Tag: Economic Policy

We Have Revised Our Climate Change Policy

Wind, solar, natural gas, and nuclear energy representing a market-based, all-of-the-above climate policy.

CIVPAC has published a substantially revised version of our Climate Change policy.

The basic position has not changed. We continue to support a $100-per-metric-ton carbon tax, comparable carbon charges on imports from countries that do not adopt similar policies, and a market-based approach that allows competing technologies to determine the least expensive ways to reduce greenhouse-gas emissions.

What has changed is the depth of the analysis.

As we have continued to think through the proposal, several questions deserved more explicit answers: What would a $100 carbon tax actually do to household energy bills? How should carbon capture be treated? What happens to existing coal and natural-gas power plants? Who really bears the economic burden of the tax? And what should we do with what could initially be several hundred billion dollars a year in revenue?

Being More Explicit About the Costs

The revised policy now says much more clearly what a $100 carbon tax would mean for consumers.

If fully reflected in retail prices, it would mechanically add about 89 cents per gallon to gasoline. At today’s generating mix, it could initially raise the average residential electricity bill by roughly 20 percent, although the effect would vary enormously depending on how electricity is generated. Residential natural-gas bills could initially rise by roughly 35 to 40 percent.

Those numbers are not forecasts of permanent prices. Consumers, utilities and producers would respond. Demand for fossil fuels would fall, generating systems would change, and some of the economic burden would be reflected in lower prices for fossil fuels and lower values for fossil-fuel reserves and carbon-intensive assets rather than simply higher consumer prices.

But a serious climate policy should not hide the central point: changing relative prices is how a carbon tax reduces emissions.

Carbon Capture and an All-of-the-Above Strategy

The revised policy also makes our treatment of carbon capture much clearer.

Carbon that has already been taxed and is later captured and permanently stored should receive a credit equal to the carbon tax previously imposed. That is not an additional subsidy. It simply means the tax ultimately applies to carbon released into the atmosphere.

Direct removal of carbon that is already in the atmosphere is different and may justify separate public support for research and deployment and ultimately a payment or credit reflecting the value of the carbon removed from the atmosphere.

We also expanded the discussion of existing power plants. A carbon tax does not order a coal or natural-gas plant to close. It gives the owner choices: pay the higher fuel price resulting from the tax, capture the carbon, operate less often, or retire the plant.

That is what we mean by an all-of-the-above energy policy. Government should price the environmental harm and allow coal, natural gas, nuclear, solar, wind, hydro, geothermal, storage and technologies not yet developed to compete.

Using the Revenue

Another revision of the policy from its original form, which was mentioned in our last iteration, was to use most of the remaining carbon-tax revenue to help finance Social Security rather than create a large new stream of revenue that might be viewed as justification for permanently higher federal spending.

That approach is now developed much more fully.

A successful carbon tax should produce declining revenue over time as emissions fall. That makes it poorly suited to financing any permanent spending program, but potentially well suited to providing transitional financing for Social Security while longer-term reforms are phased in.

In practical terms, carbon-tax revenue could reduce federal borrowing and reduce or delay the need for future increases in payroll taxes or reductions in benefits.

We would still devote a portion of the revenue to basic research in low-carbon energy, direct atmospheric carbon removal and potentially useful geo-engineering.

The Principle Has Not Changed

The revision also expands our discussion of carbon tariffs, the distribution of the tax burden, carbon taxes versus cap-and-trade, the developing world, nuclear power and the economics of coal and natural gas.

But the central principle remains simple:

Price the environmental harm, allow markets to search for the least-cost response, encourage the rest of the world to do the same, and use government research dollars where private markets are least able to capture the benefits.

A $100 carbon tax would not painlessly solve climate change. Some energy prices would rise. Some existing assets would lose value. Coal use would probably decline substantially. Other technologies would gain.

Those are not unintended consequences. They are the means by which the policy works.

You can read the full revised Climate Change policy position and review our other public policy positions.

CIVPAC Publishes Its Artificial Intelligence Policy

Modern data center representing the infrastructure, innovation, and governance challenges of artificial intelligence.

CIVPAC has published its new policy position on artificial intelligence.

AI is likely to be one of the most consequential technologies of our time. It will increase productivity, alter the way many jobs are performed, create new industries, and displace some existing forms of work. Our view is that public policy should encourage those gains rather than try to preserve obsolete jobs simply because they are familiar.

That does not mean adopting a laissez-faire attitude toward every consequence of AI.

Where Government Should Focus

Our policy focuses government attention where it is most needed: cybersecurity, terrorism and other malicious uses, competition and market power, infrastructure constraints, and the need for appropriate internal controls as increasingly capable systems are developed and deployed.

Our approach is therefore neither to suppress AI development nor to assume that every problem will solve itself. We favor rapid innovation, competitive markets and broad adoption of productivity-enhancing technology, combined with focused safeguards where genuine risks exist.

Who Is Responsible When AI Causes Harm?

We believe that one of the most important questions in AI policy is too often neglected: who is legally responsible when an AI system causes harm?

The existence of an autonomous or partially autonomous system should not create a liability vacuum. Responsibility should be allocated among developers, deployers, owners and users according to who controlled the relevant risks and who was in the best position to prevent the harm.

Clear rules of liability can provide powerful incentives for safety without requiring government to prescribe every technical decision in advance.

Why Not Give Them Spoons?

We are also skeptical of policies designed principally to protect existing jobs from technological change. Economic history gives us little reason to believe that making production deliberately less efficient leaves society better off. The challenge is not to prevent productivity growth, but to help people adapt to it and to ensure that the gains are broadly shared.

There is an old story, usually attributed to Milton Friedman, that captures the point nicely. Friedman was visiting a public works project where workers were using shovels rather than modern machinery. When he asked why, he was told that the purpose was to create more jobs. His response was essentially: why not give them spoons?

I have always liked that story because it exposes the flaw in the argument so neatly. Jobs are not themselves the objective of an economy. The objective is to produce things people value as efficiently as possible and allow the resulting prosperity to create new opportunities. Artificial intelligence does not change that principle simply because the productivity gains may arrive unusually quickly.

Artificial intelligence will create difficult policy questions, and our position will undoubtedly evolve as the technology develops. But the basic principles are already clear: encourage innovation, preserve competition, address identifiable risks, assign responsibility clearly, and resist the temptation either to panic about technological change or to regulate simply for the sake of regulating.

You can read CIVPAC’s full Artificial Intelligence policy position and review our other public policy positions.