Enterprise, Energy, and Climate: A Conservative's Approach

I had the pleasure of meeting and hearing Bob Inglis, former SC Rep and Executive Director of the Energy & Enterprise Initiative the other day at a lecture he gave. He presented his 3 point plan, which by the way, made him popularly called the Al Gore of the Republican Party. An outline of the plan:

1. Change what we tax from current income to emissions. We want more income and less emissions...so why are we taxing income and not emissions.
2. Eliminate all subsidies for all fuels.
3. Attach all costs to all fuels. (Account for all externalities).

Most conservatives these days seem to be against any sort of carbon tax. So how does this fit into a conservative ideology?

Accountability: The energy sector is one in which profits are privatized but the costs are socialized. You might not view climate change as being real, however the health cost associated with pollution from the creation of energy are quantifiable. In economics this is called a negative externality (there are positive ones as well). And in order for resources and capital to be allocated most efficiently, all costs of production need to be included in the price consumers pay. So the typical way of dealing with this is levying a tax equal to the cost society at large is paying. Inglis says this should be a rattling issues amongst social issue conservatives.

Liberty. Changing to a consumption tax allows energy producers to choose their own tax rate which is a value near and dear to conservatives in favor of the flat sales tax approach.

Budget Neutral: This one for fiscal conservatives. A carbon tax would be coupled with a decrease in one of the income taxes. Inglis' choice is the payroll tax due to the progressivity problem of lowering income tax rates but he said he'd be for a deal either way. The problem with this is that conservatives will view it as simply another revenue stream for the government which will increase all taxes over time. Grover Norquist suggested he eliminate a tax entirely to get around this problem.

National Defense conservatives should be happy with it as lowering our dependence on foreign oil would make us safer. The military cost of protecting our supply lines of oil would also be included in those externalities mentioned above.

The tax would be increase every year up to a threshold to give a steady stream of revenue as production substitutes away from carbon intensive production. It would also be border adjustable (the tax would be removed on exports and imposed on imports).

The problem of course is that implicit in this is the acceptance that climate change is real...so conservatives will have to change their minds.

Another problem I see is that free market conservatives have a hard time accepting, or at least reconciling, the concept of the externality (and the need to correct for it) with free enterprise. Some may say this is just more government involvement. In my mind, however, you can't have real free enterprise without correcting for externalities. Not correcting for the externality is essentially a subsidy. In this case correcting for the externality creates a playing field that is fairer for both producer and consumer. Fairer for the producer in that we won't be subsidizing dirty energy. Fairer for the consumer in that as emissions go down, illnesses and premature deaths caused by pollution would decrease and the subsidization of those health care costs would decrease.

But as Inglis suggests, perhaps the greatest argument for placing a price on carbon is reasonable risk avoidance. Liability insurance companies hire actuaries. The actuaries listen to scientists...carefully. In many ways the federal government is just a large insurance company and it should do the same.

Bob Inglis, US Rep (R-SC4 1993-1999, 2005-2011) was voted out by a Tea Party candidate, targeted for his energy bill summarized above and his vote for the TARP program. He said if he had to do it again, he would still have voted for TARP.