Elon Musk called for a carbon tax in Paris in 2015 during COP21, the United Nations Climate Change Conference. Then Donald Trump won the presidential election.
In 2015, Elon Musk called for a carbon tax.
Musk didn’t get his carbon tax, and after President Trump took office in 2017, he didn’t talk about it much.
But a Biden administration should put the green economy back in play for the US — and with it, the possibility of a tax on emissions.
In 2015, Elon Musk gave a speech at the Sorbonne in Paris, calling for world leaders to put a price on pollution.
“We need to go from having an untaxed negative externality, which is effectively a hidden carbon subsidy of enormous size,” he said, borrowing some language from economics.
Driving a gas-powered car is a classic example of that kind of “untaxed negative externality.” You’re creating emissions that exacerbate climate change and causes all kinds of damage, without paying any kind of penalty.
Musk argued this situation was costing $5.3 trillion a year, citing International Monetary Funds data. For him, the solution was obvious: “We need to move away from this and have a carbon tax.”
That never happened, although Musk briefly appeared in 2017 as though he might be pressing the issue with Rex Tillerson, Donald Trump’s first Secretary of State, who backed a carbon tax in 2009 when he was CEO of ExxonMobil.
For the past three years, Musk has remained quiet on the topic. But the arrival of President-elect Joe Biden’s administration might allow Musk to revive his carbon-tax campaign.
Carbon taxes versus cap-and-trade
A carbon tax is straightforward: Governments would establish regulations around how much businesses could pollute and bill them accordingly, putting a price on carbon. The economic argument is that the tax would encourage businesses to invest in cleaner alternatives to what they’re doing now, thereby reducing the amount of carbon pumped into the atmosphere.
The other main economist-approved ways to deploy human self-interest to improve the environment, a cap-and-trade system, is more complicated. Such a program would establish a “cap” on carbon emissions, then price any overage and allow for pollution permits to be traded by market participants. That system would create the kind of supply-demand imbalances that could make the permits so expensive they would discourage further emissions. And the cap could be changed, so that the amount of carbon permitted for emissions would fall, pushing up the price.
I always thought cap-and-trade was a better option, mainly because various schemes had been instituted over several decades, with generally good results.
But those programs were all fairly modest. And while I was attracted to the idea of turning carbon into a commodity traded through government-established derivatives — I figured that conservatives who opposed taking action against climate change would be hard-pressed to knock down the creation of a new market — Musk’s speech in Paris changed my mind.
Taxes are faster
Setting up a global carbon-trading system or integrating the globe’s assorted smaller, existing systems would be too time-consuming, the scientific consensus on global warming tells us that we don’t have time.
Taxes are quicker, as we learned when the Trump administration and a GOP-controlled Congress passed a tax-reform bill in 2017. On the corporate side, the impact of lower taxes was almost immediate — companies didn’t raise their investment levels, but they did buy back stock with the windfall.
We can debate whether that was a good thing. Some investors were delighted, some economists were appalled. But there’s no doubt about how quickly the law affected businesses.
Now, Biden’s plan to deal with climate change doesn’t call for a carbon tax. (It does include the restoration of a full federal tax credit for electric vehicles — the credit that Tesla could offer customers had been reduced because the company had sold more than 200,000 qualifying vehicles in the US.)
But Musk could find a newly receptive audience to a carbon tax in the Biden White House. The politics could be tricky, as some of the election’s deciding states are closely linked to the carbon-emitting economy: Pennsylvania has a fracking-based oil industry; and Michigan is home to the auto industry.
How this could all take shape remains to be seen. But for Musk, and maybe for Biden, a carbon tax is back in the picture.
Note: This blog is a re-post of the original posted on the Business Insider Website.