Greenhouse Gas Emissions and the T3 Tax

The IPCC (Intergovernmental Panel on Climate Change) presents evidence from scientists in many fields that burning coal and oil has increased CO2 emissions by 70% from 1970 to 2004. Other emissions, including methane (CH4) and nitrous oxides (NO2), have also increased. Such GHG (greenhouse gas) emissions are thought to be a source of global warming. Adding a sense of urgency, the IPCC reports that eleven of the last twelve years have been the warmest on record since 1850, when widespread recording of temperatures began.

Government policies such as corn-based ethanol and higher fuel efficiency standards for vehicles are likely to be of little real value in reducing emissions and serve more as political window dressing in an election year. Instead, resource users should pay a charge or tax equal to the climate damage caused by consuming GHG intensive products, such as electricity and oil. European countries have adapted a cap and trade system to GHG emissions. With a cap in place, those firms that want to emit more must buy permits in the market. The permit costs are eventually reflected in higher prices which send a signal to producers to search for less GHG intensive production methods and signal consumers to buy less GHG intensive products. However, policy-makers can only guess at what the proper cap should be. Instead, a system of taxes per unit of CO2 equivalent might be imposed, where the tax is set equal to the amount of social damage caused by GHG emissions. Current estimates put the social damage of an additional ton of GHG emissions at about $5. Such a tax could be increased or decreased as more information becomes available on the contribution of GHG emissions to climate change.

According to IPCC scientist and economist Ross McKitrick, "climate change models predict that, if greenhouse gases are driving climate change, there will be a unique fingerprint in the form of a strong warming trend in the tropical troposphere, the region of the atmosphere up to 15 km altitude, over the tropics from 20 degrees North to 20 degrees South." McKitrick proposes a T3 tax on CO2 equivalent emissions tied to the degree of warming in the tropical troposphere, where T3 stands for tropical troposphere temperature. Skeptics of climate change, who argue that there has been little warming, will be pleased that the tax will be small if global warming does not occur and will decline to zero if cooling occurs. Global warming activists will be pleased that if warming rapidly proceeds, the tax will rise sharply, sending a strong price signal to investors to adapt cleaner, less GHG emitting technologies.