What America Must Do: Kenneth Rogoff

Economist Kenneth Rogoff argues that if the United States wants to clear the air with the rest of the world, it should start with $6 gasoline.

Related to this article: What America Must Do Step on the Gas
By Kenneth RogoffAuthor Interviews:
Yang Jianli Reza Aslan Dmitri Trenin Jessica T. Mathews For additional Web extras from the January/February 2008 issue of FP, click here.

Foreign Policy: You recommend that the next president swiftly ask the U.S. Congress to institute a carbon tax that will raise the price of gasoline. What are a few of the benefits the tax would bring?

Kenneth Rogoff: The United States is causing 25 percent of global carbon emissions. There is no realistic way forward that doesnt require the United States to cut its emissions in half, and I think a tax on carbon emissions is vastly better than various alternatives. Rather than tell car manufacturers that they have to have better mileage or people that their houses have to have better insulation, we can just raise taxes. Perhaps we do it over 10 years. Rather than complain that the Middle East is getting so much oil money, we can put some of the money into Americas pockets.

FP: The energy bill that U.S. President George W. Bush signed recently aims to increase fuel-economy standards on vehicles. Do you think that represents too much regulation? Does it fail to solve the emissions problem?

KR: Its helpful, but its just one piece of the problem. People dont understand that you end up paying one way or the other. With a tax, if somebody wants an SUV, they can still use one,but they have to pay a lot for it. And [the tax] would raise huge revenues. I think the price of gasoline needs to come up to $5 or $6 to start cutting back on emissions. The United States would be showing some real leadership on the international stage that other countries would really respect. We need to talk India and China into polluting less, and as long as were behaving the way we currently do, theyre going to think its a joke.

FP: People talk about [gas taxes] as a political non-starter. There isnt a single 2008 candidate stumping for it on the campaign trail. How do you get the public behind this proposal?

KR: Its a matter of leadership. Im not recommending that the presidential candidates try to form their platform around a gas tax. The brave candidate that did that would lose. But I think its exactly the kind of thing where the president has to explain to people that its in the national interest. And its certainly much easier to do now than it was eight years ago because the scientific consensus is so great and our budget situation is so difficult. This is a case where if the president exhibits that leadership, he or she would be rewarded for it laternot right away, but when people take time to it figure out.

FP: What advantages does the carbon tax have over the cap-and-trade carbon system?

KR: Theres growing intellectual opposition to the carbon market idea based on common sense and the experience of the Europeans. Im hopeful that well end up going in a more sensible direction and provide a model for other countries to use. What the Europeans and the Japanese basically did is give away the pollution rights to the people who were polluting a lot. So, if youre a big, polluting company, you think [the cap-and-trade system is] wonderful. If you can become more efficient, you can sell your rights and make money. If you dont become more efficient, you dont lose anything.

If we do a cap-and-trade system, the cost is going to be gigantic. But if we design an efficient system, like a carbon tax, I think it would be pretty manageable. It also gives everybody the right incentives. When the government tries to do things by command and control involving hundreds of billions of dollars, its folly to think that all its going to cost is a small percent of GDP, which is what the Stern Commission report estimates. Its going to be much, much costlier than that.

FP: Delegates at the Bali climate conference recently tried to negotiate a treaty that mandates emissions caps. Is it a good idea to have internationally mandated caps or reduction targets?

KR: I think its in our interest to take leadership in this area. Then after weve done something, after we phase in a big carbon tax over 10 years, we can sit down and negotiate from a much stronger moral position. We can always take our tax away in the future. We retain complete control; plus it brings in a lot of money. We dont like to emphasize this point, because its very sensitive with the oil producers, but theres nothing that terrifies them more than a carbon tax. Its basically taking money that they would get and putting it in the U.S. governments pocket. They hate it.

FP: When Hank Paulson became U.S. treasury secretary, a lot of people made a big deal about the fact that he is an environmentalist. Do you feel that its disappointing to see him not taking more initiative on this point?

KR: I hadnt really reflected on it, but I certainly was one of those who had hopes that he would take some initiative here. So far, he hasnt. Hes had a lot of other things on his plate. But his heart seems to be in the right place on this issue.

FP: What do you say to those who insist that, because China is now a major polluter, the United States shouldnt have to reform its environmental policies if China isnt going to act as well?

KR: Its absurd. If we look at the cumulative pollution, weve done all of it. If you look at pollution per person, were 40 times what the developing world is. And our moral position is just so pathetic. If this were a minor issue, we could just blow it off, but it isnt. I just dont see how were going to get action elsewhere until we take some ourselves. We may not convince other countries and we may have to do more, but the starting point has to be that were taking the first steps toward the solution. If I were the Chinese or Indians, I would just laugh if the United States told me to cut way back on pollution.

Kenneth Rogoff is professor of economics at Harvard University and former chief economist of the International Monetary Fund.

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