AMERICAN ENTERPRISE INSTITUTE

TO TAX OR NOT TO TAX: SENATORS SHELDON WHITEHOUSE AND BRIAN SCHATZ PRESENT THEIR AMERICAN OPPORTUNITY CARBON FEE ACT

INTRODUCTION: ARTHUR C. BROOKS, AEI

PRESENTATION: PROPOSAL FOR A NEW CARBON TAX SHELDON WHITEHOUSE, US SENATE (D-RI) BRIAN SCHATZ, US SENATE (D-HI)

CONVERSATION: TO TAX OR NOT TO TAX? JERRY TAYLOR, NISKANEN CENTER BENJAMIN ZYCHER, AEI

MODERATOR: KEVIN HASSETT, AEI

2:30 PM – 4:00 PM WEDNESDAY, JUNE 10, 2015

EVENT PAGE: http://www.aei.org/events/to-tax-or-not-to-tax-sen-sheldon- whitehouse-presents-his-american-opportunity-carbon-fee-act/

TRANSCRIPT PROVIDED BY DC TRANSCRIPTION – WWW.DCTMR.COM

ARTHUR BROOKS: Good afternoon, ladies and gentlemen. Please take your seats. Good afternoon. Please take your seats.

Please have a seat in the back, if you can find a seat. Good afternoon. I’m Arthur Brooks, president of the American Enterprise Institute, and I’m delighted to welcome all of you to this event today entitled “To Tax or Not to Tax.” This is the think-tank version of Shakespeare, clearly, and it features our two keynote speakers, Senators Whitehouse from Rhode Island and Schatz from Hawaii, which we’re very much looking forward to.

These men are no strangers to most of you, but I’ll give you a little bit of their background nonetheless. Senator Sheldon Whitehouse was first elected in 2007 and currently serves as the ranking member of the Judiciary Subcommittee on Crime and Terrorism, and Environment and Public Work Subcommittee on Fisheries, Water, and Wildlife. Before his election to the Senate, Senator Whitehouse was the attorney general of Rhode Island, the U.S. attorney for Rhode Island, and the state’s director of business regulation.

Senator Schatz, who will join us very shortly. He’s in a taxicab on the way over and will speak after Senator Whitehouse. He was first elected in 2012 and believe it or not, he’s Hawaii’s senior senator. (Laughter.) Tenure happens fast in the Pacific. He currently serves on the Appropriations Committee; the Commerce, Science, and Transportation Committee; and the Committee on Indian Affairs. He previously served as lieutenant governor of the State of Hawaii and in the Hawaii State House of Representatives, where he served as the House Majority Whip.

We’re looking forward to hearing the presentations of the senators. And following their remarks, our director of economic policy studies, Kevin Hassett, will moderate a panel discussion with AEI’s Ben Zycher and the Niskanen Center’s Jerry Taylor on both the pros and also the cons of imposing a carbon tax in the United States.

Please welcome me in joining Senator Whitehouse. (Applause.)

SENATOR SHELDON WHITEHOUSE (D-RI): Arthur, thank you very much and thanks so much to the American Enterprise Institute for hosting this event. I’m excited today to introduce the American Opportunity Carbon Fee Act of 2015. And I look forward to a productive discussion. Thanks also to Jerry Taylor and Benjamin Zycher for participating in the conversation that will follow my remarks and for your input on my bill. And of course, a thank you to Senator Brian Schatz of Hawaii, who is my lead co- sponsor.

I will start by saying the obvious. Climate change is real. It is virtually universal in peer-reviewed science that carbon pollution from burning fossil fuels is causing unprecedented climate and oceanic changes. Every major scientific society in our country has said so. Our brightest scientists at NOAA and NASA are unequivocal. The fundamental science of climate change is indeed settled.

Americans, in poll after poll, understand climate change is real, know humans are the cause, and want their government do something about it. Climate change, of course is not our only national issue of concern. The federal tax code, for instance, is a mess, with one of the highest corporate rates in the developed world, while some businesses take advantage of loopholes to pay much less or nothing at all.

We have an economic recovery that has left too many Americans behind and a job market that has still not fully rebounded. Well, what if our answer to climate change helped address those concerns as well? And what if that approach was firmly grounded in core conservative economic principles – values like property rights, market efficiency, and personal liberty?

AEI’s Aparna Mathur conducted an analysis with a colleague from the Brookings Institution showing that a carbon fee could reduce emissions, shore up the fiscal outlook, and play an important role in broader tax reform. Kevin Hassett, who will be moderating the discussion of my bill, along with Steven Hayward and Kenneth Greene, has pointed out that a carbon fee could obviate some environmental regulations.

The idea is simple. You levy a price on a thing you don’t want – carbon pollution – and you use the revenue to help with things you do want. Whether you call them neighborhood effects or negative externalities, the effects of carbon pollution harm all of us. Conservative economist Milton Friedman wrote that the government exists in part to reduce just such harms. When the costs of such externalities don’t get factored into the price of a product, conservative economic doctrine, indeed all economic doctrine, classifies that as a subsidy – a market failure.

Right now, for fossil fuel producers that subsidy is immense, giving them artificial advantage over cleaner energy sources. A carbon fee can repair that market failure by incorporating unpriced damage into the costs of fossil fuels. Then the free market – not industry, not government – can drive the best energy mix for the country, with everyone competing on level ground.

That’s how Nixon Treasury Secretary and Reagan Secretary of State George Shultz sees it. He and the late Nobel laureate Gary S. Becker made the case for a carbon fee in the Wall Street Journal. Americans like to compete on a level playing field, they wrote. All the players should have an equal opportunity to win based on their competitive merits, not on some artificial imbalance that gives someone or some group a special advantage.

Just last week, even CEOs of Europe’s major oil companies called on governments to institute national prices on carbon. This could become a big economic win. George W. Bush’s Treasury Secretary Hank Paulson said, a tax on carbon emissions will unleash a wave of innovation to develop technologies, lower the costs of clean energy, and create jobs as we and other nations develop new energy products and infrastructure.

It is in that spirit that I introduce the American Opportunity Carbon Fee Act, a framework I hope both Republicans and Democrats can embrace. The bill would establish an economy-wide fee on carbon dioxide and other greenhouse gas emissions. The fee would be assessed upstream, where it’s easiest to administer, minimizing the universe of taxpayers and the compliance burden at the coalmine, at the natural gas processing station, and at the petroleum refinery.

Other sources of greenhouse gas emissions would be charged at existing reporting requirements at a rate tied to the carbon-dioxide equivalency of each gas. Fluorocarbons, which are used for refrigeration and industrial purposes, would be assessed at a special rate that accounts for their high greenhouse potency. Sequestering, utilizing, or encapsulating carbon dioxide earns you a credit.

My bill sets the fee per ton of carbon at $45 in 2016, the central range of the social cost of carbon as estimated by OMB, and would increase it each year at a real 2 percent. When emissions fall 80 percent below 2005 levels, the annual adjustment would fall to inflation.

Border adjustments for the trade of energy-intensive goods include tariffs on such goods imported from countries with weaker or no carbon pricing, and rebates for U.S. exporters. We took care to design the border adjustments to achieve harmony with World Trade Organization rules. According to the nonpartisan group Resources For the Future, this carbon fee proposal would reduce U.S. CO2 emissions by more than 40 percent by 2025.

In addition to the environmental benefits, this carbon fee would generate over $2 trillion in revenue over 10 years. It is intended to return every dime of that to the American people. Here’s how. First, the bill lowers the top marginal corporate income tax rate from 35 to 29 percent. This would cut corporate taxes by almost $600 billion over the first decade.

Second, it provides workers with a $500 refundable tax credit, or $1000 per couple, to offset the first $500 each paid in Social Security payroll taxes. That credit would grow with inflation. The tax credits would return over $750 billion to American households over the first ten years.

Third, it would give benefits to retired folks past their taxpaying years – Social Security recipients, veterans’ program beneficiaries, and certain other groups of retirees at the same level as the payroll tax credit. These benefits would total more than $400 billion over 10 years.

Finally, the bill would establish a small block grant for states, totaling $20 billion in 2016 and growing with inflation, to help with low-income needs, rural households, and transitioning workers. West Virginia, for example, could use money to train coal workers for the technology jobs of the future. Rhode Island, on the other hand, might choose to make homes more energy efficient. And we have a reporting mechanism for the public to track where the money is going, to assure it’s all going back to the American people.

The entire bill is 37 pages long. Short, simple, straightforward. It would cut back on the pollution that threatens dramatic changes to our home planet. It would cut taxes. It would end a market distortion. It would start a wave of investment and innovation. With this bill I extend an open hand, or as one colleague said, an olive limb, to conservatives everywhere. Whether you want to pursue tax reform, support the free market for energy, or, as Lindsay Graham suggested this week, simply be honest about the effects of climate change. I’m looking forward to working with you. Let’s get to work.

I will close by saying that I am particularly grateful to AEI for hosting the launch of this hopeful endeavor. I truly hope it is a consequential moment. I am keenly aware of the potency of the forces that swirl around this issue in Washington and I’m extremely grateful to AEI for participating in this way. And now, I see that my friend and colleague, Senator Schatz has arrived. So Arthur, with your permission, shall I invite Brian to take the podium?

Brian, the floor is yours. I’ve warmed up the crowd for you. (Applause.)

SENATOR BRIAN SCHATZ (D-HI): Good afternoon and thank you to Senator Whitehouse for his leadership, for his intellectual honesty, and for his dedication to this issue, and his dedication to finding bipartisan common ground. I think it is fair to say that I never expected to be here in particular. (Laughter.) So really, thank you for your hospitality. Thank you for providing a venue for the ability for us to have a robust discussion about what to do about climate, and even if we are to disagree about the right solution set, to start having this conversation out in the open as a policy matter.

The facts are undeniable. Climate change is real. It is caused by humans. It’s happening now and it is solvable. Climate change increases the severity and frequency of storms and natural disasters. This is a major economic problem. A heat wave in Texas, in 2011, caused $5 billion in livestock and crop losses. Climate change makes events such as these 20 times more likely to occur today than in the 1960s.

Climate change’s impact on the economy is particularly damaging because of the uncertainty. There is a role for government here, but our legislation does enough to try to address the problem, but no more than necessary. The administration is doing everything it can to reduce carbon pollution within the confines of the statute of the Clean Air Act, but it won’t get to the reductions we need without legislation. Congress needs to step up and step in and legislate to get the reductions that we need and make sure that we’re protecting low-income and working families, while still growing the economy.

