Tax Coastal Cities?

(Nobel-winner) Thomas Schelling just gave a talk here at GMU Econ on “Two Major Infrastructure Worldwide Projects to Prepare for Global Warming.” He said most work on global warming focuses on how to prevent it, and that there’s been a bit of a taboo on looking at how to mitigate harm if it happens.

He defied that taboo, and talked about two harms from global warming: 1) crop drought due to snowpacks melting earlier in the annual cycle, and 2) sea levels rising if the Greenland or Antarctic ice sheets suddenly slip into the sea. For both problems Schelling wants central governments to start planning possible large engineering projects.

On overly-early farm-water, he wants new canals and reservoirs dug to hold water until farmers want it and then deliver that water to them. For rising sea levels he wants dikes etc. to keep coastal cities dry. Such city protection systems could be at the scale of the harbor of a single city, or at the scale of blocking the Strait of Gibraltar to protect the entire Mediterranean Sea.

On protecting coastal cities, John Nye pointed out that if governments are willing to do anything now they should consider taxing coastal cities to collect revenue to pay for future mitigation. This has the further big benefit of discouraging risky coastal development. And if governments aren’t willing to do this obvious easy thing now, what hope is there of them doing much useful later?

Most of the coastal city structures that would be hurt via rising sea levels probably haven’t been built yet. So trying to get governments to start planning to protect coastal cities runs the risk of encouraging too much coastal development, which then becomes insufficiently protected or protected at excess expense.

The fact that central governments are not coordinating much to reduce global warming suggests that they will also fail to coordinate at large scales to mitigate harm from warming. So a simpler safer solution might be to have central governments try to commit to not protect coastal cities in advance. Don’t even start central government initiatives to coordinate and plan for coastal protection, and stop current central government coastal protection programs, such as subsidized hurricane insurance.

If coastal cities want to tax themselves to pay for their own local mitigation, fine, but to the extent we expect that more central governments won’t be able to resist helping later, have them tax low-lying coastal development in advance to pay for that. Let everyone know its time to start focusing new development away from low coasts.

The problem of building reservoirs for farmers seems more easily dealt with via private property in water. If private parties can pay to dig reservoirs to sell water to private farmers at market prices, it isn’t clear why much central government coordination is required.

Added: Seems Glenn Reynolds proposed to tax coastal development a month ago. HT Robert Koslover in the first comment below.

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  • Robert Koslover
    • http://overcomingbias.com RobinHanson

      I hadn’t seen that! Wonder if Nye had.

      • John Nye

        No Robin. I had not. But I would think this was an obvious first question for an economist to ask Schelling.

      • John Nye

        You may also be aware that I have a published article that questions the empirical evidence (or lack of it) for a Pigou tax that is espoused by so many, titled the Pigou Problem. I have no clear answers, just questions.
        http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1241542

  • IMASBA

    The Netherlands is very experienced at dealing with the coastal issue. They do have a special tax (not just on coastal areas though) that’s earmarked for dikes and other waterworks.

    Discouraging coastal development and not building dikes only works when the land slopes upward as you get further away from the coast, which is not the cases in many regions and countries (such as the Netherlands). Also, many regions’ economies depend on coastal trade and therefore cannot simply abandon the coastal areas.

    Walling off the Strait of Gibraltar would cause huge enviromental problems in the Mediterranean area, including desertification (this is why you don’t just let economists run the world on their own), still the general idea of active mitigation is a valid one since some mitigation will have to take place even if the most stringent climate regulation was adopted worldwide tomorrow morning (some adverse effects are already set in stone because of past greenhouse gas emissions and deforestation). Bjorn Lomborg has been writing about that for years.

    • IMASBA

      I also wonder if taxing coastal development will work quickly enough… Sea level rises may very well be significant before the end of this century, I doubt this gives enough time for coastal taxes to displace existing cities and usually those existing cities are far bigger than any new coastal development planned before the end of the century.

  • free_agent

    In the United States at least, the simplest and cheapest strategy would be to terminate the federally-subsidized flood insurance program. All writers that I’ve seen who know something about real-estate, weather, or insurance say that the flood insurance program has been responsible for a building boom in low-lying areas, leading to a dramatic increase in storm-caused damage. (Writers who know nothing of these subjects blame global warming.)

