May 14, 2008
Do carbon taxes hit oil producers?
Yes, a carbon tax or a cap-and-trade system with the permits auctioned off rather than given away would raise a boatload of revenue, even after some of the money is redistributed back to lower-income families to hold them harmless. But here's a question for my economist readers:
To what extent would the incidence of a carbon tax fall on sellers of crude oil? That is, to what extent can we shift the tax burden from U.S. taxpayers to the Saudi royal family, the Russian oligarchs, and ExxonMobil? The simple version of the argument is that the market will drive the price of oil to the point where the quantity demanded equals the quantity supplied. We've already seen how unresponsive supply is even to quite massive price increases. Thus a tax on crude production — including the part of a carbon or GHG tax that covered oil — would be largely borne by the sellers.
Not only would this be a strong policy argument for such a tax, it would be an overwhelmingly strong political argument. Now all I need to know is to what extent that argument has the additional advantage of being true.
h/t Kevin Drum, via Matt Yglesias.
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