The Limits of what a Carbon Tax can do

Perhaps I’m fated to explicate and abbreviate Paul Rosenberg’s wordy articles on important topics at Salon and Alternet. A week ago, I answered the question Rosenberg himself posed in “Why are conservatives such whiny crybabies?” but struggled to resolve over 11-single spaced pages.  Rosenberg’s gotten pithier.  His latest at Salon, “Port truckers have gained two key victories, but the pain of deregulation persists,” barely exceeds 9 pages.

While nobody would confuse Rosenberg with Ida Tarbell or even Sabrina Rubin-Erdely, he does choose interesting topics.  In “Port truckers”, he addresses the harm Carter-era legislation did to Port of Los Angeles truck drivers and efforts to rectify that harm.

Hailed as a victory for consumers, 1980’s Motor Carrier Act (MCA) deregulated the American trucking industry by prohibiting local and state government “rate bureaus” from 1) publishing price schedules for trucking various goods and 2) overseeing trucking operations within their jurisdiction.

As Congress intended, truckers immediately slashed prices in an effort to grab market share.  This development seemed to confirm previous claims by MCA supporters that the rate bureaus had been too cozy with trucking companies and the teamsters union and it probably lowered prices for consumers.  But the cost-cutting did not stop at trucking rates.

In order to make up lost revenue, trucking companies cut salaries and benefits paid to drivers and reduced expenditures on maintaining and upgrading equipment. This led to increases in pollution and collisions.  Defanged or eliminated, the watchdog rate bureaus could no longer mandate best practices or fine companies and individuals who didn’t follow them.

Ultimately, companies that previously employed truckers to cart imported goods from the port and goods to the port for export reclassified the drivers as independent contractors. In so doing, the import-export firms shed themselves of responsibility for payroll taxes, insurance, fuel expenses, and various other costs associated with ownership and maintenance of the trucks.  Of course, the flip side is that these financial burdens now fell on the drivers themselves who also had to take title (through expensive financing) of the rigs they drove.

In consequence, truckers drove more hours. They also frequently drove empty leading to uncompensated fuel expenses, wear and tear, more trucks on the road, and additional pollution.  Nominally independent but wholly reliant on the shipping company, truckers might be called upon to drive a full rig from the port to a distribution center and then return empty or to drive empty to pick up goods to be shipped. The shipping companies were mostly indifferent to the pollution, expenses, and danger that additional trucks posed.  It was surrounding communities and the drivers themselves who suffered from the excess pollution, collisions, and additional insurance premiums and energy expenses.

By the early 2000s, at the latest, the Port of Los Angeles and other Southern California ports began to question whether re-regulation was needed.  At least one analysis concluded that requiring the shipping companies to own and operate the trucks via paid employees would result in a more efficient market.

Analysts concluded that if the shippers owned the trucks and employed the drivers, they would likely direct carters who had left imports at a distribution center to pick up goods bound for export rather than send the driver home or straight back to the port with an empty truck.   The shippers were also best positioned to ensure that drivers got needed rest time and could afford to maintain the trucks in safe working order.

Nevertheless, Rosenberg details, federal courts struck down local statutes and executive orders mandating that import-export firms classify drivers as employees rather than independent contractors. The judges reasoned that by the MCA Congress had preempted the right of local governments to regulate the terms under which trucking companies contract with drivers.

A more successful strategy, Rosenberg says, is class-action suits by truckers against the shippers based on the claim that the latter are violating federal labor law in classifying drivers as independent.  So far, the National Labor Relations Board and lower courts have agreed with the drivers but corporatist Chief Justice John Roberts and the Supreme Court loom large in the background.

Rosenberg tells an important story. He describes how deregulating an industry can go horribly wrong for working people and communities even when liberals supported the change.  But that’s not why I’m writing about it.

I’m writing about it because it is instructive when it comes to the limits of the carbon tax that I have extolled for nearly a decade on air and in writing.  I argue here and here and here, among other places, that there’s no better way to respond to the existential threat posed by anthropogenic global warming than with a very high sales tax on all fossil fuels.

The reason is simple.  Taxing fossil fuel consumers (and rebating the revenues right back to all Americans) incentivizes and empowers those who are actually creating greenhouse gases to seek out clean green energy alternatives.  In the face of higher energy costs, but with added money in her pocket, a home owner can decide whether to add insulation, solar panels, turn down the thermostat in the winter or even move.  Likewise, a man who drives to work may weigh the costs and benefits of public transportation, bicycling, or an electric car.

Obviously, this solution will work extremely well to curb fossil fuel consumption in the vast majority of cases.  But, it won’t in every instance.  One potential problem arises when the extractor/refiner is the one consuming the fuel.  My proposal slaps on the tax at the point of sale to the consumer/burner, i.e., at the gas pump or the power plant.  But how would the tax be assessed against a vertically integrated oil company that ships its petroleum around the world in tank ships that guzzle the company’s own diesel oil?  At no point is the tanker’s diesel fuel sold thus the extractor/refiner is never properly incentivized to ship its product by sustainable means.

Left unaddressed, this problem could become serious for the following reason.  Over time, if no steps are taken to restrain them, extractors/refiners would leverage their ultra-cheap energy costs to move into other industries where cheap energy would provide them with an insurmountable advantage.  Trucking all matter of goods (not just oil) to market comes immediately to mind.  Whatever disadvantages the oil companies might have competing in an arena where they lack experience would obviously be more than compensated by their remarkably inexpensive fuel costs vis-a-vis their competitors.

Two obvious preventive solutions come to mind.  One, the Justice Department could again employ the Sherman and Clayton Antitrust Acts to break up large vertically and horizontally integrated corporations.  If extractors were barred from refining the petroleum they mine and refiners could not expand their operations beyond processing raw crude into gasoline, natural gas, diesel fuel, and propane, neither could exploit unfairly the billions of barrels of untaxed fuels in their storage tanks.  Instead, unaffiliated distribution companies, which have to purchase fuel and thus pay the tax, would ship the raw commodity from the well to the refiner and the finished product to market.

The second, less optimal solution, would rely upon legislation to require vertically integrated energy companies to account for the total number of gallons of oil they burn and pay the appropriate tax.  It is impossible to believe that rich and powerful corporations would not attempt to game this system.

Another circumstance in which the carbon tax is less effective than it might otherwise be occurs when the individual paying for fuel does not reap most of the benefits from burning it.  This is what has been happening in the trucking industry since deregulation led to independent contracting.  While drivers “own” the rigs and have to pay for the diesel or gasoline they consume, it is the shipping companies that decide how much driving is necessary and under what circumstances.

To a significant degree, the shippers have externalized not just the pollution and other risks associated with trucking but also the energy costs.  Therefore, higher gas prices will not cause nearly as great a reduction in consumption as they should because the shippers, who decide who the trucks are deployed, do not pay for the fuel directly.

Rosenberg and others have correctly, to my way of thinking, identified the right solution to many of the problems currently facing and caused by the American trucking industry today.  Specifically, they recommend mandating that the owners of the trucked goods hire as employees the drivers.   This course of action would also ensure that future hikes in the price of energy whether due to a consumption tax or an oil shortage would be born by the parties most able to reduce consumption.