    • http://facelessbureaucrat.blogspot.com/ Bill Harshaw

      When FEMA has tried to raise rates for insurance coverage after flooding, especially repeated flooding, the landowners raise enough havoc that politicians force FEMA to modify or back down. What’s even more fraught seems to be cases where FEMA tries to update their maps showing risk of flooding, with resulting impacts on property resale values and insurance rates.

      There have been instances, as in the Mississippi river basin after the 1993 flood where people have been relocated out of flood plains.

  • Chuck

    Has anyone estimated how much sea levels will rise (if at all)?

    • Curt Adams

      Any estimate is necessarily extremely rough.

      The current goal of limiting warming to 2 degrees C is based on trying to limit to the highest temps of the ice ages, the Eemian interglacial. Sea level then was about 20-25 feet higher, so that’s a likely projection if current control efforts are fully *successful*. Timing is almost completely unknown.

      If the current limitation efforts are unsuccessful, then it’s basically “who knows” other than the fact that complete melting of all ice caps generates about 200 feet. That occurred in the Eocene at 6-8 C above current level, which is plausible with another century of “business as usual”, as well as with some unpredictable but disturbing possibilities like methane hydrate release feedbacks.

      • stan

        Not according to the science.

    • Mark Bahner

      This paper estimates a 90 percent chance of a sea level rise of between 0.4 and 0.9 meters between 2000 and 2100.

      • Mark Bahner

        I forgot to mention that the estimate of a 90 percent chance of a sea level rise between 0.4 and 0.9 meters from 2000 to 2100 was for the RCP 4.5 scenario, which is a realistic scenario. (As opposed to the very unrealistic RCP 8.5 scenario.)

  • Curt Adams

    Once it’s granted that you’re going to need government action to mitigate coastal impacts, the case for a Pigouvian tax on CO2 emissions is basically airtight for people really concerned with economic efficiency.

    • http://overcomingbias.com RobinHanson

      The case for a global tax may be strong, but the case for local taxes can be much weaker, given that other places don’t tax.

      • http://web.mac.com/deweaver Dallas Weaver

        With a revenue neutral tax decreasing a more economically harmful tax, the case for local carbon taxes are valid no matter what the rest of the world does.

        The in-elasticity of fossil fuels are shown with the hundreds of billion of cash flow decreases in the oil/gas/coal sectors only resulting in very insignificant job losses measured in the 16,000 range. The stimulus from those hundreds of billions have created far more jobs and economic activity for a net stimulus.

        With a high carbon tax ultimately shifting money from the Middle East, much of the price will be paid by others anyway.

        Venezuela and the ME are getting screwed, breaks my heart.

      • http://overcomingbias.com RobinHanson

        “the case for local carbon taxes are valid no matter what the rest of the world does.” That’s using global welfare criteria. But most such decisions will be made using more local criteria, where case is much weaker.

      • IMASBA

        There used to be a small argument about reliance on Russia and the Middle East for fossil fuels that could be used to support carbon taxes in the US. Now, the situation has reversed with plentiful fossil fuels mined in North America and providing somewhat of an economic boom, all the while being more polluting (and carbon-intensive) than traditional mining in most other countries. The argument still holds in many other advanced economies though.

      • http://web.mac.com/deweaver Dallas Weaver

        Depending upon the local amount of gain from a tax shift (which taxes are decreased) in a local area, such a shift would make sense for all areas that weren’t net fossil fuel exporting areas. Even in net export areas, those net exports have to exceed the gains from the tax shift to shift the local optimal decision away from a carbon tax. As the number of net exporting areas are far fewer than net importing areas (independent of how you define “local”: area, population, economic activity, culture, race, ethnic, etc.), we are back to most of the local populations benefiting from a carbon tax on a pure self-interest basis.

        Fossil fuels are patchy in distribution relative to the distribution of humanity.

      • stan

        The term “revenue neutral” is stupid. Such a tax regime may not add to the Treasury’s coffers, but it will devastate large sections of the country and ultimately decrease the tax base dramatically.

        Anyone who thinks govt can dramatically tax rural and suburban America and hand out the cash to city dwellers without significant transaction costs and second-order impacts, isn’t really thinking.

