Carbon Tax & Climate Change…
Introduction
The future looks quite choppy, with previous generations leaving a lot of leftover problems for upcoming generations to deal with from the nation’s increasing deficit to the AI pioneering a new marketplace landscape. There is no doubt we are in quite a turbulent and decisive time when it comes to the future of this planet. One of the biggest concerns for the Earth and its inhabitants is climate change, something that is continually trying to be solved. Yet, as funds for environmental organizations continue to grow, so does the global temperature. That is why throughout this entry we will examine climate change, and possible ways for government intervention to occur in the form of a carbon tax, while keeping the economy healthy.
Implementing Change
The main key assumption for this entry is that carbon emissions are directly responsible for the increase in global temperature as illustrated in the two figures down below. This is a scientific fact according to Blanchard and an idea of which I am one of the constituents for. The other assumption is that the people in the positions of power who could implement these changes will do so, which is highly unlikely as of now. “Any policy that implies a cost today in exchange for difficult-to-assess benefits far in the future is politically difficult to sell” (Blanchard, 279). Yet, something that could be more likely as the political landscape around climate change is constantly shifting. Also, the reason why this should not be left in the private sector's hands is due to the fact companies number one goal is to maximize shareholder value and that is often not in alignment with beneficial carbon emission policies. This is again proven by the lack of success from trickle down economics, it has become clear when corporations can boost profits they will, proving their greediness.
Ok, let’s talk about the timing of introducing change, in the form of a carbon tax. “It implies that deficits during recessions should be offset by surpluses during booms, so as not to lead to a steady increase in debt.” (Blanchard, 471). If you were to implement this policy change it would need to be in a time of consumer exuberance, with consumers spending at will. In macroeconomics terms the implementation would have to be during a bull market, and at a time of the year where seasonal spending is high. That may end up hurting the government deficit as booms are the times periods in which the U.S. is able to gain some ground on its public deficit, as stated above by Blanchard.
Implementing this change will affect every industry as almost all industries, and produced goods have an effect on the carbon footprint. Once implemented, the suggested carbon tax would most likely drop output, exemplified in the IS-LM model, with the only way for the government to artificially stabilize the economy would be through government spending. This would be a great shock to the economy and would need to be done throughout a period of time so a sudden jolt wouldn’t send the economy into a deep recession. These public investments into the American economy will need to be steadfast for a short period of time until the consumers have adjusted to pricing changes. At the same time economists may want to consider lowering interest rates, to pump investments and impose tariffs on specific goods to semi close the economy. This would allow for demand to be fulfilled in the U.S. keeping revenue and GDP strong.
However, the perverse effects from semi-closing off the U.S. economy could be catastrophic for the global economy; the effects are not completely quantifiable, but let’s just say it would be messy. The budget deficit was mentioned above and how if the policy mentioned above was implemented the deficit would increase. Well, at some point the U.S. is going to need to slow down our debt growth, while this policy would most likely accelerate it. “High debt ratios increase the risk of vicious cycles. A higher perceived risk of default can lead to a higher interest rate and an increase in debt. The increase in debt can lead to a higher perceived risk of default and a higher interest rate. Together, both can combine to lead to a debt explosion. Governments may have no choice but to default or to rely on money finance. Money finance may in turn lead to hyperinflation.” (Blanchard, 481). Another fear would be driving firms out of the United States, with this sort of policy as they go looking for countries with less regulation, spiking unemployment. In terms of offshoring though, I believe the U.S. would have their bases covered if “countries willing to adopt a carbon tax should do so and impose a carbon tariff on the goods imported from countries that do not have a carbon tax.” (Blanchard, 279). Overall, the implementation of a carbon tax as described by Nobel Laureate William Nordhaus is very intriguing, but the economic ramifications and consequences leave some doubt about the feasibility. Based on what I have read it appears that the only way to solve climate change is if it starts with the consumers, but that is unlikely as of now given the political division in the United States of America.
