PROMINENT VOICES are calling for national carbon taxes as a way to fight global warming. Former Federal Reserve Chairman Alan Greenspan, the Los Angeles Times' editorial board and economists on the left and the right all support a carbon tax as the cure for our greenhouse gas pains. It isn't, at least for transportation. As the California Air Resources Board votes today in Los Angeles on adopting new carbon standards, we should understand that global warming can't be solved by a single policy or solution.Carbon taxes — taxes on energy sources that emit carbon dioxide (CO2) — aren't a bad idea. But they only work in some situations. Specifically, they do not work in the transportation sector, the source of a whopping 40% of California's greenhouse gas emissions (and a third of U.S. emissions).
The one sector where carbon taxes will work well is electricity generation, which accounts for 20% of California emissions (and 40% of U.S. emissions). The carbon tax works because electricity producers can choose among a wide variety of commercial energy sources — from carbon-intense coal to lower-emitting natural gas to zero-emission nuclear or renewable energy. A modest tax of $25 per ton of carbon dioxide would increase the retail price of electricity made from coal by 17%. Given the many choices, this would motivate electricity producers to seek out lower-carbon alternatives. The result would be innovation, change and decarbonization.
Transportation is a different story. Neither producers nor consumers would respond to a $25-a-ton tax. Fuel producers would not respond because they have become almost completely dependent on petroleum, which supplies 96% of all transportation fuels. They cannot easily find low-carbon alternatives. Even corn ethanol is only slightly better than gasoline.
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