Yes, but maybe steel is more essential to society than burning natural gas. But natural gas companies make more margin so they can afford the carbon credits, meanwhile steel has tighter margins so it gets passed to the consumer. This means it might disproportionately limit the consumption of things based on how much money they make. This is all fine until construction becomes more expensive because you can’t easily get the steel you need for buildings (what if you were trying to build a clean energy power plant and. Is it’s too expensive?). Some things are essential and need protection from the free market (ex, hospitals have diesel backup generators. Those would become more expensive). You could add a government subsidy for steel, but now you’re stacking laws on top of each other and playing centrally organized government. Which doesn’t work well.

The downside to having separate laws per industry is that you’ll get insane workarounds (see import tariff law). Carbon is carbon — so workarounds are easy. For example if natural gas is taxed higher than steel, you’ll have natural gas companies producing just enough steel to be qualified as steel production companies so that they get the lower rate. Or something like that.

Choosing policy is tremendously difficult. We could deliberate all day. despite what I’ve said, a carbon tax is better than doing nothing, and we would be wise to start creating/increasing carbon taxes already.

If a) steel is more essential to society than burning natural gas and b) steel production is carbon-intensive, then an across-the-board carbon tax has two effects.

1. In the short term it makes steel more expensive. But because steel is essential, we still use it, it just costs a little more. If you're building a clean energy power plant, or making a generator for a hospital, some of the tax revenues could go to you, to make those things still affordable.

2. In the longer term, there are now huge financial incentives to either reduce the carbon consumption of steel production, or to replace steel with something which uses less carbon. Which is what you want.

If we look at just steel:

Your implicit assumption is that companies are willing to pay more for steel. An increase of just a single digit percent more to the price of steel is enough to be completely uncompetitive with overseas steel production, which would inevitably lead to the closing of all local manufacturing capacity of steel.

Steel production is also a commodity critical to national security. Losing access to foreign steel due to war or other concerns would literally bring the country to its knees for the duration of the encounter.

Shifting all local manufacturing capability overseas to where there is less regulation sounds good, until it doesn't... as we saw during the pandemic. The world would have looked a lot different today if Chinese manufacturing had closed or decreased for more than a few weeks (roughly Jan-Feb, much of which coincided with the usual Chinese New Year shutdown that is typically planned for).

But shouldn't carbon tax equally apply to imported steel? It wouldn't make any sense to only apply it to domestic.

So, I can see one obvious issue here. How do you know that what they say about their steel's carbon load is true? This goes double as they're incentivized to lie to you, you have minimal control over what happens in their country and worse, the incentives go all the way up to the nation states level, as being carbon neutral is counter to growth.

1. creates an insanely huge web of tax breaks, silver lining is that we would have a lot more accounting positions.

2. Replace steel? I see how this rationale works, we strive to replace X for something that generates less carbon, this ought to work to some extent until nothing more carbon neutral exist.

Consumption would only be reduced for industries that have a viable alternative. Maybe you can replace steel for some applications, but not all, and for those the costs will be passed on to the consumer who will bear this tax and will have no alternative on the market.

But isn't it the point to make, e.g., steel and concrete construction include external costs? Vs, e.g. wood? Or renovating buildings instead of tearing down and rebuilding?

You could also have tax paid off over time. E.g. a concrete building that lasts 60 years, vs a stick build that lasts 20. Bricks are frequently recycled, >100 year lifetime.

I'm open to hearing counter-examples, i.e., where there is an external cost to not manufacturing a high CO2 cost product. The examples I've seen so far are really arguments about competition with BRICS economies, and their bizarre exemption from controls.

I think that's the point of the carbon tax.

That customers will feel price pressure from their most-carbon-emitting activities and commodities is precisely the point. This will encourage finding alternatives. No demand is entirely inelastic.

The argument isn't that this wouldn't work, its that this would be sub-optimal.

Squeezing extra tax out of poor people who have literally no alternative is not going to be a popular plan. Allowing for a hint of nuance in your public policy would incentivize switching to alternatives where possible, while also incentivizing the development and adoption of alternatives where they don't currently exist.

> Allowing for a hint of nuance in your public policy

I am highly skeptical that is it possible for American legislation's 'nuance' to tilt a simple tax law in any direction but towards enriching the rich and powerful.

I feel like carve outs would be great for lobbyists and the politicians they pay patronage to, but it would destroy the effectiveness of the carbon tax: the industries with enough political power would negotiate exemptions because "there are no economically feasible alternatives" but making carbon-expensive activity economically infeasible is the core purpose or the carbon tax.

Exempting any industry in particular is just corruption.

I absolutely agree. I have no faith that the government would do anything other than half measures at best. I consider policy discussions like this totally theoretical/intellectual

People have thought of this--a popular kind of proposal is to return all the tax money as a dividend to everyone evenly, to ease the financial burden.

I think a carbon tax with dividend actually fits the criteria you are describing pretty well.

Wouldn't this have the perverse incentive of poor people wanting large emitters to keep emitting, because it directly puts food on their table?

In a sense yes, but I wouldn't call that an incentive, any more than I have an "incentive" for Chipotle to give me free burritos. I'm not the one making the decision there. The people who are doing the polluting have the right incentive, and that's what matters.

If the amount of the tax were fixed, the dividend would decrease over time, but the tax gradually increases as we get better and better at doing things without emitting greenhouse gases. The eventual target being net zero carbon. Based on the tax level in the Energy Innovation Act as an example, this is predicted around 2050.

Poor people can still vote. And they will vote against anything that reduces their dividend, even if means voting against things that lower emissions.

As to your second point - moving the goalposts every time progress is made eliminates any incentive to improve. If you're committing to keeping the dividend the same over time, that means you need to keep the tax take the same. And if you're gonna take the same amount of money off me regardless, why should I pay attention to my emissions? In the limit case, of zero carbon, the carbon tax rate is infinite and you're taking a bunch of cash off people for nothing. Somewhere along the way, something has got to give.

How long it takes for the market to produce viable alternatives is an open question.