Commentary - April-May, 2007


A Major Incentive to Fight Global Warming and Climate Change


The most cost-effective way to reduce the overload of carbon in the atmosphere that is aggravating global warming and climate change would be to levy a fee on the amount of carbon discharged into the atmosphere by sources of greenhouse gases.

Such a fee has been mislabeled, called a “Carbon Tax,” but an effluent fee is not, strictly speaking, a broad-based tax of the type that citizens of our “live free or die” state have fought for generations to avoid. The fee would be levied as so many dollars per ton of carbon discharged. Such a charge is a market-perfecting device. As long as private enterprises generate social costs like pollution that they do not pay for, the market system is imperfect – flawed or incomplete.
“There is very high confidence that many natural systems are being affected by regional climate changes, particularly temperature increases,” said a statement on the first page of the 2nd recent report of the International Panel on Climate Change. The report concluded that North America will experience more severe storms with human and economic losses. It can expect more hurricanes, floods, droughts, heat waves and wildfires. Coasts will be swamped by rising sea levels. A few major NH industries such as maple syrup production and skiing have already felt some adverse affects of global warming trends. There is more to come.

Economists have long advocated effluent fees as far more efficient tools to reduce pollution (“effluent”) than straight-on bureaucratic regulatory regimes. The main reason that they have not been adopted is that liberals and regulators prefer command-and-control devices rather than market incentives. The regulators would rather dictate the levels of pollution permitted and the means of its reduction – control these legally and bureaucratically – than allow business people the flexibility to find efficient and effective ways to reduce pollution in response to a price for pollution. The incentive effects of such a price (effluent fee) are substantial. Studies of pollution reduction by many business enterprises also reveal that investments to reduce discharges of pollutants often have complementary beneficial effects, by helping to increase productivity overall.


One good side effect of a fee on discharges of carbon would be substantial generation of revenues that could be used for other public purposes – like enable a more equitable education financing system in NH. There would be no need to dedicate the revenues for pollution control – the fee would induce business executives to invest in new technology and make a variety of changes in ways they produce things or provide services, so that their carbon-environmental “footprint” is reduced.


Many business and governmental leaders here and in Europe are, instead, advocating a carbon “cap and trade” regime. The “cap” feature is a set of fixed limits on the amounts of carbon that any business could discharge into the atmosphere. The ‘trade” feature is a set of arrangement whereby firms that have cut discharges below their caps can sell pollution “credits” to companies that are discharging more than their caps. Yet, this is not the way to go. Evidence shows that an effluent fee provides a more efficient, cost-effective and much less bureaucratic system. It should be no surprise that the French and some other European governments are trying to push a cap and trade regime on the U.S.; they tend to prefer more bureaucratic arrangements. Unfortunately, the Governor of our neighbor state, Maine, has moved to adopt this “European-style” approach along with nine other Eastern states [as featured under a recent headline: “Baldacci unveils bill to reduce global warming”].


Thus, NH could be a national leader, showing the way to address global warming by adopting a fee on carbon pollution discharges into the atmosphere. The state might thereby solve another major problem as well – the bottomless pit also known as education funding!


            PETER BEARSE, Ph.D., International Consulting Economist, Fremont, NH, 603-895-8487; April 12, 2007

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