Misleading chart of the day (or The WSJ doesn’t understand the difference between production and consumption)
Posted by Rich Sweeney on March 9, 2009
In a trite rebuke of any policy that would force economic agents to internalize the costs of emitting carbon, the WSJ editorial page tells us that not only is cap-and-trade just a roundabout tax (run!) but its an unfairly redistributive one at that. Of course they completely ignored the corrective potential of carbon revenue reallocation and the growing academic literature on the incidence of climate policy (see a paper I co-authored here, update forthcoming soon).
Instead they chose to present the table above as evidence of the extent to which carbon policy would disproportionately harm the states on the left and benefit the states on the right (column, that is). In a sort of bait and switch, the editors first note (correctly) that “Once the government creates a scarce new commodity — in this case the right to emit carbon — and then mandates that businesses buy it, the costs would inevitably be passed on to all consumers in the form of higher prices.” Thus, a cap-and-trade really taxes the consumption of carbon. Then they include this chart, which shows the per-capita carbon intensity of production. What makes matters much worse is the fact that the magnitude of this difference is clearly not obvious to the average reader. Let’s just say that unless everyone in Wyoming owns a private jet, the average person is not consuming 154.4 tons of carbon a year. Instead Wyoming houses a lot of carbon intensive industries (like mineral extraction), which they then export all over the place. Thus, just as the editors said, these Wyoming producers will largely pass the brunt of any carbon taxation down on to people in places like California and Florida.
There is regional variation in the carbon intensity of consumption, but it is orders of magnitude smaller than the variation shown in the table above. The WSJ editors should know that.