Elon musk says the # 1 way to reduce carbon dioxide emissions would be to levy a carbon tax.

“Honestly, my main recommendation would be to just add a carbon tax,” Musk said. Joe Rogan on The Joe Rogan Experience podcast Thursday. “The economy works great. Prices and money are just information. … If the price is wrong, the economy is not doing the right thing.”

Currently, there are no direct monetary consequences for companies and industries whose production releases greenhouse gases into the atmosphere; in other words, it is free to create greenhouse gases, the most common and pervasive of which is carbon dioxide. Carbon dioxide is released when fossil fuels, like coal and gas, are burned. Excess carbon dioxide in the atmosphere traps heat and causes global warming.

Musk calls carbon concentrations in the atmosphere and the environment a “priceless externality.” An externality occurs when a consequence of production is not properly reflected in the market. In this case, it is a negative externality.

A carbon tax would change that. “If we just put a price on [carbon emissions], the market will react sensibly. But because we don’t have a price, it misbehaves, ”Musk said.

Musk suggested a point-of-use tax. (A consumption tax is a tax that is levied at the point of consumption, when someone buys something, where an income tax is where you earn income or collect interest, capital gains and the like, according to the Brookings Institution.)

He also suggested that the tax be “Non-regressive”, which means that tax could be levied depending on the level of income. If a “low-income” consumer who has to use a lot of gas (and therefore produce a lot of carbon emissions), he could get a “tax refund,” Musk said as an example. “This is the way to do it.”

“This is obviously something that should happen,” Musk said.

Musk told Rogan he spoke to the Biden administration about the implementation of a carbon tax. According to Musk, at the time, the administration said it seemed “too politically difficult.” A White House spokesperson did not immediately respond to CNBC’s Make It request for comment.

Corn Janet Yellen, appointed by President Joe Biden to lead the Treasury Department, indicated his support for some sort of carbon pricing strategy. ‘Carbon pricing’ can refer to a carbon tax, an emissions trading system. or a number of other funding mechanisms.

“We cannot solve the climate crisis without effective carbon pricing. The president supports an enforcement mechanism that forces polluters to bear the full cost of the carbon pollution they emit,” Yellen said. . said in the written answers questions from members of the Senate finance committee published in January.

Of course, a carbon tax could give an electric vehicle company like Tesla a head start in the market. But according to Musk, “SpaceX would also pay a carbon tax,” he said. (Since rockets burn fuel that emits carbon dioxide when burned, all rocket companies should pay such a tax when they consume jet fuel.)

The goal of a carbon tax is to align market incentives towards the transition from an economy that relies on fossil fuels to an economy that uses clean energy (energy that does not produce carbon emissions). And that, Musk says, is an existential necessity.

“Tesla’s fundamental good is how well it accelerates the advance of sustainable energy. It’s inevitable. It’s tautological,” Musk said. “It’s either we have sustainable energy or civilization is collapsing. And so if civilization does not collapse we will have sustainable energy, it’s just a matter of how long it takes. . The earlier the better.”

The idea of ​​a carbon tax is not new. Opinions are divided on the question.

“Elon is there. We need to get millions of people to change their behavior to reduce emissions by buying more fuel efficient cars, adding more insulation to homes, moving away from coal-fired electricity and a host of other changes “, Gilbert E. Metcalf, Professor of Economics at Tufts University, told CNBC Make It. “A carbon tax uses the power of markets to effectively send a signal to consumers to make these changes. Indeed, a carbon tax ensures that Adam Smith’s invisible hand has a green thumb.

According to Richard Klotz, an environmental economist in the Department of Economics at Colgate University, “The prices of polluting goods / activities do not reflect their ‘true’ social costs. For example, the price you pay for gasoline does not include damage [carbon dioxide] to burn that gasoline causes climate, ”he told CNBC Make It. “So when we’re all making decisions about what to buy, we don’t have to consider the environmental cost. Carbon pricing corrects this problem by ensuring that the prices / activities of goods more accurately reflect real costs. “

Others, however, are not in favor of a carbon tax.

A carbon tax will do nothing to prevent climate change, but it will hurt the elderly, minorities, the poor and the middle class the most, as well as those on fixed incomes, as they spend a greater percentage of their income in energy and energy goods than relatively wealthy people, ” H. Sterling Burnett, Senior Fellow of Environmental Policy at the Free Market Think Tank Heartland Institute, told CNBC Make It.

Indeed, paying for basic energy needs can often be a higher percentage what a low-income person earns each month. And, to make that pain more acute, “if you live in an inferior house that is not weatherproof, is not energy efficient, has been poorly built, or is older, then your load energy will be more important “, Nathaniel Smith, Founder and Head of Equities, Southern Equity Partnership, a non-profit organization in Atlanta, told Yale Climate Connections in 2019.

So that’s the argument for a non-regressive carbon tax, as Musk pointed out in his conversation with Rogan. This idea is a non-starter, according to Burnett. “It can’t be non-regressive if it’s meant to change behavior. It has to hurt to work or people won’t change their behavior and stop using fossil fuels,” he says.

Even those who support a carbon tax say careful implementation is essential.

“If it’s done right, and set to the right level and without too many loopholes, this can be a great policy – but it’s a big if,” says Michel gerrard, environmental lawyer and professor at Columbia Law School. “It must be combined with additional regulations if necessary, and with measures to counter any regressive impact on low-income people.”

So, too, says Metcalf. “A carbon tax is not a magic bullet. We will also need other policies, ”he says, including increased spending on research and development to make zero-carbon technologies cheaper. And with a carbon tax, “getting the price right is the first job”.

According to Musk, the Paris Agreement is “just a piece of paper unless you do something about it,” he told Rogan. “It’s pretty much toothless.”

“One thing that would matter – putting a price on carbon,” Musk says. “This is the obvious movement.”

See also:

This start-up supported by Bill Gates and Jeff Bezos aims to produce almost unlimited clean energy

Fossil fuel emissions responsible for 1 in 5 premature deaths: Harvard report

The who, what and where of Elon Musk’s $ 100 million award for carbon capture innovation

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