Before Elon Musk was a free speech meme lord beloved by the Right, he was first and foremost a scientist-cum-inventor beloved by the Left for his innovation in clean energy. Hence, both of the billionaire’s worlds collided when Musk tweeted his endorsement and explanation of a carbon tax as a solution to climate change.
As an Ivy-trained physicist now infamous for owning the largely privately controlled free speech platform X, Musk explains the causes and consequences quite cogently. He is correct and compelling in making the case that climate change is indeed an anthropogenic phenomenon and that its real costs will be widely disseminated if nothing is done. But a carbon tax is a woefully wrong solution to the very real problem of climate change.
Musk’s argument for why the government should be involved in the matter at all is the only valid one: The economic externalities of carbon emissions are not included in the price of energy. Economists regard this as one of the few legitimate market failures that render an industry less than optimally efficient. But while greenhouse gases may confer a cost on those not responsible for emissions — for example, rising sea levels displacing developing economies near the equator — a carbon tax doesn’t address the real culprit.
For starters, America and its allies are increasingly less responsible for climate change, and China, Africa, and the Middle East are ever more so. Whereas the United States emits fewer greenhouse gases than it did in 1990 despite our real economy more than doubling in that time, greenhouse gas emissions in China have nearly quintupled. In Iran, they’re up 286%, and in Qatar, they’re up 669%.
A domestic carbon tax would punish American workers for climate crimes committed by our enemies abroad, and as evidenced by the United Nations’s abysmal response to everything from the Chinese origins of the coronavirus to Hamas’s attempted genocide in Israel, there’s no way a global carbon tax would ever be effectively enforced on our foreign adversaries.
A carbon tax would also harm our broader domestic economy through the deadweight loss wrought by eliminating the consumer surplus in our energy markets. Technocrats may think they could optimize the tax rate in theory, but that deadweight loss is undeniable.
Furthermore, Musk claims the carbon tax could be deficit neutral by offsetting its costs with lowered tax rates elsewhere, such as value-added taxes that are prevalent throughout Europe. This would make a carbon tax even more regressive and thus politically impossible in the progressive economies he’s clearly trying to persuade.
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The grand irony of Musk’s attempt to find a solution is that he, perhaps more than anyone else, has already created the best one: scientific innovation. Not only has Tesla transformed the auto industry by mainstreaming wholly electric vehicles, but Musk has also forayed into the carbon capture market. And again, as evidenced by the GDP data above, capitalism and economic growth are not antithetical to combatting climate change. Rather, they’re crucial to the mission.
If Musk insists on a domestic governmental response beyond its generous grants and tax breaks to clean energy and electric vehicle innovation, former President Donald Trump has oddly enough stumbled onto the right idea. While his universal 10% tariff proposal is both economically inefficient and diplomatically dangerous in its needless alienation of our allies, robust tariffs against our enemies such as China could be not incorrectly sold to Democrats as a carbon tax, not against American workers but against adversarial, centrally planned governments happy to watch the world burn.