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Friedman: Energy taxes have destroyed Denmark – not

Thomas Friedman has an op-ed at the New York Times that describes some of Denmark’s energy taxation and alternative energy policies.

No doubt these policies created distortions and in some ways left Denmark less wealthy than if such policies had not been adopted – particularly as high energy prices may discourage domestic industry to invest abroad – but as I have noted previously, a wide range of economists, businessmen and think tanks support carbon taxes in the US, particularly if they are accompanied by reductions in taxes on labor and capital.

My question, in connection with Friedman’s piece, is whether recycled carbon taxes, if coordinated by leading industrial nations (to reduce geographic shifts in capital investment), would decrease welfare globally?

I observe that the difficulties of coordination and enforcement make it highly unlikely that nations, absent dramatic climate change, will agree to very high carbon taxes.

I also observe that policies in the US to keep energy prices low bear some relation to both the health of the US auto industry and to our ruinous military engagements abroad.  Further, Denmark’s investments in energy independence have certainly spared it costly expenditures on foreign wars, and position it to make money as demand for clean energy grows. 


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  1. TokyoTom
    August 19th, 2008 at 13:19 | #1

    Kevin, you left out of your list of energy options:

    – getting the government out of the business of owning and leasing land;
    – getting the government out of the business of running and regulating utilities;
    – eliminating corporate income taxes (allowing immediate depreciation); and
    – replacing taxes on income and capital with taxes on energy,
    among others.

    Your first two statements about climate change are off base. As it relates to a shared global resource, no single nation is going to adopt ruinous policies. Rather we face a situation more like ranchers deciding to close the range, or fishermen deciding to impose catch limits. The only industry to benefit from federal action/inaction so far is coal, which is by far our dirtiest energy source.

    As for what we can or can`t predict, doesn`t the house win in the long run when betting on odds? When we load dice, can we make predictions on outcomes? As for warm being good, when did that give those making things warmer the right to do so, regardless of the wishes of, or costs to, others?

  2. Kevin
    August 19th, 2008 at 12:06 | #2

    If I had to rank the energy options from best to worst I would say:
    1- no government interference
    2- government interference where the government makes a good choice (like taxing a destructive action to offset the externalized costs and compensate the rest of the impacted society, the pollution from burning oil)
    3- government interference where the government makes a bad choice (like spending huge sums on maintaining a military empire to dominate oil supplies rather than taxing much less and letting the people pay a bit more at the pump instead)

    So Denmark’s choice is not the most bad, but also not the best it could be. In my opinion at least.
    Also, global warming, its causes and potential problems have been wildly distorted for political reasons. The actions that governments take as a result of this misperceived danger are also wildly off base. Carbon in the atmosphere is a good thing, warmth is a good thing. Weather people can’t even predict a hurricane more than a few days out, what makes anyone think they can predict droughts floods or other changing weather patterns?

  3. TokyoTom
    August 13th, 2008 at 03:50 | #3

    Silas, thanks for the comments. Perhaps I wasn’t making myself clear enough; I haven’t bought into the oil causes foreign wars nonsense. My point was that US policies to keep energy cheap are often used by politicians to justify that nonsense (which are giveaways to friends that are combined with politically advantageous chest-thumping). There are many sources of oil, so we certainly don’t need any military interventions.

    My remark about Denmark was intended to note that a focus on energy independence – although it’s not something I really worry about – can be advantageous because it makes it harder for politicians to embark on energy-related wars. But Denmark is much smaller than the US and whatever pork it has simply doesn’t scale up to the massive US defense/intelligence pork.

    I think there is a free lunch on carbon taxes, as economists have long agreed that shifting from taxes on labor, capital or income to consumption would improve investment. Accordingly, I don’t think there is an immediate disadvantage from being an initial mover – if other taxes are actually cut – though eventually nations must coordinate if they think aggressive mitigation and adaptation measures are needed. But trade policy is available as enforcement leverage, so I don’t think that the international coordination issue is the real hang-up.

    The tough issues are figuring ways to buy off our coal extraction and transport industries (and the states that are hooked on the revenues) and to make sure that we avoid cap and trade/alternative energy pork by going for rebated carbon taxes.

  4. August 12th, 2008 at 18:38 | #4

    TokyoTom, please don’t buy into the propaganda that oil use *causes* foreign wars, since the wars are clearly not a necessary result of oil use, but rather, really stupid or evil politicians. Singapore, Switzerland, and France seem to get fresh, clean oil from the Middle East without putting a military there.

    About the economic losses from carbon taxes: couldn’t they be canceled with a rebate to citizens or a corresponding reduction in labor and capital taxes? Or am I just wishing for a free lunch here?

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