A Case for a Carbon Tax - Meat and Livestock Edition

Frequent readers of this blog know I’m not a big fan of many food and agricultural regulations (I did write the Food Police after all), and I’ve been skeptical of “externality” arguments use to advance food and agricultural interventions. As such, the title of this post might seem out of place. However, stick with me for a moment.

Anyone who has been paying attention knows animal agriculture has come under various lines of attack in recent years (something I recently referred to as the coming meat wars). Whether it be animal welfare, health, or environmental arguments, there is a fairly consistent refrain in many media circles that we are eating “too much” meat and dairy.

What does it mean to say someone is “over-consuming” or having “too much” of any product? There is paternalism: I think I know better what someone else should be eating/consuming. Beyond cajoling our children or spouse, few will concede this motivation for broad policy action. There are claims of information asymmetries: perhaps people don’t know or understand the impacts of consumption on their health or the environment. This would seem to point to policies surrounding information provision rather than outright prohibitions or taxes. Finally, the most cogent argument is that of externalities: your consumption is imposing a cost on me that you’re not considering when deciding what to buy.

If “externality” is the basis of one’s claim that another is “over consuming,” then the economist’s normal answer to fix the problem is some sort of tax to encourage buyers to factor in the costs imposed on others (in fact, I’ve argued elsewhere it’s often more complicated than that, but let’s ignore those arguments for now).

Here’s an often overlooked point about taxing exernalities: even after such a tax, consumption will not be zero, and indeed consumption might still be very high if its a good (like meat) people enjoy consuming. I ran across a quote from the now retired agricultural economist, Luther Tweeten, which colorfully summed up the way economists think about the issue:

St. Augustine called for people to ‘Love God and do as you please.’ The economist advises to ‘Price right and do as you please.

Once the prices are “right” - perhaps via some sort of tax - there is no need for the buyer/consumer to feel guilt or discomfort in their purchases; they’ve already paid for their costs on others and can eat and consume as they please. Here is Steven Landsburg in his book The Big Questions in a section entitled A Cost is Not A Sin:

When things are priced correctly, there’s no need to moralize about them. Every time you eat an orange, you leave the world one orange poorer. But nobody thinks it’s sinful to eat an orange, because the eater pays for the privilege - and thereby reimburses the rest of us for the damage done. Under the right tax system, emitting small amounts of additional pollution would be as unobjectionable as eating an orange.

Ok, back to meat and dairy consumption. Much of the popular writing on the subject casts consumption of such products as almost sinful. One advantage of a carbon (or carbon-equivalent) tax is that it would undercut much of the argument that people are “over consuming.” It’s not the cow or meat that’s the “sin,” it’s the carbon and methane.

There are several factors to consider before such a tax would be effective in this regard.

First, it must be broad based across the economy, not just focused on meat and livestock, otherwise, there is no guarantee people wouldn’t just substitute from one emitting category to a now relatively cheaper emitting category and have no impact on overall emissions. If it is indeed the case that, as the EPA suggests, agriculture in general and livestock in particular, are relatively small sources of greenhouse gas emissions in the U.S., then the impacts of such a tax on the sector need not be particularly pronounced, especially if revenue from the tax is refunded to taxpayers. Indeed, in a global context, such a worldwide tax might be competitively advantageous to U.S. producers greenhouse gas emissions per pound of meat or gallon of milk produced is much lower in the U.S. than in other parts of the world because of greater efficiencies here.

Second, a cow isn’t just a cow. Any effective system of this sort would need to reward producers who are more efficient and who find ways, whether it be different genetics, different feed, or different grazing practices, to reduce greenhouse gas emissions. That is, any effective system would have to allow possibilities for producers to monitor, register, and update their own particular impacts. Something as crude as $X per cow or $Y per pound lacks the incentives to motivate innovation in greenhouse gas reducing activities. Such a policy would be as silly as charging a fixed tax per car regardless of whether it was a Honda civic or a Hummer.

Finally, if producers (and everyone else) are taxed for emitting greenhouse gases, it seems logical that producers (and others) ought to be paid for sequestering carbon. I know there is a lot of debate on this subject, and it’s a topic about which I’m intimately knowledgeable, but suffice it to say that it is not unrealistic to imagine particular farming or ranching practices that sequester more carbon than they emit.

I suspect many environmental organizations would be downright shocked if meat and livestock industry associations banded together in support of a carbon tax. I’m not necessarily advocating such a tax, as indeed there are many complications and unintended consequences that I haven’t discussed here, but it is one mechanism available to address the combat much of this implicit “sinful” type rhetoric suggesting that people are “over consuming” meat. Of course, there’s also the possibility some anti-animal agriculture groups might balk at the proposal. Here’s Landsburg again:

So why don’t we have such taxes? I suspect it’s at least partly because in a world with rational taxation, there would be fewer jobs for priests. Solve a social problem and there’s no evil left to rail against.

I’ll end with one last observation. Let’s say you are a conscious consumer worried about the greenhouse gas emissions that result from meat eating. Is the answer to completely refrain from burgers, yogurt, and steak? No. Just reduce your consumption by the amount you would have reduced it had the price been slightly higher. Landsburg described how to follow the Economist’s Golden Rule (EGR) in the context of the question: Is it okay to burn carbon-based fuels?

In our less then ideal world [without a carbon tax], the EGR tells you to curb your pollution as if you were paying a fair price. It’s been estimated that you cause about 50 cents’ worth of environmental damage for every gallon of gas you burn. If you believe that estimate, and if you currently pay $3 for gas, pretend you’re paying about $3.50 and adjust your driving habits accordingly.

And, I should add: drive without guilt.

So, what does that mean for meat consumption. The first website that came up when I searched the subject, suggested 1 burger is responsible for 8.8 kg of carbon-equivalent emissions [this is probably an overstatement; see a previous crude calculation I made here based on EPA’s numbers]. A commonly used social cost of carbon is about $40/ton or $0.04/kg. So, the questions is: how many fewer burgers in a year would you consume if the cost were $0.04*8.8 = $0.35 higher?