Our carbon fee bill is a market-based proposal for reducing carbon pollution. We propose a highly efficient tax to make sure that those who emit carbon pollution pay the full cost. By pricing carbon more accurately, our bill would drive down emissions and correct a market defect that has stunted the development of renewable energy.

Market mechanisms for reducing pollution work. In the ’90s, President George H.W. Bush used cap and trade to reduce emissions of sulphur dioxide in order to combat acid rain, and it worked. The program was successful in slashing emissions, which not only meant healthier lakes and waterways, but healthier communities and economies. The health benefits linked to lower sulphur dioxide emissions were estimated at $50 billion annually in 2010.

Some do worry that going it alone on carbon pricing may present some challenges for the American economy. But another successful market-based approach in British Columbia shows that you can make an impact without harming the economy, even when jurisdictions around you are not pricing carbon. In 2008, British Columbia became the first and only jurisdiction in North America with an economy-wide price on carbon emissions. Seven years later, evidence shows that even going it alone, British Columbia was able to reduce petroleum consumption more than the rest of Canada and without any negative impact on the region’s economic growth.

Market mechanisms are one of the most straightforward solutions to climate change and they have growing support across the ideological spectrum. The carbon fee in our bill is predictable. It can start right away and there’s no need for complex financial transactions, instruments, or trading. It’s simple. It’s relatively easy to administer, and it gets us the reductions that we need.

Importantly, this bill is also revenue neutral. It returns all of the revenue that it collects directly to American families and business. The bill returns money directly to individuals through payroll tax cuts and increased Social Security benefits. We want to make sure that low-income and elderly Americans are not affected by any possible increase in energy prices. It also lowers corporate tax rates, which would be designed to make our tax code more competitive with other countries.

Reducing carbon emissions and growing our economy go hand in hand. Our bill lays out a framework to accomplish that. We’ve been asked over the last couple of days how we’re doing with getting Republican support for the bill and why announce this legislation at the American Enterprise Institute. It’s because this is an area that does demand conservative leadership. We have constructed a market-based solution to one of the great challenges of our time. And in the tradition of Margaret Thatcher and Barry Goldwater and many other conservative environmentalists, we need conservatives to embrace their own market-based solutions to our collective climate challenge.

There’s nothing conservative about ignoring the collective knowledge of the scientific establishment. There’s nothing conservative about ignoring the warnings of the Department of Defense. There’s nothing conservative about shirking our responsibility for global leadership. And there’s nothing conservative about conducting a dangerous experiment on the only planet that we’ve got.

So Sheldon and I have no desire for this to be a Democrats-only issue. We have a strong desire to build partnerships, to argue in public or in private about whether or not our bill makes sense as a matter of public policy, but let’s begin this discussion as Americans in earnest. Thank you very much. (Applause.)

SEN. WHITEHOUSE: We will stay up and take a couple of questions until Arthur gives us the signal to get back up to the Senate and to the votes we’d otherwise be missing.

Q: Do I need a microphone or do I –

MR. BROOKS: Yeah, we’ll wait for microphones. We’re recording it. Sorry, Senators. The general house rules for Q&A are please stand, as this gentleman is. State your name, your affiliation. Obviously wait for the mic and put your protest statement in the form of a question. (Laughter.)

Q: I’m David Kreutzer from the Heritage Foundation. And along the lines of the intellectual honesty, I was wondering, can you offer some evidence as to what impact this carbon tax would have on global temperatures?

SEN. WHITEHOUSE: Well, we can show that it would drop the American CO2 emissions by about 40 percent. It gets hard to estimate what the effect is on other countries and how responsive they will be to the border adjustment. I expect they will be significantly responsive to the border adjustment, particularly when it’s paired with the international efforts that are taking place leading towards Paris.

I think the underlying premise of your question is that this is a global problem that requires a global solution to which United States cannot be the only respondent. I agree with that. But in the tradition of American leadership that has defined our country since its early days, I think it really is important – to use a colleague’s example – that we not preach temperance from a barstool, and that the country that has put the most carbon dioxide per capita into the air lead in recovering from this problem. So beyond that, it’s hard to say, but it’s a key step in the right direction that will help reduce our carbon emissions.

One other fact that we do know is that for as long as humankind has been on this planet, the level of CO2 in the atmosphere has been between 170 and 300 parts per million. That’s about 200,000 years we’ve been on the planet and the data goes back 800,000 years minimum. It gets a little bit spongier, but it’s probably millions that it’s accurate.

So that’s been a long, comfortable window within which we have had a habitat on this planet that has been suitable for us. To be out of a 130-point range by 100 points and climbing is, to quote Brian, an alarming experiment to play with the only planet that we have. So just reducing that will have an effect for good for sure, even if we can’t measure its temperature consequence.

Q: Hi, I’m Nick Sorrentino. I’m the editor of AgainstCronyCapitalism.org. And I will say, I have followed the carbon tax issue for a long time. I see lots of friends in this room. And I think it’s an important area for Democrats, Republicans, and all sorts of folks to come together and discuss. I want to be clear on something, though. My question is, you said that once emissions levels reach 2005 levels, the increase –

SEN. WHITEHOUSE: Eighty percent below.

Q: Excuse me?

SEN. WHITEHOUSE: Eighty percent below 2005 levels.

Q: Eighty percent below. OK, all right. Well, the reason why I address that is because as of two years ago, our carbon emissions in this country were at 1990 levels, largely because of fracking. So my question is: shouldn’t we encourage this market-based mechanism? I’m playing devil’s advocate here. OK. To encourage a reduction in carbon emissions. The scientist Richard Muller argues that that is exactly what we need to do and especially in the third world because that’s the only that we’ll reduce carbon emissions over time. I’d like your thoughts.

SEN. WHITEHOUSE: Well, we do try to establish just such a market mechanism with this. Once the market mechanism is in place, it applies across the board. It provides additional advantage to fracked gas, if fracked gas can be shown to be actually a carbon benefit relative to other fuel sources. I think there’s – the jury’s still out a little bit on how much methane leakage is involved and the methane leakage is much more powerful than the burned methane exhaust, so we don’t really understand the answer to that question fully. But I think that whichever way you want to proceed in terms of the energy mix, you will get a better result if you have a proper market signal going into that calculus.

And when you think that the International Monetary Fund just last month calculated that the effective subsidy to the fossil fuel industry in the United States alone is $700 billion every year, that’s a pretty big deformation of proper market principles. And when you consider the effect, it’s a foolish one.

Q: Thank you, Senators. Reverend Mitch Hescox, the Evangelical Environmental Network. You mentioned that this is a great follow-up to your last comment upon market awareness. With your carbon fee and the fact that people like Chase Morgan, JP Chase Morgan and Bloomberg have said that clean energy is unstoppable, what is your estimate on this carbon fee of spurring American jobs in the clean energy segment and how would that affect or impact the U.S. economy?

SEN. WHITEHOUSE: I’ve done the last two, so let me give Brian a shot here.

SEN. SCHATZ: Well, let me just say it’s a little bit similar to the first question, which is that it’s impossible to know precisely the positive impact that it will have, but I think it’s fair to say that if you just take distributed generation and solar, the number of jobs in this energy space continues to go up and up and up. And what we want to do is provide some stability and predictability so that the market can respond. So that, you know – I live in Hawaii and we’ve gone from 4 percent clean energy to about 18 percent clean energy in relatively short order. We’re at about 10 to 12 percent rooftop solar among individuals. And people – left, right, and center – love this. And it is a real job creator.

And so I think if we move forward in this market-based mechanism, then the various subsidies that go to the fossil fuel industry and go to industries generally become less effective and our predictable, stable public policy will unleash the power of the private sector.

SEN. WHITEHOUSE: The mic is right behind you, sir.

Q: OK, thank you. My name is Alan Carlin and, Mr. Whitehouse, you have been – sorry – you have been quoted, and I don’t know how accurately, that you think that skeptics should be sent to jail.

SEN. WHITEHOUSE: That would not be accurate. (Laughter.)

Q: Well, it was in the New York Times and another places.

SEN. WHITEHOUSE: Yeah.

Q: And since I am a very strong skeptic, I am much opposed to your –

SEN. WHITEHOUSE: Jailing you. (Laughter.) Understood. No, what I said is that within the carbon pollution countermovement, as some academics have called it, there is a strain of information that is considerably less than accurate that is I think both persistent and deliberate. And when you consider the motivations with a $700 billion annual subsidy going your way behind it, there’s every reason why some big special interests would have a very keen interest in trying to manipulate the public debate.

That’s been done once before. It was done by the tobacco industry with respect to the health concerns about cancer. Nobody went to jail. There was a civil proceeding against the tobacco industry and it’s now at the United States Circuit Court of Appeals for the D.C. Circuit on the nature of the remedy, which is to tell them to knock off the lying basically. And I think it’s an open question whether within the larger debate about climate change there is an element that would qualify as a civil RICO predicate. And I think it’s not an unreasonable inquiry to make. But no, nobody went to jail and it’s not just for being a skeptic. It’s only for actually committing fraud. That’s the standard.

Q: Senators, Andrew Moylan from the R Street Institute. I ask this question with a little bit of conflict. We are among a small handful of free market organizations that are avowedly supportive of revenue neutral carbon pricing with regulatory preemption to address the challenge that you both have noted. And you mentioned wanting to reach out to conservatives with an open hand. And that’s a sentiment, of course, that we very much appreciate. And yet, at the same time, it seems that there are as many backhands to conservatives as there are open hands.

My friend from the front row might have mentioned one of them. But there are others where, you know, asking Republican senators to take a bunch of votes on the nature of climate science and what’s happening with weather and things that are not terribly relevant from a policy perspective to the issue that was being addressed at the time.

And so I guess the question that I have is how can you build upon the speeches that you’ve made here today and the work that you’ve done on the bill to try to get conservatives into the fold, to tell them that they can trust you in a way that they do not today and, frankly, I think shouldn’t be blamed for not trusting you? Because they’ve been bitten a bunch of times and there really is no incentive to get involved, when you know, there’s things like RICO statute being thrown around at the notion for folks who might disagree with a consensus that I accept on the climate science.

