James Baker is the keynote speaker at the 69th Annual Oil and Gas Law Conference, held at the J. W. Marriott, February 15 -16, 2018, Houston, Texas.  True to form, the former Secretary of State delineated his business model for reducing carbon emissions through a taxation plan on such emissions.  Please refer to my recent article outlining Baker’s plan on carbon taxation here.

As I listened to him speak, several puzzling questions popped up in my mind.  Something just did not fit.  Here is what I came up with.

  • Baker wants to impose taxes on emissions, place the taxes in social security as a dividend to the people, and remove most of the regulations on emissions.
  • First of all, energy, particularly gasoline, has an inelastic demand curve.  This means that people have no choice regarding how high gasoline prices go.  People have to get to work and they are forced to  pay the price.  Economic theory says that under such conditions, the increase in taxes is not a burden on  the polluter, rather the tax payer.  The tax just gets translated into higher prices for the consumer.
  • Secondly, everyone is anticipating that social security will be dismantled sometime in the future.  There is much discussion that there simply will not be enough young people around to support the baby boomers.  Any money in the social security fund will probably be confiscated by the government if and when social security is dismantled.
  • Thirdly, lifting the regulations on emissions is a bad idea.  The polluters will just dump the higher tax price on the consumer, and have a green light to pollute as much as they want.  Furthermore, regulation creates jobs.  As regulations are rolled out, a host of specialized firms pop up that offer consulting, field services, and technology to help met the regulations.  A tax will not have a great effect on increasing jobs.  And regulations will be an assurance that the environment is protected

One thing must be noted, however.  I wrote an article previously explaining how the oil and gas, and petrochemical industries are only about 5% of the US carbon footprint.  Yet the EPA is pressing regulations on controlling fugitive emissions in this sphere of industry.  That is silly.  The greatest polluters with the largest footprints are electricity and transportation, in the realm of 60 to 70 percent of total carbon emissons.  Regulations should be placed where they are needed.

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