A carbon tax is a bad idea, a really bad idea. This post describes one of several reasons. A carbon tax plays what was described to me as “The Rock Game.” In 2002, our attorney, hydrogeological consultant and I negotiated a consent decree with the State of Wyoming to address historical solid and hazardous waste at Wyoming Refining Company’s refinery. During a break, the State official candidly explained how environmental regulators can slip into The Rock Game. In The Rock Game, the regulator tells industry, “Go find a rock and bring it back to me.” Industry returns with a rock, to which the regulator responds, “Wrong rock. Go find another.” Industry finds another rock. Same response. This exchange iterates until industry finally delivers a rock pleasing the regulator. Compliance is finally achieved. This process produces the right rock but delays progress while wasting incredible time, energy, money and other resources. Significant savings could be had and efficiency served by describing, at the outset and with specificity, the right rock.

A carbon tax is no different. For example, the Climate Leadership Council proposes: “A sensible carbon tax should begin at $40 a ton and increase steadily over time . . . .” This tells the economy in general and industry in particular to find as many $40 emission reductions as possible. If reductions are insufficient, the tax will be increased and industry told, “Go find more. Do your best. We’ll decide what enough is.” Whether and how many emission reductions are required are not specified nor can they be. Thumbscrews will be tightened until results are deemed satisfactory.

A carbon tax’ passive-aggressive campaign to achieve indeterminate results places the regulated community in limbo. While government certainly may direct subjects to jump, we ought be told how high before leaving terra firma. Fundamental notions of fairness, due process and good government require no less. Needed greenhouse gas emission reductions can be quantified with reasonable accuracy. The carbon tax rate required to get there, however, will likely not be known until the emission goal has been reached or, quite possibly, overshot. Government owes the economy and industry more than a compass heading. The journey’s distance is essential to plotting the course.

The first flaw of a carbon tax, therefore, is not economic or political although, as I will explain, these absolutely exist. The carbon tax is based on flawed values and philosophy. Should government be allowed to coerce or, if one prefers the word, cajole its subjects down a path ending only when government says we’ve arrived? Who will be watching those watchers? Who will decide which rock is finally the right rock? Or, does government owe a responsibility to the regulated community of “manning up” by setting an emission target and describing steps leading there? The second option gives industry and the economy more information for planning and dedicating required time and resources and is better.

In later posts, I’ll describe a program, “Market Driven Compliance”, for setting and achieving a government-defined final emission target announced to all in advance. MDC uses a single performance standard applicable to all sectors’ regulated emissions. A carbon credit market, sadly absent with a carbon tax, will allow any regulated entity in any sector to comply at the lowest cost for achieving the aggregate emission target. This cost will be available to the entire regulated community across all sectors.

Best,

Bob