But I think that’s a really interesting challenge and I wonder what your responses to it would be.

SEN. SCHATZ: So I – Sheldon may have some thoughts, but let me offer – the preliminary thought is that’s why we’re here, right? We could have announced a carbon tax at the League of Conservation Voters and RGC. They would have been pleased to have us and all the rest of it. That’s why we’re here is to begin or at least continue a dialogue in earnest.

But I think your point is taken that this issue has become a partisan football and we want to be part of a conversation that allows us to be dealt with as a matter of public policy and as a matter of scientific fact. So if you establish the predicate that this is the scientific consensus, if you accept the premise that American leadership is required, then let’s argue about whether our carbon fee is too much or too little or whether we should go with cap and trade or whether we should purely subsidize the ITC and the PTC, or whether the distributed generation is the holy grail.

There’re lots of good arguments to have. And there’re lots of good arguments to have about how quickly, how aggressively the United States should lead, either in the international arena or with our own public policy first. That would be a great conversation to have, but what we’re trying to do is try to put it into a place where, you know, where we’re tough on the issues and easy on each other.

That all is easier said than done because we all live in a context where there’s an electoral ecosystem that discourages Democrats from really collaborating and Republicans from really collaborating. And so that’s why I think the conservative leadership on the intellectual front can really help to move this into a place where we can have, if you will, adult conversations about how to solve this problem.

Your point is well taken, which is that it’s very difficult to have public adult conversations about climate. We end up having good conversations on the floor and in the hallways with Republican members, but a lot of them are very cautious because of what you’ve talked about and also because of the electoral infrastructure that we have on the left and the right.

SEN. WHITEHOUSE: The only thing I’d add is that we have a very important policy question to try to get right and that policy question we’re here in very good faith to try to offer a solution to that in every ways tries to eliminate what might be conservative objections to it and simply addresses the underlying problem we need to solve.

We are also in a political fight. We’re in a political fight in which an industry with a $700 billion-a-year subsidy is pulling out all the stops to try to prevent realistic action from taking place. We see colleagues on the other side who’ve been really good on this issue, who until Citizens United were very public on this issue, who’ve been driven to ground by that public pressure. We’ve seen organizations that have promised to spend $889 million in this election, I think was the number, say that anybody who crosses the fossil fuel industry on climate change will be, quote, “severely disadvantaged.” That’s not a very subtle threat.

So it’s important that in order to get to this we do our own political work of making sure that there’s pressure on both sides and people aren’t just looking at a world in which the only obstacle on the horizon is the fossil fuel industry. But I think the American public is providing that and I think as we move towards November of 2016, we’ll see some real progress. I’m actually pretty buoyant about this.

Q: OK, thank you. Marlo Lewis with the Competitive Enterprise Institute. Well, you mentioned the RICO statute potential because of people who are collaborating behind the scenes to advance their interest. There is nothing easier in this city than for politicians and bureaucrats and all sorts of NGOs and others to collaborate without actually conspiring to advance their interest. And the predominant interest in this city is simply to grow government, to make it bigger.

And Senator Whitehouse, you mentioned the $700 billion subsidy to the fossil fuel industry. But unlike any other subsidy that I’m aware of, this was not a subsidy that was ever legislated for the benefit of a particular industry. It was rather discovered in the virtual world of climate modeling, in something called the social cost of carbon, where you take a speculative climate model and match it up with a speculative economic model, fiddle with the dials, and pretty much come up with any result that you want.

And so you’re going to encounter a lot of resistance to this claim that there was a $700 billion-a-year subsidy that’s being handed out somehow by the absence of government action. I just wonder if you’d have any comments on that.

SEN. WHITEHOUSE: Well, you know, the IMF is a pretty serious organization. You’re not hearing from – this isn’t, you know, some – this isn’t Green Peace making that up. The Office of Management Budget deals with these numbers day in and day out. The number we chose is a midpoint from an array of social cost of carbon numbers. There’re actually probably all – not all, but the one we’ve chosen is actually probably an underrepresentation of the harm out there because some of it is too uncertain to be able to price in effectively. So in that sense, it’s probably a conservative estimate of the harm. But when you look at the consequences as they pile up, this could be an extraordinarily expensive proposition if we don’t get our arms around it. And it’s only prudent to try to avoid that risk.

Are there going to be questions about how you quantify it? Sure there are. But we can’t allow a debate over how you quantify that risk to be replaced by the pretense that that risk isn’t there and isn’t deadly serious in the years to come.

SEN. SCHATZ: Let me just – OK, let me just add to that. You know, this is a problem we have with OMB. This is a problem we have, generally speaking, with policymaking, which is that if you can’t quantify both the risks and the upside, that it then get assumed to be zero. And it’s the challenge of answering the first question, I think the third question, and this question, which is, you know, maybe we can have an argument about whether it’s $700 billion or $182 billion or $1.2 trillion, but it’s not zero. And I think that’s where we ought to start and then we can get into a conversation about what mechanically ought to be set up.

But that’s the challenge. Point taken, it may not be 700. It may be more. It may be less. But just because we can’t with any precision quantify it or with sufficient precision quantify it, we know it not to be zero or most of us do.

SEN. WHITEHOUSE: And there’s a moral question whether it is right to discount a harm that’s going to happen to your granddaughter just because it’s going to happen to her later than now. And that is a very interesting question in looking at these pricing mechanisms. But that is a pricing effort that very much favors the industry and reduces the cost. And it’s a question whether that has any moral legitimacy in this context.

MR. BROOKS: We have time for one last question. It will be here. And then, we’re going to go to the panel after that, so stay tuned. Those of you who still have questions, you’re still going to have your chance.

Q: Senators, thank you for coming to speak with us today. I’m Evan Drame (sp), I’m interning at AEI this summer. And my question relates – so you mentioned that you want to kind of use a reduction in the corporate income tax rate to offset some of the carbon fee. Obviously, you mentioned that there are various loopholes that allow, you know, large businesses to pay less, but at its heart the corporate income tax is kind of a progressive tax where businesses earning larger incomes are in higher tax brackets.

And your fee seems to be a regressive fee in that business, regardless of their size, are going to pay the same fee when they use a certain amount of carbon. And that seems to maybe, you know, obviously impact businesses of a smaller size disproportionately and it could create a barrier to entry in various industries that could be dangerous. My question is have you explored certain ways to maybe make that fee more progressive and not as disproportionately burdensome on smaller or newer businesses?

SEN. WHITEHOUSE: That’s a really good question. We are at the brink, perhaps, of having a more comprehensive conversation about tax reform. We come up close to it and then back off. Come up close to it and then back off. That conversation has helped inform how we go about this. And the two primary criticisms of the current corporate tax program have been that the nominal rate is way too high and sends a very bad signal to businesses that might want to move here, and charges certain business way too much. And the second has been that it’s too spongy a system and it ranges from 35 percent to zero or negative, depending on your ability to game the system, which shouldn’t be the basis for taxation.

So we can’t do much about the second problem in this bill. So we try to solve the first one that has been the most kind of contentious point. If we go forward and find that we have a, you know, good bipartisan group that’s willing to work on this, if there are more sensitive ways to provide that same benefit into the corporate tax sector, we’d be happy to look at this. In many respects, this is an opening bid and simplicity is a virtue in an opening bid. And this is probably the simplest and most direct effect that we could have. Thirty-five to 29 percent in one fell swoop done is I think not a bad first proposal.

MR. BROOKS: Since 1938, the AEI’s model has been that the composition of ideas is fundamental to the free society. Please join me in thanking the two senators for making this (real ?). (Applause.)

Stay tuned, everybody, we’re going to move on to our panel next with Jerry Taylor and Ben Zycher moderated by Kevin Hassett. And I’m going to turn the program over to my colleague Kevin Hassett right now.

KEVIN HASSETT: Thank you very much, Arthur, and thank you, again, senators. Can I use this one? OK. I won’t use both. OK. The senator mentioned that he was surprised – Senator Schatz, that he was surprised that he was invited to come here to present this proposal. And I have to say that there’re two things that I’m proudest of about AEI. One is that AEI has no positions except that one. And if you wonder about that, and if you wonder about that, you should study about how it works. But we don’t have any positions at all as an institute. The individuals at AEI have positions and that our highest ideal is that we need to be a place where you can have a collegial conversation about policy ideas. And that we need to make a place where people that disagree can confront one another with their disagreements.

And so, of course, the senators are invited back and people who want to propose things that they think that AEI doesn’t like, well, remember that AEI doesn’t have positions, but we are open to debate.

And so in that spirit, I have two very good friends that are about to speak on the panel, Jerry Taylor and Ben Zycher. And Jerry and Ben disagree about the pluses and the minuses about the senators’ proposal and about carbon tax, but they do so collegially and they’re good friends, too. And I think that that’s the atmosphere that we want to produce here at AEI and defend to the death.

And now we’re going to listen to Ben Zycher talk about all of the things that he thinks are wrong about this proposal. And Ben’s going to go for about 10 to 15 minutes, and then Jerry’s going to perhaps agree with some of those points and perhaps disagree for about 10 to 15 minutes. I’m going to cross-examine them for a few minutes, and then we’re going to open up for questions.

We’re scheduled to end at 4:15 and if we’re running late, then I might let us run late if there’re still a lot of questions. And so the 4:15, I’m not going to impose a vicious hard stop there. And so with that, I now hand it over to my friend and colleague, Ben Zycher.

Ben. (Applause.)

BENJAMIN ZYCHER: Thank you. Thanks very much indeed and I really appreciate your time here today. I really could speak at great length about the Schatz or Whitehouse-Schatz proposal and particularly on one of the comments they made today. Given the time limitations, I’m going to limit myself to just a few central points.

First, some comments on the $45 per ton tax and the administration’s calculation of the social cost of carbon. I want to talk briefly about two parameters that the senators never talk about, what the temperature effect of their tax would be in 2100 even if applied not only about the U.S., but by much of the industrialized world. And I want to talk about the evidence on whether or not this – the greenhouse gas externality is important.

I want to talk briefly about the wealth redistribution issue and – or as Senator Whitehouse puts it, returning the revenues to the American people. I want to offer a brief comment on the phrase “carbon pollution,” and then I do have a couple of observations on Senator Whitehouse’s proposal to subject people who disagree with him to the RICO statutes.

