January 9, 2009

Exxon Goes Green?

I never thought I'd say it, but I agree with Exxon on an environmental issue. The CEO, Rex Tillerson, called for a carbon tax yesterday. As the Wall Street Journal reported...

Rex Tillerson said that a tax was a "more direct, a more transparent and a more effective approach" to curtailing greenhouse gases than other plans popular in Congress and with the incoming Obama administration...Mr. Tillerson has become an unlikely member of a club that includes former Vice President Al Gore, consumer advocate Ralph Nader and President-elect Barack Obama's designated head of the National Economic Council, Larry Summers.

Does "wow" cover it? While skeptics may believe that Tillerson is just throwing the idea out there because he knows it won't happen politically, I'm not so sure. I think he means it. And not just because it's by far the most efficient method to reduce emissions, which pretty much every economist of any political stripe agrees with (for example, Bush's former chairman of the Council of Economic Advisors, Greg Mankiw, is a big proponent...see here and here).

But I think Tillerson knows that a carbon tax would likely be cheaper for Exxon than a cap-and-trade, or at least not as specifically targeted. The wrangling over a cap-and-trade system - who will pay for permits, who's included in the "cap", and so on - will be ugly. But you can bet that energy and utility companies will face the most traumatic changes and restrictions. A tax, on the other hand, would wind its way through the economy to the places that the supply and demand curves dictate (those with "inelastic" demand are more likely to pay the price). Basically, even if it's taxed at the pipeline or refinery, the actual cost could be passed on to consumers. But isn't that the point? A tax or a cap should reduce consumption, which won't happen without a higher price signal. Only when gas hit $4 a gallon, did people demand more energy-efficient cars.

At any rate, while many say a tax is nearly impossible to pass, especially in a recession, maybe now's the best time. All bets seem to be off in D.C. these days. Conservative economists are ok with $1.2 trillion deficits and some Republican congressmen have indicated support for energy taxes (and lower income taxes - a policy called 'tax shifting' that other countries have used for years).

It's ideological anarchy out there right now. Maybe while the slate is clean and the economy is at rock bottom, we can explore those hard-to-pass, but ultimately superior, policies. I can dream, can't I?

This post first appeared on Huffington Post.

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