Anyone who questions the validity of Bruce Yandle’s Bootlegger and Baptist theory of Public Choice needs to look no further than the Climate Leadership Council and its carbon dividend proposal which is now be flacked by Americans for Carbon Dividends—AFCD—which is co-chaired by former Senators John Breaux and Trent Lott.
The carbon dividend proposal, designed by James Baker and George Shultz, would impose a carbon tax—they call it a fee– on all fossil fuels and then rebate the revenue on an equally to all Americans on a monthly basis. The program would be administered by the Social Security System. The implementation of the carbon tax would lead to the phasing out of regulations that are intended to reduce carbon dioxide emissions.
This proposal is supported by major corporations and distinguished Americans such as Ben Bernanke, Martin Feldstein, and of course, James Baker and George Shultz. On the surface the proposal appears quite reasonable. It is not. To quote, erroneously, Yogi Berra, “In theory, theory and practice are the same. In practice, they are not.”
The flaws in the proposal are many. To begin with the carbon tax is based on an assessment of the damages caused by using fossil fuels—the Social Cost of Carbon. Damages are derived from complex Integrated Assessment Models –IAM. MIT’s Robert Pindyck said “IAM-based analyses of climate policy create a perception of knowledge and precision that is illusory, and can fool policy-makers into thinking that the forecasts the models generate have some kind of scientific legitimacy.” He also said that “calling these models close to useless is being generous. “The reason for such harsh criticism is that many of the parameters and functional forms contained in models are arbitrary. The damage function tied to the relationship between temperature increases and GDP is based on climate sensitivity which we know very little about. The IPCC sensitivity estimated range varies by a factor of three.
So, why do economists and corporations support something derived by piling assumptions on top of assumptions? Economists rightly believe that a market based solution to climate change is preferable to command and control regulations, even if damages are uncertain and the size of a carbon tax is as well. CO2 emissions are seen as a bad, so taxing them is good and the tax will stimulate innovation. In the case of corporations, they realize that Congress will not enact a clean and simple tax and legislation to eliminate CO2 regulations. Politics will shape the size of the tax and its implementing legislation. Corporations want to “be at the table” as legislation is drafted and also get the PR benefits of supporting action to solve the climate change problem. Having two former senior senators leading the advocacy campaign will provide the “seat at the table”.
The carbon dividends scheme is a perfect example of the Bootlegger and Baptist theory. The whole thing is a scam!