So where did this $45 per ton tax come from? Senator Whitehouse claims it’s the midpoint of the range of estimates provided by the Interagency Working Group analysis of the social cost of carbon. That’s not really quite right if you look at their table, but let’s simply accept that. The question is, how reliable is that analysis? In fact, if you look at the Interagency Working Group analysis of the social cost of carbon, it really turns out to be a deeply flawed analytic exercise with four central problems.

First, there’s the use of global rather than U.S. benefits. They estimate the benefits side of reducing greenhouse gas emissions globally rather than for the U.S. alone, despite the fact that OMB requirements direct them to do the opposite. Now, it’s rather curious, frankly, that they did that, given that this is supposed to be a quest for economic efficiency. If you’re going to use global benefits; in other words, reduce U.S. emissions and such by a magnitude sufficient to equate the marginal costs and benefits of global emissions greenhouse gases, that means two things.

Not only would the rest of the world have an incentive to free ride on U.S. efforts, it would be efficient for the rest of the world to free ride on U.S. efforts because the U.S. is already optimizing global emissions. And furthermore, given that the U.S. is not the only emitter, it can’t be the case that it’s always cheaper for the U.S. to reduce these emissions than other economies.

Then there is the conflation of GDP and climate effects. If you look at the three major models, there’s Bill Nordhaus DICE model, Richard Tol’s FUND model, and Chris Hope’s PAGE model. These are models that estimate the interaction of greenhouse gas reduction and GDP effects and all the rest. What you’ll find is that in the models, and this is what the Interagency Working Group did, they estimate the GDP effect of an assumed increase in temperatures and other climate effects attended upon an increase in greenhouse gas concentration. They then estimate – or they estimate that GDP effect. They divide by emissions and that’s how they come up with the social cost of carbon.

So if you have – if you have a large GDP and a trivial climate effect, you can still come up with a very large social cost of carbon. In fact, that’s what – just to pick one example – Bill Nordhause DICE model does. And that’s how – that’s why, just to, again, pick one example, the Interagency Working Group in their social cost of carbon analysis estimated $31 billion of benefits, of climate benefits in the year 2030 from reducing greenhouse gas concentrations or emissions even though the temperature effect, not in 2030, but in 2100 is barely measurable. That’s a result that is simply, simply not plausible. And the Interagency Working Group in their analysis simply glosses over it.

There is the refusal to use a 7 percent discount rate, despite the requirement to do so in OMB Circular A-4. And the reason they don’t use a 7 percent discount rate is obvious. It’s because once you do that, the social cost of carbon falls close to zero or becomes even negative, depending on which of the scenarios you look at.

And then, finally, and perhaps most important, if you look at the social cost of carbon and the supposed benefits resulting from reducing U.S. greenhouse gas emissions, virtually none of it has anything to do with climate. Almost all of it is particulate reductions, what they call co-benefits. OK, I’m sure some of you’ve heard that term. The problem is not only that this is a kind of dishonest way of prodding a climate policy, but the EPA has now used the very same particular reductions four times to justify their – quadruple counted for the same four reductions in particulate emissions that justify four different regulatory initiatives: the Clean Power Plan, the Particulate Rule, the Ozone Rule, and the Utility Mercury Rule.

So let’s talk first about the first thing that the senators don’t talk about. What would the temperature effects in the year 2100 be from their proposal? Well, if you use the Obama Climate Action Plan as a proxy for the Whitehouse-Schatz proposal, the effect of the Climate Action Plan in the U.S. would be .015 of a degree in the year 2100 if you use the EPA climate model, which all of us use who work in this area because you don’t have to have a super computer running it. It’s one of the models IPCC uses, everyone uses this model. If you add in the supposed agreement with the Chinese announced last November, that’s a bit of a joke, but if you add that in, you get another .01 rather of one degree. If you throw in a 20 percent – I think it’s a 20 percent – I can’t read this from this distance. But if you throw in a 20 percent reduction by the Chinese in 2030, you get another two-tenths of a degree. Throw in the rest of the industrialized world, you get another two-tenths of a degree. The total effect of this policy would be something on the order of somewhere between four and one half of a degree in the year 2100.

If we’re going to talk about efficiency, we really ought to talk about benefit-cost analysis. How much is that worth? Let’s talk about the actual evidence. You’ve heard a bunch of assertions about rising temperatures and all these adverse effects, droughts and the rest. If we look at the actual evidence in the peer-reviewed literature, in government databases, the temperature record actually is ambiguous. Temperature has been rising in fits and starts since the end of the Little Ice Age, roughly in 1850. The question then becomes how much of that is due to greenhouse gas, increases in greenhouse gas concentrations? The answer is no one knows. Even IPCC is starting to reduce its estimate of the climate sensitivity of the atmosphere to increasing greenhouse gas concentrations.

The correlation of greenhouse gas concentrations and the rate of sea level increase is ambiguous in the peer-reviewed literature. The Arctic and Antarctic ice covers don’t differ statistically from the 1981 to 2010 average. The Antarctic ice cover is right at the top of that two-standard-deviation confidence interval. The Arctic ice cover is right near the bottom, but both of them are within that confidence interval.

If you look at the National Oceanographic and Atmospheric Administration data on tornadoes, what you’ll find is that at least since 1970 tornado counts and intensities have been falling, more or less monotonically. Tropical cyclone, the frequency and the accumulated energy, in other words, the destructiveness of tropical cyclones are at their lowest levels since satellite measurements began in the early 1970s.

U.S. wildfires are not correlated – if you look at the data from the National Wildfire Reporting Center in Boise, are not correlated with the temperature record. The Palmer Drought Index shows no trends since 1895. U.S. flooding, in a new paper by Hyberg (sp) and Ryan or some – a couple of guys in one of the hydrological journals, U.S. flooding is not correlated with increased greenhouse gas concentrations over the last century. And if you look at the U.N. data, per capita food production has increased and undernourishment has decreased, both more or less monotonically since 1993.

The argument that the senators gave us today that somehow the effects of increasing greenhouse gas concentrations are visible and obvious and are creating adverse effects that are measurable is not consistent with the data.

Is it really an accident that the dominant effect of climate policy is an increase in energy costs in red states relative to blue ones? I think the answer is no. It’s not an accident. Or to ask that same question a bit differently, supposed it were the case that were blue states rather than red states that were disproportionately dependant on coal- fired power, would we be seeing the climate – the Clean Power Plan from this administration or this proposal from the senators? That question, I think, answers itself.

Then there’s the restoring – rather, the argument that the revenues will be restored to the American people, or returned rather to the American people, which actually means whichever interest groups emerge victorious in this complex congressional bargaining process, you know, some people argue we’re going to subsidize the poor over the medium term in order to sort of ease the transition for them. But the problem is the poor not the median voters. And so it’s very difficult for me to believe that you can have a political equilibrium in which it’s the poor and corporations who get the benefits of these revenues.

Let me turn now to the phrase “carbon pollution.” That phrase really, to be blunt about it, is political propaganda. You know, carbon dioxide is not carbon and it’s not a pollutant. Some minimum concentration of carbon dioxide is necessary for life. You know, water vapor, by far, is the most important greenhouse gas in terms related to the properties of the atmosphere. I don’t hear anybody calling that a pollutant. I really would urge everyone to use the phrase “greenhouse gases,” which has the virtue of scientific accuracy without assuming the answer to the underlying policy question.

Finally, you know, Senator Whitehouse tried to downplay this a few minutes ago, but he very clearly suggests that fossil fuel, the fossil fuel industry, and presumably others as well will be subjected to RICO prosecution basically for making arguments that are inconsistent with his policy proposals. Has he never heard of the First Amendment? I think he probably has.

You know, I remember – I’m old enough – most of you are not – to remember ancient history, 10 years ago, when dissent was the highest form of patriotism. Remember that? No more. The argument that the senators should face RICO prosecution or investigations or whatever really is a (long ?) step toward a world of totalitarianism, and I urge all of you to reject it.

The proposed tax is based upon, in conclusion, a deeply flawed analysis of the social cost of carbon. It would have trivial temperature effects but a large redistribution of impact. The senators offer no evidence that this externality is serious and needs to be confronted in a costly way. And that Senator Whitehouse now seeks to silence dissent I think speaks volumes about his view of policy debate.

Thank you very much indeed. (Applause.)

MR. HASSETT: The little mic that they bothered to pass to me doesn’t seem to be working.

So anyway. So Jerry, if you want to make your own prepared remarks and then respond to Ben. And when I cross-examine the two of you, you’ll have ample opportunity to respond to Ben.

JERRY TAYLOR: Yeah. I think to be fair to Ben, since he’s not going to get a – (inaudible) – opportunity to respond to me, I won’t directly respond to him. We’ll leave that to your cross-examination, Kevin, and the Q&A from the audience.

But I probably will indirectly address many of the issues Ben discussed, mostly because it’s very difficult to have a conversation about policy responses to climate change without agreement that a policy response is warranted in the first place. So while I don’t hope to play science guy at the panel, I think we need to have a brief conversation to set the stage, if my slides will show up. There we go.

First of all, let’s consider whether the pause in climate change or in warming should cause us to rethink policy action. I hear this quite a bit out of my friends on the right, so I thought I would offer you a slide.

The blue line is the land surface temperature from Berkeley Earth, which is the gold standard in these matters. The grey are the error bars. You get to see what the uncertainty lines are. The black dotted line is the trend since 1970. And the blue bars you see are statistically significant departures from the overall trend.

So as you can see, yeah, there’s been a slight cooling in the temperature record over the past decade. Does that alone suggest to you that climate change was a ginned up problem that we can now walk away from? Not looking at the broader record, I don’t think. You can also look at different starting and end points for analysis using those red bars to find alternative stories about the warming pause that we hear so much about.

So there has indeed been a pause in the surface temperature warning data set. It doesn’t suggest to me that it’s quite the matter that some of my friends on the right would have us believe.

The next slide looks at whether the models have indeed failed us. One of the means we hear oftentimes from my friends on the right is that climate models which predict – or which argue that we ought to exercise concern have not proven accurate.

Well, this is a slide in which the multi-colored lines you see are runs for models from the IPCC Fourth Assessment. The black line is again, the Berkeley Earth land surface temperature. And the red line you see is the average climate model run from the fourth IPCC report. It looks fairly accurate to me.

