December 23, 2013 9:50AM # Carbon Taxes vs. Carbon Subsidies By [Jeffrey Miron](https://www.cato.org/people/jeffrey-miron) --- SHARE To address global warming, [many economists](http://scholar.harvard.edu/files/mankiw/files/smart_taxes.pdf) advocate raising carbon taxes while lowering income taxes or other distorting taxes. This makes sense in principle—if global warming concerns are valid—but in practice the approach can easily generate [more cost than benefit](http://www.ocregister.com/articles/carbon-518840-tax-policies.html). For those who believe global warming merits a policy response, therefore, the question is whether any policy change can generate greater benefit than cost. The answer is yes: removal of existing carbon *subsidies.* As [documented](http://www.nber.org/papers/w19736) by economist Lucas Davis (Berkeley), many countries keep gasoline and diesel prices far below market levels, thus encouraging over-consumption. These subsidies harm economic efficiency, independent of global warming. Other policies have the same features as carbon subsidies: they reduce economic efficiency and encourage over-consumption of energy. One example is the deductibility of mortgage interest, which means bigger houses and therefore higher heating and cooling bills. A second example is agriculture subsidies, which encourage production in inefficient locales that require energy-intensive techniques like irrigation. Repeal of all such policies is thus a no-brainer. When policy is shooting the economy in the foot, the best response is less shooting, not new taxes to fund a bullet-proof shoe. ##### Related Tags [Energy and Environment](https://www.cato.org/research/energy-environment), [Government and Politics](https://www.cato.org/government-politics), [Tax and Budget Policy](https://www.cato.org/tax-budget-policy) [![Creative Commons License](/build/cato_2020/images/creative-commons.svg)](http://creativecommons.org/licenses/by-nc-sa/4.0/) This work is licensed under a [Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License](https://creativecommons.org/licenses/by-nc-sa/4.0/).