      • http://web.mac.com/deweaver Dallas Weaver

        The transaction cost of eliminating something like a payroll tax is negative and a carbon tax is trivial. All fossil energy producers and vendors have sales records that can be translated into carbon equivalent, depending upon the product, with trivial variation. It can all be at the wholesale level with very few organizations actually being taxed.

        The point is that a tax shift will devastate a few and benefit the many. For the size of the fossil fuel industry, very few people work in the industry that is highly capital intensive and highly automated.

        Yes, the tax man won’t like it, he won’t have as many jobs either. Eliminating payroll taxes and adding a carbon tax at the source (no exceptions for government purchases, etc.) would layoff thousands of IRS employees enforcing payroll taxes while using a few dozen to monitor taxes at fossil fuel choke points (refineries, rails, pipelines, etc.).

      • IMASBA

        @ Dallas Weaver

        It’s not only the fossil fuel exporters who would get hurt by the tax. Use of fossil fuels represents an increase in comfort and wealth for many in the world. Of course this cannot last because the fuels are non-renewable and it comes at the cost of pollution and emission of greenhouse gasses (some regions notice these adverse effects much more than others), but getting rid of fossil fuels does mean a (temporary) decrease in wealth through a reduced amount of available energy and/or through higher costs of the same amount of energy while renewable energy sources are catching up to the demand and still developing efficiency-wise.

  • Lord

    Since coastal areas are more temperate and dense and produce less CO2, this is the equivalent of subsidizing CO2 production though.

    • arch1

      Is your point that that people living further from the ocean spend more carbon per capita on heating & cooling?

  • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

    The proposal: Tax people now and save the cash to spend on Global Warming projects in the future.

    Why I am laughing.

    o Global warming predictions have failed to predict the future.

    o Collecting cash and saving it is an action on pieces of paper. The effect is to reduce current production and consumption. This is the opposite of the current “spend our way to wealth” theory of government. Progressives should get their story straight.

    o Collecting cash and spending it now is a transfer of resources to speculative projects of probably little value. There will be a department holding special government bonds showing how much cash was collected and already spent, as with Social Security.

    This does employ government cronies and businesses created by politicians and their families. So, that is what will happen to any tax.

    o Taxes are wonderful (smile). They have a long history of creating prosperity and avoiding problems through the analytical and forward-looking wisdom of government.

    • IMASBA

      No money would be saved up.

      What the tax would do is discourage development of coastal areas, and thereby implicitly encourage development in non-coastal areas. Current and near-future GDP would only be reduced by the difference in profitability between coastal and non-coastal development, not by the entire value of planned coastal development.

      Later on less stuff in coastal areas needs to be protected and this increases GDP, Schelling thinks by more than the previous reduction.

      It’s not that complicated, but it does go beyond “taxes are bad, government is evil, markets are good” plattitudes.

      • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

        Your goal is to limit coastal development, under the prediction that it will all be flooded by GWarming.

        Why the puny application of a tax? We have to stop ALL of that doomed development. Have the government regulate no more coastal development. Future generations will thank you.

        “No money would be saved up”. That is, it would be taxed and spent. Spent on what? Possibly you can describe a similar program that has created net value. Or, is this a flight of fancy into the ideal future?

      • Curt Adams

        A tax would be preferable to a ban because in many cases it’s perfectly reasonable to build knowing the constructions will be usable only for a limited time.

      • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

        Why tax perfectly reasonable construction which is not subject to loss from GW? How does the government know the optimal tax, what the time limit is, or what the return will be on construction?

        The government could release its information and let developers decide. Of course, the govt has been consistently wrong about the magnitude and effect of GW.

        The main reason for a tax: government loves to collect taxes, and any excuse will do.

      • IMASBA

        It’s not so binary: the costs of protective barriers and destroyed development are finite and are sometimes worth it. Some coastal development may be worth the cost of extra protective barriers, or it may be profitable enough to get a positive return before it is swallowed by the sea, the tax selects against development that is not profitable enough for either of these scenarios.

  • Neat-seeking Missile

    The link to Schelling’s talk points to Martinelli’s paper, not what I would have assumed to be an article by Schelling.

    • http://overcomingbias.com RobinHanson

      Yes that link is wrong; not in my power to fix it.

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