Our next slide asks the question: which tells a better story? Those climate models in the IPCC reports which run hot or those which run cold? Again, the multi-colored lines are the runs from 43 models in the IPCC report. The black line is the Berkeley Earth land surface temperature data. The blue line are the models with low climate sensitivity that were reported in that report. The red line are the models with the greatest climate sensitivity. It would appear that the models with the greatest sensitivity have a better record at predicting climate than those with lower sensitivity.

Next, let’s look at the track record of alarmists. We often hear that alarmist scientists have made predictions which have failed to hold up against the test of time. Well, let’s consider that.

The red line in this particular graph is surface temperature data from NASA. The colored lines represented projections from various different sources. Each of the first four IPCC reports are reported there. Wallis Broecker’s 1975 paper from Science you can find. That’s where the phrase global warming was originally coined. You can see William Kellogg’s ’79 prediction from the Annual Review of Earth and Planetary Sciences, and, of course, James Hansen’s famous controversial 1988 congressional testimony. You can see that. They look pretty reasonable to me.

We’ve been talking about land data. And so if you’re on your game, like I used to be when I was on the other side of this conversation when I was at the Cato Institute, you’d say, well, Mr. Taylor, that’s very interesting, this land-based data. What about satellite data? Don’t they tell us a different story?

Well, this slide comes from the most recent IPCC report. You can see it’s an adjusted – a table of adjusted satellite readings for the lower troposphere, mid- troposphere, and lower stratosphere. And what you’ll find is exactly what you’d expect to find given what we know about climate science.

We have seen cooling in the lower and mid-troposphere. Or, excuse me – we’ve seen warming in the lower and mid-troposphere. We’ve seen cooling of the lower stratosphere, which is exactly what we’d expect to see with conventional understanding of climate change. After all, if we’re trapping heat, gases in the atmosphere, that means less are radiating out into space, which means the lower stratosphere ought to be cooling. That’s exactly what we see.

Interesting, however, is that the vertical distribution of warming is still somewhat at issue. It’s not entirely clear where the warming will play out, but what we’re seeing are signs of warming exactly where we expect to see them.

So now we’ve established that there’s a reason to think that mainstream science is indeed mainstream. Let’s consider what mainstream scientists think about the future. Alas, there is a lot of uncertainty.

First of all, the IPCC most recently reports, as they’ve been reporting for quite some time, that if we double pre-industrial levels of CO2 in the atmosphere, we will get a warming of somewhere between 2.7 and eight degrees Fahrenheit. That’s a bit more or less the range of estimates for maybe 40-odd years now with a break period in which we thought we could lower the line but we found out we couldn’t.

That’s a pretty big spread, 2.7 degrees Fahrenheit versus eight degrees Fahrenheit. That’s the likely range of responses if we double CO2 concentrations above pre-industrial levels, and we’re almost there.

If we continue on business as usual path, by the year 2100, according to the IPCC, the likely climate response is somewhere between 3.6 degrees Fahrenheit and 11 degrees Fahrenheit – a very major spread and a very major climate impact.

But what does it mean to say likely? According to the IPCC, it means about a 66 percent chance at best. That means there’s a 34 percent chance the warming will be lower than projected or higher than projected. Now, there’s not a whole lot of room on the lower side of that conversation since we’re already almost halfway to the 2.7 degree Fahrenheit mark. So there’s a lot more room on the higher side.

This is all driven by uncertainty. We don’t really know much more than we do in the 1970s about climate sensitivity despite everything we have been doing to investigate the problem. But we know that increased CO2 in the atmosphere will indeed increase temperatures. We’re just not entirely sure how much.

It bears pondering, however, that the last time we had CO2 concentrations as high as we have today, which is 400 parts per million, was during the Pleistocene epoch, over three million years ago. During that time, temperatures were 1.8 to 4.5 degrees Fahrenheit warmer than they are today. Sea levels were 66 feet higher and camels were in Canada. They’re not there yet, but the point is we are engaged in a massive experiment on the planet the likes of which we have never seen. We do not have data points to have an intelligent conversation about what likely outcomes are, but we know they are absolutely unprecedented.

So that’s the challenge. We don’t know enough to confidently say how much warming we’re going to face. We do know enough to say we will face warming. We know what the likely outcome is, but that’s not particularly helpful since that’s a 66 percent chance.

Marty Weitzman at Harvard concludes that there’s about a 10 percent chance based on everything the IPCC has reported and what’s in the scientific literature that we will see more than 11 degrees Fahrenheit warming by 2100 if indeed we’re on a business as usual path. Now, maybe it’s not 10 percent. Maybe it’s 8 percent. Maybe it’s 12 percent. We don’t really know enough to give a concrete number, but we know there is a significant chance of runaway and quite catastrophic climate change.

So what do we do about this knowledge – the fact that we’re running maybe a 10, or maybe, if you’re a skeptic, 8 or 7 percent chance of some sort of catastrophic climate change scenario? Maybe it’s higher than 10. Would we continue with business as usually? Would we continue to hold back and wait for better data? Would we continue to wait until some magic technology came along to make addressing this problem painless? I don’t think so.

We don’t act that way in financial markets when ideology is stripped from the conversation about risk aversion. If you knew there was a 10-percent chance that we would have a major economic downturn along the lines of the Great Depression, would you continue to invest in equities? Heck no. Even though the return on equities is far greater than return on other investments you might make, you would very well hedge.

People do this all – what’s interesting to me in this conversation – having been involved in it on both sides for quite some time – is how the issue of risk aversion changes depending upon what the issues and what’s your ideology.

So, for instance, you might think liberals are extremely risk adverse, conservatives have a more healthy set of, you know, American risk tolerance, but if we switch the issue and ask about, say, weapons of destruction in the Middle East, all of a sudden risk tolerances change quite a bit, don’t they?

Dick Cheney, right after 9/11, for instance, said this: if there is a 1 percent chance that Pakistani scientists are helping al Qaeda build or develop a nuclear weapon, we have to treat it as a certainty in terms of our policy response. One percent chance equals certainty according to Dick Cheney – an intolerable risk. And yet, if the risk is 10 times larger of catastrophic climate change, presumably, Dick Cheney has a different view about risk aversion and willingness to pay. It makes little sense to me.

But the point is we’re all captives to some degree about what we want to believe. I believe a healthy position in this debate is to put aside what we want to believe and show the intellectual courage to accept what reality tells us we have to be concerned about and then act on that reality.

Now, of course, a lot of my friends say, well, the problem with that, Jerry, is that to act against climate change is to give a big stamp of approval to big government. And these are things that as a libertarian I’m not generally happy to do.

But we have government in place for a reason. Libertarians and conservatives all agree that government’s place in this world – God put it is here on this earth to protect life, liberty and the property of its people. If climate change represents a risk to life, liberty and property, and it is a risk imposed by actions of identifiable parties, people putting carbon and other greenhouse gases in the atmosphere, it’s the government’s job to enjoin that damage against the life, liberty and property of its people. And that is a worthy and legitimate cause for conservatives and libertarians to embrace.

I’ll leave it at that and now look forward to the questions. (Applause.)

MR. HASSETT: Actually, my first question for the both of you, one of the frustrations for me as an economist in this space is that I get angry when someone says something’s settled. If someone says, anything’s settled, then I say, OK, so we should stop funding research in that, right, because it’s settled? And so you guys both sort of had different positions about the science of climate change. Neither one of you is a climate scientist but you’re both very well informed.

Can I ask you as a follow up to this session to just, you know, add footnotes to your presentations that we put up online so I can go back and look at the articles myself and start to think about where your different views come from? So I’m asking you to do some work for free, but would you guys both commit to do that?

MR. ZYCHER: Sure.

MR. HASSETT: Ben, thank you. So, Ben, it seems like Jerry’s argument – I’m just going to cut right to the one that I find the most interesting as an economist, the widespread argument about insurance. Do you think the probability is zero? You know, when we talk about Mr. Cheney’s, Vice President Cheney’s 1 percent, do you think the probability is zero of an extreme event and so that the insurance argument is actually one that we can dismiss? I don’t want to make you give it a probability but it’s probably not zero, right?

MR. ZYCHER: No, I don’t think it’s zero. I mean, that’s – Jerry is, if I can paraphrase, I think fairly but if not, Jerry, speak up.

MR. HASSETT: Put it closer to your mouth please.

MR. ZYCHER: OK. Jerry is presenting a version of what, you know, we all call the fat tail argument – that there’s some statistical distribution of future temperature effects of increasing greenhouse gas concentrations. There’s a danger that the right hand tail is fat, right? And so we really ought to do something because that’s a non-negligible risk. Is that a fair – OK.

The problem with that argument is that there are two other fat tails that – and this is not really so much a criticism of Jerry. It’s really a criticism of the Council of Economic Advisers and the Obama administration and the social cost of carbon analysis, for one thing, there’s a left hand tail as well.

A future ice age is virtually a certainty. The only thing we don’t know is when it will occur. And so, anthropogenic warming might be a huge benefit. We don’t know. It might be. And so it’s not to say that that alone means we shouldn’t do something. It means that analysis of this problem ought to incorporate that effect.

There’s also the statistical distribution of what I’ll just call informally the destructiveness of government policy, and I would argue not only is that tail fat; that whole distribution lies way to the right.

And so I really think that the argument – I mean, Jerry’s argument, in a sense – and please forgive me, Jerry. We’ve been friends a long time and so we can slime each other. (Laughter.) Jerry’s argument borders on the tautological. If we substitute an efficient carbon tax in place of inefficient regulations, we’ll get an efficiency improvement. Yes, that’s true. And the sun rises in the east and water flows downhill, et cetera, et cetera.

The question is, what sort of predictions can you make about how policy will evolve in a world of political competition? And I think that the answer to that is a good deal less sanguine than Jerry seems to suggest.

MR. HASSETT: Jerry, do you have a mic too?

MR. TAYLOR: Yeah. I have this.

MR. HASSETT: And your works?

MR. TAYLOR: It’s working, isn’t it? You guys can hear me? OK. Well, I didn’t suggest that argument from the podium today, but I’ll do it in the Q&A if you like.

I wanted to make the point that addressing greenhouse gas emissions more aggressively than what we are currently engaged in is a worthy exercise, period. Your question, Kevin, about what we know and are things settled I think is a very good question.

