competitors.

HT to Phil Magness.


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COMMENTS (16 to date)
MikeP writes:

That's public choice 101.

To be fair, it's also carbon science 101, since coal releases 30% more CO2 than oil and 80% more CO2 than natural gas per unit energy.

MikeP writes:

My takeaway from the poll is nothing like Jerry Taylor's. I would say that those they polled are educated, intelligent people who can answer objective questions about global warming.

Since the poll did not ask anything like, "If you were dictator, what would you do about global warming?", I don't know how anyone can conclude that those polled are supportive of government action.

Furthermore, question Q4 omits a critically important option that would tell where those polled really stand: "Humans could reduce global warming, but the costs of doing so are greater than the benefits."

That that option is missing says more about those offering the poll than about those taking it.

Tom West writes:

I find it enlightening to look at the insurance industry, who have a lot to lose in either direction if they make incorrect predictions about global warming (either in payouts or lost business).

No surprise, they've been worrying about global warming for decades (Google "global warming insurance industry" for lots of articles).

My general impression is that businesses that are affected by GW have been operating on the assumption that it's real for a decade now (including oil and gas - global warming makes Arctic exploration/drilling a very different ball game).

Makes sense to me - businesses aren't terribly ideological.

Jeff writes:

The second most popular answer to that question is rather interesting, and makes me wonder about the overall level of information the respondents had. They are talking about reduced deforestation - where? In the U.S., the number of trees is growing year-over-year, as is the total forested land. That, I'm sure, varies country-by-country, but that just points to greater nuance.

MikeP writes:

They are talking about reduced deforestation - where?

The canonical Terrible Global Deforestation is cutting down rainforests in Indonesia to grow palm trees to make bio-fuels for Europe.

Deforestation is a real problem and a cheap to address arena for keeping CO2 sinks around.

Jerry Taylor writes:

David, the position taken by oil and gas insiders is consistent with a rent-seeking narrative. But it is also consistent with an embrace of mainstream science and economics.

Given the fact that the oil and gas industry was for quite some time singing a different tune regarding climate change, one wonders: did it take them decades to discern the competitive advantages they would gain from a carbon tax? Back when the industry was of a different mind on these issues, natural gas was far more expensive than at present. Today, coal is down for the count (in U.S. electricity markets, anyway) thanks to fracking. The gas industry scarcely needs a carbon tax to cripple coal industry competition (oil, of course, is for the most part in a different market than is coal, so there is only limited competitive interaction between those two fuels). If rent-seeking explains positions held by the oil and gas industry insiders, wouldn’t it be more likely that they would embrace a carbon tax prior to 2008 (when innovations in fracking first shook up the market) and be less inclined to do so now?

bill writes:

How can we be sure that oil company execs believe the climate is changing? Because they're making plans to drill in the Arctic.

Dan W. writes:

@ Tom West,

The biggest insurance man in the United States disagrees with what you posted.

Speaking on CNBC, Warren Buffett explained: The effects of climate change, "if any," have not affected the insurance market, billionaire Warren Buffett told CNBC on Monday, adding he's not calculating the probabilities of catastrophes any differently. http://www.cnbc.com/id/101460458

txslr writes:

Even if insurance companies were taking global warming into account in calculating risks (which I have no reason to believe they are) it would provide no evidence at all regarding the cause of climate variability. They could have simply looked at the trend in historical temperatures and concluded that, for whatever reason, there is a greater chance that temperatures will rise in the future. Of course, this would be counter to the evidence of the past 16 years or so, but the notion that anyone should take actuaries' views of the causes of global temperature as evidence is...confused.

And, if all of those oil and gas types have information that the rest of us don't have on global warming I wish they would share it. If they don't there is nothing in the survey that should cause anyone to change their mind.

mickey writes:

I can understand gas targeting coal, but oil? Aren't coal and oil different in that one is mainly used for electricity and the other auto fuel, plastics and such?

mickey writes:

On second thought I think zi remember reading that cracking results in both oil and gas so the interests aren't separated like I was thinking.

TMC writes:

@ Tom West

Insurance companies see an excuse to raise rates. For them, if everyone believes, there is no downside.

MikeP writes:

If everyone believes, there is no downside for the insurance industry. If only a few believe, and increased claims due to global warming don't pan out, then the ones that believe have the downside of losing customers due to higher prices that aren't actuarially correct.

Regardless, I am not aware of any insurance company raising their rates due to global warming. Of course they are paying attention to it as a potential risk, just as they pay attention to any other potential future risk.

And when it comes down to it, insurance companies will probably not raise rates directly, but rather offer riders that separately insure damage accruing to global warming. E.g., they may offer beach house insurance that matches the historical flood risk and add an "if the global sea level rises this much" clause that terminates the insurance at that premium. I.e., the owner, not the insurance company, takes the risk of sea level rising. The owner could of course pay to insure against that event. If he doesn't, then when the sea level rises, he must pay a higher premium that reflects the greater flood risk.

So, yeah, insurance companies want to understand the potential future risk. That doesn't mean they are changing their operations today. After all, they do have several decades to gather a better understanding before predicted damages become severe.

LD Bottorff writes:

I have no data to back this up, but I believe that many people think that the only downside of addressing carbon emissions is lower profits for oil and coal companies. People believe we can solve global warming and still get all the energy we want, if we just stop worrying about maintaining the obscene profit levels of oil companies.

Andrew_FL writes:

Is there any more irritating construction in the English language than "even x agree" or equivalent?

Here is the line of acceptable opinion, drawn at these obvious extremists. Anyone daring to cross the line shall be exiled from polite society.

Josiah writes:

Oil doesn't compete with coal. Natural gas does, but it also competes with renewables and nuclear.

A carbon tax would give gas a competitive advantage over coal, but it would also put gas at a competitive disadvantage w/r/t renewables and nuclear.

And as Mr. Taylor notes, gas is already beating coal without a carbon tax.

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