A carbon tax beats a vacuum ban

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Article Highlights

  • Do we really want the government telling us what kind of vacuum cleaner or light bulb to buy?

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  • Fortunately, there's a better solution than this regulatory approach.

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  • A carbon tax would eliminate the need to micromanage the kinds of vacuum cleaners and light bulbs that people can buy.

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Starting in September, the European Union will ban vacuum cleaners using more than 1,600 watts of power, with the limit slated to be lowered to 900 watts by 2017. This ban won't just affect a handful of the worst offenders. According to the European Commission, the average vacuum cleaner sold today uses 1,800 watts.

Intended largely to reduce carbon emissions, the vacuum cleaner ban joins numerous other regulations throughout the world that severely restrict consumers' choices. Want an incandescent light bulb? Too bad – they're banned. How about a gas guzzling car? Sorry – they're being squeezed out by tighter fuel economy standards.

Rules like these rub many people the wrong way because they represent government intrusion into even the most minute of personal decisions. Do we really want the government telling us what kind of vacuum cleaner or light bulb to buy? Don't policy makers have better things to think about? Backers of such regulations counter that, when people buy powerful vacuum cleaners and incandescent bulbs, they don't take into account the spillover costs they impose on others by contributing to climate change.

Fortunately, there's a better solution. A carbon tax – set to reflect the spillover costs of carbon emissions – would eliminate the need to micromanage the kinds of vacuum cleaners and light bulbs that people can buy. Instead, the tax would provide consumers with an incentive to act in a socially responsible manner by ensuring that those who operate such products pick up the tab for the climate harm they cause.

The main advantage of the carbon tax is that it leaves consumers free to decide whether to buy energy-efficient vacuum cleaners and light bulbs or whether to reduce their carbon footprint in other ways. That's a big improvement over the regulatory approach because individual consumers are in a better position than government bureaucrats to figure out the least painful way to reduce their contribution to climate change.

A carbon tax is also better targeted than vacuum cleaner bans and other regulations. Some critics of the EU's new rule claim that consumers will need to run their less powerful vacuum cleaners for longer periods of time to achieve their desired level of cleanliness, which might actually increase the amount of electricity they use. Similarly, improving fuel economy through tighter standards may increase the amount of driving that people do. These "rebound effects" might not be big enough to actually cause a net increase in emissions, but they still reduce the effectiveness of the regulations.

A carbon tax avoids these problems by directly targeting the real culprit – carbon. Under a carbon tax, there's an incentive to cut back on carbon emissions along every dimension. In other words, because tax payments are in line with actual emissions, a Prius owner who drives a lot could very well pay more than an SUV owner who hardly ever drives.

Economists of all political stripes agree on these points. In a 2011 poll of leading academic economists representing a variety of demographic backgrounds and political views, 90 percent agreed with the statement: "A tax on the carbon content of fuels would be a less expensive way to reduce carbon-dioxide emissions than would a collection of policies such as 'corporate average fuel economy' requirements for automobiles." There's no doubt that economic advisers offer similar advice when policy makers consider regulations like the vacuum cleaner ban. Unfortunately, these misguided policies often turn out to be more politically feasible than a carbon tax.

That may change going forward, however. As policy makers look to trim budgets and find additional sources of revenue, a carbon tax could represent a good compromise between conservatives and liberals – a way to address climate change while protecting consumer freedom and raising revenue that can be used to lower other taxes.


Sita Nataraj Slavov is a resident scholar in economic policy studies at the American Enterprise Institute.

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About the Author

 

Sita Nataraj
Slavov
  • Economist Sita Nataraj Slavov specializes in public finance issues dealing with retirement and the economics of aging. Her recent work has focused on whether retiree health insurance encourages early retirement, the impact of widowhood on out-of-pocket medical expenses among the elderly and the optimal time to claim Social Security. Before joining AEI, Slavov taught a variety of economic courses at Occidental College: game theory, public finance, behavioral economics and econometrics. She has also served as a senior economist specializing in public finance issues at the White House's Council of Economic Advisers. Her work at AEI will focus on Social Security and retirement issues.


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