When I was at the Cato Institute, on the other side of this debate, I took what I called the Pat Michaels/Bjorn Lomborg line, which seems to reflect where most credentialed skeptical scientists tend to be.

They do not argue that warming is not happening. They accept that it’s happening. They accept that anthropogenic emissions are a major cause of that warming. Though they may disagree about whether it’s 60, 70, 80 percent, 20, 30, 40, they’ll agree that anthropogenic emissions are a causal factor to the warming we see. And they agree that warming will continue in the future with more CO2 emissions.

The disagreement is about how much warming and what’s the most likely climate sensitivity we’re dealing with. That is where most, though not every, but most skeptical scientists are. And I had accepted that narrative.

So if you say, what do we know, I’m fairly confident to say we know at least that. We know that anthropogenic greenhouse gas emissions are warming the planet, will continue to warm the planet. The open question is how much. Based on what we’ve seen, based on our understanding of atmospheric physics, it could be a modest amount that we could live with. It could be a catastrophic amount that we cannot.

So that’s what I argue we know. But given that kind of range of uncertainty, well, how do we best respond? Well, we face risks like this all the time in financial markets. This is why people go to Goldman Sachs and other firms to help them manage these risks. And modern risk assessment does give us some information about how to price and deal with uncertainty. And when we’re talking about non-diversifiable risks which have potentially major economic impacts, we do not and cannot afford to ignore them.

MR. HASSETT: So just to be clear – so we should probably spend a lot more worrying about asteroids that are going to hit the earth, that stuff too. We should need to study these – (inaudible).

MR. TAYLOR: Absolutely. For instance, NASA argues that we could put into the atmosphere a program to knock out potential asteroid threats and test them, I think about $2 billion. I mean, we’re not talking about risks that are impossible to imagine addressing, but absolutely.

See, most voters, most people are not – have a relatively short time horizons when it comes to political issues and they are not particularly interested in spending money now to avert the chance of significant risk or damages later. We see that when it comes to demographic issues associated with the entitlement programs.

Heck, we saw it in the 1930s with the rise of Germany in Europe. How many people in Europe are willing to invest now in national defense to forestall the possibility of war with Hitler? Not very many, even when the evidence of the risk was staring them in the face. So this is not something we’re very good at doing as voters. I think we, however, have to start getting a little bit better at it.

MR. HASSETT: So, Jerry – I’m going to come back to you in a second, Ben. But I now want to come back at you a little bit with I think the point that Ben makes that I find the most interesting. And it’s that – we can talk about settled science.

Let’s talk a little bit about settled social science, that I think that it’s probably safe to say that under the null hypothesis – under your null hypothesis, if the U.S. acts and nobody else on earth does, then the U.S. act will impose – action will cause us to incur costs that will turn out not to have been worth it because we’ll have costs on ourselves and we wouldn’t have had any. Like Ben says, it’s about, you know, a few tens of a degree and the economic benefit of that is kind of a knowable.

Isn’t it also the case that the impact that U.S. policy change, like Senator Whitehouse’s bill has, the probability that other countries act is unknowable? There’s no science that can help us think about that. And so, therefore, you know, in some sense, it’s a leap of faith for people on your side that, OK, we’re going to do this because everybody else is going to act. But I don’t think there’s any empirical support for that proposition. Am I wrong?

MR. TAYLOR: No. You’re not wrong. I think that Ben raises an important point which is correct but needs to be qualified.

So when Ben offered his numbers about how little temperature change we get even if all the industrialized nations in the world embrace a tax along these lines, that’s correct. The number is correct.

But it also ignores the fact that by 2100, according to the IEA, the non- industrialized nations that Ben is leaving out of that calculation will be responsible for five times the emission of today’s industrialized nations. So that doesn’t tell you what global action would produce. It tells you what partial action would produce, and Ben’s absolutely right – it takes a global response.

Now, we can’t know for certain at all how the world is going to react to a U.S. carbon tax, but we know a couple of things.

First, we know that U.S. action is a necessary but insufficient condition for global action. So that much we do know. And we also know that if you’ve got border adjustment policies in place, countries will – at least countries who are exporting to the United States in a significant way, are going to face a choice.

MR. HASSETT: Just one thing. I just want to correct that in the sense of – just logically. The U.S. movement is necessary, but U.S. movement first logically is not necessary.

MR. TAYLOR: Correct.

MR. HASSETT: I just wanted to clarify that.

MR. TAYLOR: Yes.

MR. HASSETT: You’re arguing for a U.S. movement first and that’s not a necessary condition.

MR. TAYLOR: I am certainly open – there’s argument by Marty Weitzman that suggest that it may be better for the U.S. not to act first, but to act jointly, but try to as aggressively produce something along the lines of the carbon tax that we’re discussing today as a global matter, and that it might be better for the U.S. to withhold initial action. I’m open to that conversation. I’m not persuaded, but it could very well be correct. But U.S. action in some extent is a necessary (step ?).

MR. HASSETT: And I’m about to give the mic to Ben, but I just want to make a final point that you’re not even buying insurance then really because if you don’t know if the other guys are going to act, then there’s – the value of the – so an insurance that’s not going to pay off is not really insurance. It’s something else. It’s just a cost. So anyway, here’s Ben.

MR. ZYCHER: The other guys will act given a sufficiently large side payment. How big is that? I don’t know. But, I mean, let’s think about the rest of the world that Jerry is alluding to, the less – what is now the less developed world, right?

Why are they less developed, Jerry? They’re less developed because they have lousy institutions for whatever set of complex reasons we understand poorly. They don’t defend property rights very well. They don’t have capitalism as you and I would define it, all right?

Your argument basically is that by raising their energy costs – I think I’m putting words in your mouth, but not all that – not all that egregiously. By raising their energy costs and putting them on welfare, we will get an efficiency improvement globally. I mean, I just cannot believe something like that.

And it may be true in a partial equilibrium sense in which you get reductions in greenhouse gas concentrations even under the assumption that they’re in some sense important, for which I see no evidence at all. But in a general equilibrium sense, putting them on welfare and raising their costs cannot result, I don’t think, in an improvement in institutions in the less (developed world ?), which is really what we ought to be striving for.

MR. TAYLOR: Well, I will go on record as opposing putting them on welfare. That’s not what I’m proposing. I’m proposing pricing carbon in the United States with the eye towards pricing carbon internationally.

And if we do that and say we have a carbon price in China or India or whatnot, that the Chinese government will be collecting carbon revenue and then using it for state expenditures or for tax cuts elsewhere, for whatever they’re going to use the money for. Governments need money. I’m not sure how that equates to welfare, Ben.

And as far as the efficiency argument, if it is certainly the case, for instance, to go back to our analogy, the difference between investing in equity and investing in bonds, that you get a greater return from investing in equity and you lose wealth when you divert resources from investing in equity or investing in bonds, that’s correct.

Except what you’re missing here is that bonds give you some assurity (sp) that if bad times come, you will get a payoff of some sort. And that’s largely what a carbon tax does. It is a hedge against the possibility of significant disruption down the road.

And you – again, 10 percent, 8 percent, 14 percent, and that’s the chance of 11 degrees Fahrenheit, or worse, warming under business as usual. Even if we don’t hit that fat tail and we’re within the range of eight degrees, nine degree Fahrenheit, it’s pretty hard to imagine the costs involved in that. It would be staggering.

And so it seems to me that we’re not in a business of trying to maximize efficiency for next year or the year thereafter; we’re in the business of trying to intelligently allocate assets given all of this economic uncertainty associated with climate change.

MR. ZYCHER: Yeah. I’m a bit at a disadvantage. The chart you showed purporting to illustrate the consistency between the model projections and the actual temperature record is the first time I’ve ever seen something like that.

MR. HASSETT: But that’s why we’re going to put up the slides and document them so that we can –

MR. TAYLOR: Hang out with me more.

MR. ZYCHER: Yeah. Right. Well, OK. (Laughter.) Speaking of welfare, Jerry, what is that $100 billion nominal fund that the Chinese are complaining only has $10 billion in it now?

MR. HASSETT: OK. So I have one last question for Ben and then I’m going to – unless, Jerry, you want to answer that. It’s a rhetorical –

MR. TAYLOR: I didn’t quite understand that. Would you ask that?

MR. HASSETT: I intuited a rhetorical question.

MR. ZYCHER: Well, it’s both rhetorical and real. If you don’t think that the drive internationally, now COP21 in Paris, is to put the less developed nations on welfare in exchange for them raising their energy costs, what’s that $100 billion transfer fund supposed to be.

MR. TAYLOR: I am not embracing the negotiated positions of what’s coming up out of Paris.

MR. HASSETT: So, Ben, I have a last question for you and then we’ll go to Q&A. And, again, I promised folks that we could run late potentially because – if questions run late.

So suppose that we accept that we’re economists and that we’re going to use models to think about things. And then, you know, maybe now we don’t have enough economic models, but in the end that we decide that there are enough models that say the result that we see from the (RVEC ?) report that you have a carbon tax and cut the corporate tax rate, that you can at least sort of leave the economy unharmed by the carbon tax, that there’s some probability mass on the positive side, but let’s just say that you leave it unharmed. And, you know, my main work has not been on the carbon tax but on the corporate tax, and I believe that cutting it is a good thing.

And so let’s just say that you can leave it unharmed. Then isn’t what Senator Whitehouse, assuming that it was designed correctly, proposing if we accept all the things that we’ve discussed is that we get insurance that has really low value at really low cost? Isn’t that like a logical conclusion?

MR. ZYCHER: No, I think it is not, for two reasons. One, the no-harm premise I think is wrong. You have to get an allocational shift across sectors because it’s going to be a relative price shift in the economy. That’s harm depending on how you view, how you read this externality.

The larger point is I cannot envision a public choice model or a political equilibrium in which we raise energy costs for everyone in order to give the corporate sector a tax cut. I just cannot see that. And so really what you’re going to wind up doing is spending 100-plus percent of the tax revenues to subsidize various groups. The net effect of that has to be an increase in the size of the government and a decrease in the size of the private sector. And I don’t see how you can square that with the pursuit of efficiency.

MR. HASSETT: The way one could square it is to say that the corporate tax is borne mostly by labor. AEI studies that show that, and so that kind of squares this. And we’re starting from a distorted equilibrium, where there’s a high tax on capital which is very seductive.

So, anyway, with that, let’s now go to questions and answers. Let’s try to make our statements in the form of a question, and please wait for the mic and state your identity before we go.

And I guess what I’ll do is maybe just give people numbers. Can you try to remember them? One, two, three, four, five, six, seven, eight, nine. And I’m sorry I went from right to left but I promised nine. We’re going to go to you before we ask anyone else for their question. OK.

Q: So just to go back to this last point. My name’s Bill Eacho. I’m with the Partnership for Responsible Growth. And if I understand you, Mr. Zycher, what you’re effectively saying is you don’t believe that what the senator has proposed in the form of a swap is actually politically achievable and, therefore, you’re against it, because in theory, theoretically, if the idea is a swap – for example, Dale Jorgenson, Professor Jorgenson at Harvard has written this book, “Double Dividend” – every dollar we take in carbon fees and apply to reducing taxes on capital and investment in business, it gives you actually an increase in economic growth, which is good for everybody. So it’s actually a net positive to the extent that you do that with the money.

What you’re saying is you don’t believe that you could actually politically do that with the money and, therefore, you’re opposed to the idea. That doesn’t make sense.

MR. ZYCHER: Well, first of all, that’s not the Whitehouse-Schatz proposal. Their proposal is to use some of the revenues that cut corporate taxes and the rest of the revenues to fund transfers –

Q: (Off mic) – use all of it?

MR. ZYCHER: Well, just let me answer your question, OK? That’s not their proposal. Second, I don’t believe that can possibly be a political equilibrium. And, third, you know, this is not really a seminar on optimal taxation. And Kevin and I have gone back and forth on this endlessly.

But there’s a real issue about what you mean by optimal taxation. The assumption that capital taxation somehow is growth reducing depends on an assumption that there is no demand for national defense services created by capital investment. If you believe that there’s an external threat either by nations or by terrorist groups that grows with the capital stock, you may not believe that. Fine. But if you do believe that, then in some model, in a national defense model, the efficient taxation, it’s actually efficient to tax capital, including human capital because it reduces the foreign threat. We’re not here to get into that issue.

But the narrow answer to your question is, A, that’s not what the two senators are proposing, and, B, if it were what they’re proposing, I don’t believe that’s a political equilibrium.

MR. HASSETT: OK. Number two. Where are we? Thank you. And the mic’s right there.

Q: OK. Yeah. My name is Michael Goff (sp). My question concerns the issue of other countries, whether or not they’ll follow the United States if the United States goes with this proposal.

One of the consequences I would expect to see from an economy-wide carbon tax is much more private sector investment in low-carbon energy technologies, efficient energy technologies and so forth, and resulting in a diffusion of these technologies around the world.

Does that become a sort of indirect mechanism by which other countries would follow the United States on this? And if so, can it be quantified in any reasonable way?

MR. ZYCHER: To whom are you directing your question?

MR. HASSETT: Whoever wants to answer. You can both answer it if you want. Yeah.

MR. ZYCHER: Well, I don’t know what you mean by efficient energy. I mean, energy technology is – just to pick two examples, wind and solar power are efficient if – can be made efficient if fossil fuel costs are driven artificially high. Artificially is a loaded term. Jerry would argue it’s not artificial. Jerry would argue that because of this externality they’re artificially low and – fine, we can – we can debate that. Do I think the world can run on wind and solar power? I think that’s impossible.

And I think what’s not been noticed, by the way, is that – is that increasing market share wind and solar power has the effect of actually increasing, not reducing, both greenhouse gas emissions and the emissions of ordinary pollutants basically because the unreliability of renewables means that they have to be backed up with conventional plants which have to be cycled up and down, and therefore run rather inefficiently.

So I really don’t think that the premise that a carbon tax will lead to some sort of fundamental change in the energy mix, both in the U.S. and worldwide, on the margin they’ll certainly have an effect but I think fundamentally it would not.

MR. TAYLOR: Well, to the question of what other nations, how they would respond or how other nations would respond to our carbon tax, again, we don’t know.

We do know for certain that any effect actually requires a global response. We know that it is very unlikely that we’ll see a global response if the United States insists on free riding off other greenhouse gas emissions or if they refuse to act. So that much we do know. So America’s present policy of very anemic action is an obstacle to the global response that we all agree we need to see if we are to address this problem.

But I want to also introduce a normal and ethical position. A guy named Ed Dolan wrote a piece in Cato Journal back in 2006, back when I was in Cato. I thought he made a very good point.

He said, if you’re part of a mob which is looting a store during a riot, should you stop? If you stop, does that mean the looting would stop? No. If you stop, does that mean the guys whose store you are looting is going to keep all of his property? No. If you stop looting, will you be less wealthy than you might otherwise had been if you continued to loot? Yes. If you stop looting, will other people stop looting? Probably not. So is this an argument to continue to loot? His argument is no.

Under any moral and ethical calculus that we would defend in any other context, we have – if we accept this mainstream scientific narrative about climate change, then we are faced with exactly that sort of moral dilemma. And to me, even if our actions cannot be guaranteed to produce the global reaction we want, we have a moral and ethical imperative to act.

MR. ZYCHER: Here’s another moral principle, Jerry. How about not using the corrosive power of the state to transfer wealth among interest groups? That’s a form of looting, too.

MR. TAYLOR: Yes.

MR. ZYCHER: Why is that more desirable than straightforward looting?

MR. TAYLOR: I am against it as well.

MR. HASSETT: OK. Number three. Thank you. And thank you all for remembering your numbers. I’ve forgotten them already.

Q: Hi. Jake Woodger (ph). So considering the huge amount of money flowing into the political process from big science, can you talk a bit about the liberals’ perverse incentive in this, you know, whole debate?

MR. ZYCHER: I’m not here to attack liberals or conservatives. I would make the point that the federal government spends – what is it – $20 billion a year, broadly defined, on climate research and climate policy and all the rest. And I think Jerry would agree that bureaucracy is not a disinterested interest group. It has its own goals. It has its own biases. It has its own interests, et cetera.

And so I think that the implicit argument that Senator Whitehouse I think said almost explicitly that it’s only the private sector that has incentives to distort is fundamentally wrong.

MR. TAYLOR: You know, there’s a lot I might say about that topic, but we do have a lot of other questions so I will just restrain myself to this answer. I think that getting involved in a discussion about what motives different parties have in this conversation is to go into a La Brea tar pit of logical fallacy, which I would rather not go.

MR. HASSETT: OK. Number four is right here, I think. Here, borrow my mic.

Q: OK. I am Alan Carlin (sp). And it seems to me that we’re missing the main point. CO2 emission will mainly go up in China and India, not the U.S. They are, in my opinion, rightly opposed to increasing their cost of energy and their growth will be hurt if they should raise energy prices. Why would we want to lower their growth? I don’t think we do. Why should they agree to this? I don’t think they will. And a U.S. CO2 tax will more or less hurt us and have no effect.

MR. HASSETT: I guess that’s kind of a question for Jerry.

MR. TAYLOR: I don’t know if there was a question.

MR. HASSETT: I think – well, let me ask it. So suppose you’ve got 300 million citizens living on $1 or $2 a day. Then you care probably a lot more about growth than anything else.

MR. TAYLOR: Oh, absolutely true.

MR. HASSETT: And so doesn’t that undermine or reduce the probability significantly of the sort of collective action that makes something globally acceptable?

MR. TAYLOR: Absolutely. The wealthier a society is, the more willing it will be to invest in the procurement of environmental goods and services. That much we know. If we assume the globe will continue to get wealthier, you’re going to see an increase in demand for environmental goods and services.

But that’s absolutely correct that the poorer you are, the less likely you are to demand these things. I am not sitting here telling you that it’s a certainty that global action will occur to impose a carbon price or anything of the kind.

All I’m here to say is that we must try. Given what we know about the risk posed by climate change, we must try. We may fail, but I do know that if the United States permanently puts aside any aggressive action on climate change, we will never have any chance of securing that kind of a global agreement.

MR. HASSETT: Ben, do you want to say anything before – or we just to –

MR. ZYCHER: Let’s just go on. Let’s just go on.

MR. HASSETT: OK. We’re up to five I think. I can’t pick a new person so whoever five is.

Q: I was five.

MR. HASSETT: OK. Well, you can be six then. OK. I might have pointed to two people or something, in which case we can have two fives.

Q: Five and a half. OK. I’m David Kreutzer from the Heritage Foundation. My question mostly to Jerry but I’d be interested to hear other responses, you seem to have proposed an ineffective solution to an unlikely problem.

And I think Kevin pointed that what you’re saying that the carbon tax is not insurance, but it’s also not some sort of portfolio balancing. If I put 10 percent of my portfolio in bonds and equities crash, I have that 10 percent. If I do 10 percent of a solution to climate change with some sort of partial tax that we know won’t cut CO2 enough, what do I get? I don’t get anything.

So a 10-percent solution to climate change is nothing. We don’t want to have 100 percent solution for something that – I’m not Cheney – for something that has a 10- percent likelihood. So what – it seems like we need something completely different if we believe there is something serious coming, but a carbon tax isn’t it.

MR. TAYLOR: If I buy fire insurance and I don’t get a fire, I wasted my money. So that’s certainly true. But I don’t think we get nothing.

Q: (Off mic) – buying fire insurance is going to lower the temperature of the fire two degrees.

MR. TAYLOR: If there were a – for instance, if there were a global agreement to reduce greenhouse gas emissions by say 50 percent by the middle of the century, that would imply a carbon tax of around $35 a ton in 2020 increasing by about 4 percent a year. That would give you the emissions reductions we seek. That would put you on a trajectory to keep you below a two C warming by 2100 and thus avoid some of the bigger risk.

So it is possible that a carbon tax along the lines discussed by Senator Whitehouse, were it globalized, could indeed accomplish something. But if it does not, I don’t believe you find nothing to gain. According to Resources for the Future and other studies I have seen from the IMF, the co-benefits associated with addressing carbon emissions give you about the same degree of benefits as you pay in the tax.

Now, I know Ben would have you believe the particulate matter either doesn’t matter or there would be no marginal reduction in PM emissions as a course of a carbon tax, but I don’t think you really mean to say that, Ben.

MR. ZYCHER: I didn’t say that. I said that under the Clean Air Act, EPA is supposed to promulgate regulations that protect the public health with an adequate margin of safety. They are now quadruple counting the same particulate reductions to justify four rules. Either they’re admitting that the existing rules don’t satisfy the requirements of the law or they’re quadruple counting, or they’re admitting that they’re going to be reducing particulate emissions to an inefficiently low level. One of those three has to be true.

MR. HASSETT: OK. Five and a half. I hope I haven’t completely messed up my numbering system.

Q: Hi. I’m 5B. Ken Haapala with the Science Environment Policy Project. My question is directed more towards Jerry. And, one, thank you for bringing up something few people mentioned – that for 35 years we’ve been laboring under the assumption that a doubling of CO2 will result in a temperature increase of about 1.5 to 3.5 degrees C, use Fahrenheit, which is about the same.

My question to you is this: the United States government, based on government reports, have spent over $40 billion since 1993 on what they call climate science and has failed to narrow this wide range of error. What would you suggest we can do to have that range of error reduced?

MR. TAYLOR: I don’t know. It is an interesting point. The estimate is exactly as you say. Since the 1970s, the range for expected temperature increase from the doubling of CO2 in the atmosphere has been between 1.5 and four degrees C. Yeah. True.

MR. ZYCHER: Four point five.

MR. TAYLOR: Four point five, excuse me. So that’s absolutely correct. We have not been able to narrow the range. That’s largely because we do not understand atmospheric physics and long-term climate as much as we would like.

That is something that when I was in Ben’s shoes, arguing his position, I would often put on the table and say, we don’t know enough to intelligently guide policy. Look at all the uncertainties we have. Look at the lack of knowledge. And before we spend a lot of social resources, we need to quantify this a little bit better and get a better understanding.

So that uncertainty is used as an argument against action, but it’s also one argument for action because we know that with that uncertainty it can cut both ways. And we also know that the implications of being wrong on this front or the implications of just likely trajectories is devastating on a business-as-usual path today.

MR. ZYCHER: In fact, the range has narrowed. IPCC, in the fifth assessment report the midpoint of its range is now three degrees for a doubling of CO2 concentrations. It used to be 4.5. if you look at the peer-reviewed literature over the last five years, that peer-reviewed literature, something like 20 papers suggest that even the three degree midrange IPCC estimate is about 40 percent too high. Now, maybe that literature is right, maybe it’s wrong, but, in fact, the estimated range has narrowed. And Jerry is right in the sense that the science is not settled, notwithstanding what Senator Whitehouse would have us believe.

MR. HASSETT: OK. So we’ve got six, seven, eight, and nine. We’ll go to six now. I would ask the respondents to try to be kind of quick about it because we are right now at our end point, but I’m not going to impose a hard end, as I said. And it’s not rude to leave early if thought you had to leave at 4:15 p.m., but I know a lot of people want to continue the conversation. So please.

Q: Alex Bazmaski (ph), Republican.org. And I’m wondering, if we accept Mr. Zycher’s assertion that side payments or bribes are the viable mechanism by which to bring developing countries into the fold on carbon pricing, then are we to assume that South Africa, South Korea, Kazakhstan, Mexico, Costa Rica, other developing countries that have self-imposed implementing carbon pricing regimes domestically are currently the recipients of bribes or payouts? And by whom we might expect those payouts are coming from?

MR. ZYCHER: I don’t know of any explicit quid pro quo. Yes, they’re implementing climate policies for all kinds of political reasons that I understand only imperfectly. But in terms of getting the Chinese on board, the Indians, et cetera, anyone who believes they’re going to go along with this at COP21 without some sort of a massive side payment I think is engaged in a serious exercise in self-delusion.

MR. HASSETT: Although the one thing one could say, right, is that – again, go to asteroid example. If there’s an asteroid coming to destroy the earth and everybody on earth knows it, then I don’t think we’d have trouble getting people to pool their resources to try to stop it. And so I could imagine a scientific discovery but like at some point, the consensus could move to the point where everybody will say, OK, the asteroid is really coming and so we’re going to act. So I don’t think it’s unthinkable. You could disagree.

So seven.

Q: I’m Will Candler (sp). And I wonder, there’s a question of getting the House of Representatives on board and whether you’ve in any way talked with Chris Van Hollen about his bill of cap and dividend. Thank you.

MR. TAYLOR: I could tell you but then I’d have to kill you.

MR. HASSETT: I have no knowledge of –

MR. TAYLOR: We are at the Niskanen Center engaged in trying to build congressional support for a revenue neutral carbon tax that swaps out the existing regulatory infrastructure at the EPA. We’ve talked to a number of different congressional offices and we found that there is – that they look at this argument of ours as something of a novelty, which they haven’t thought much about, but there is interest. And we’ll see what’s going to happen.

MR. HASSETT: So just to be clear for myself. I’ve never asked you this question. So are you a (c)4 advocacy organization or a (c)3 –

MR. TAYLOR: We are (c)3.

MR. HASSETT: OK.

MR. TAYLOR: We are educating them well.

MR. HASSETT: So you’re educating them. OK. I think we’re up to eight if I remember right? OK. So could I have the next question? I guess we’re way up – we have an eight – no. Eight is here and then nine. And I guess we will stop it there.

Q: Thank you. Marlo Lewis at the Competitive Enterprise Institute. The question is mostly for Jerry.

Jerry, you made the case that conservatives are being inconsistent with the usual way that they address issues of potential catastrophic risk. Conservatives and libertarians agree that sometimes it’s prudent to intervene and that this is government’s proper role.

And what I think you are overlooking here is that there is not only a risk of disaster from climate change, but a risk of disaster from climate policy. This I think is one of the basic libertarian insights of free market environmentalists, people like Fred Smith that risks have to be weighed against other risks.

Now, you have talked about two degrees as the objective of mainstream science. Senator Whitehouse did as well. And you both have talked about reducing – in the mainstream, that means a reduction in industrial country emissions of 80 percent, which is what his carbon tax aims to do.

Now, Steven Yule (ph) at the Chamber of Commerce has done a wonderful analysis and shows that if all the industrialized countries in the world were to follow us and reduce their emissions 80 percent below 2010 levels by 2050, which is the EU proposal in the climate conference, which is allegedly based on mainstream science as far as I can tell it is, it means that developing countries, in order to meet that target and get below that danger threshold of two degrees, must reduce their emissions almost 50 percent not below their baseline in 2050 but below their current emissions.

Now, you know that this is an area of the world where billions of people lack access to any kind of modern energy. Don’t you see the obvious humanitarian – the obvious potential for a humanitarian disaster for the United States in trying to lead the whole world to cut carbon emissions by 60 percent below 2010 levels by 2050?

How do these countries – how do these poor countries ramp up their economies, fuel the growth of their economies and then suddenly drop down their emissions to 50 percent below where they are today without trapping billions of people in hunger and poverty?

That is a horrendous risk that I don’t think anybody on your side of this debate talks about, and I wish you would. So if you have any thoughts on it, please give us those.

MR. TAYLOR: I’m seven minutes past my closing point so I can’t share with you all the thoughts I have about that.

MR. HASSETT: That’s correct.

MR. TAYLOR: But a quick couple. It will cost money to reduce greenhouse gas emissions. If you swap out the carbon tax for other tax cuts in the U.S., Kevin will tell you that you can get cost rather close to a wash. That’s not always going to be the case in other countries. So I would not be in the slightest bit surprised that even the most efficiently executed carbon tax will still impose cost.

How much cost would it impose is somewhat unclear because we don’t know baseline trajectories for economic growth, technological change, and price impacts from switching to say nuclear power right now – totally uneconomic. It might economic tomorrow. We don’t know. We can only make broad guesses.

But one thing we do know, that likely scenario that the mainstream scientific community tells us gives us climate change which is near catastrophic. And with a 10- percent chance of even shooting past that, if Weitzman’s correct, or eight or seven or 12 or 15, we’re talking about global economic impacts in GDP on the order of 10 to 30 percent. That is truly catastrophic for everybody on this planet and we can’t ignore that based on a conversation in isolation. But that’s where I’ll end it for now.

MR. HASSETT: OK. So, Ben, do you want to add anything or should we go to the last question?

MR. ZYCHER: I mentioned earlier that the second fat tail, or the third rather, to be considered is the fat tail on the destructiveness of government policy and that’s consistent with Marlo’s point.

And if there were some evidence, Jerry, that increasing greenhouse gas concentrations were actually having a measurable effect in terms of climate phenomena, I would have more confidence in your argument, but I see no such evidence.

MR. HASSETT: And on to the last question.

Q: My name is David Payton (sp). A question for Mr. Zycher. Does any real- world situation exist that calls for a large-scale public policy response in the United States? And if so, what should that response consist of?

MR. ZYCHER: I don’t quite understand. I mean, to a limited government libertarian, government should enforce contracts, provide for the national defense, prevent people from harming each other, you know, et cetera, et cetera. I don’t quite understand your question. Is there a policy issue that demands a big response? I don’t quite understand that question. If you could rephrase it perhaps.

Q: Rising world temperatures, rising carbon concentrations.

MR. ZYCHER: Temperatures have been rising in fits and starts –

Q: Do these situations call for a large-scale public policy response?

MR. ZYCHER: Temperatures have been rising in fits and starts since the end of the Little Ice Age around 1850. Temperatures rose until about 1883 with the eruption of Krakatoa, then fell until about 1900. Temperatures rose from 1910 to 1940, roughly flat through 1950 or 1960, depending on which data set you look at. Then increased from roughly 1950 or ’60 through the mid to late 1970s or decreased, or decreased rather –

MR. HASSETT: Pretty remarkable memory. I was looking at the charts while you were talking.

MR. ZYCHER: – increased from the late ’70s through 1998, which was the strong El Nino year so that mucks up the data a little bit, and, depending on the data set, have increased slightly since then.

So the question then becomes what part of that is anthropogenic in origin? Jerry’s absolutely right. The answer is not zero. It is also true that we don’t know the answer to that question, and anybody who claims we do is talking out of his or her hat. We don’t know the answer to that question. And we need more work that’s serious in order to answer it.

MR. HASSETT: Well, I guess we need more work that’s serious is a great place to end this, but thanks so much. You know, I think that we all do this before we love to argue with people we disagree with, and the benefit of this approach I think was proven today by you guys.

Thanks so much, Jerry, for coming in. And thanks, Ben, for organizing this event. (Applause.)

(END)