What Alcohol Taxes Have to Do With Climate-Change Policy

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Climate scientist Ken Caldeira recently tweeted a joke intended to charm proponents of the carbon tax. “If we don’t want people to drink so much alcohol instead of taxing alcohol, we can subsidize anything that is not alcohol,” he wrote. His point, if I may ruin the punch line, is that the United States’ approach to tackling climate change is kind of silly. It relies far more on subsidizing renewable energies and other carbon-free sources than on penalizing fossil fuels, which is our primary concern. We should just tax carbon pollution.

I think this comparison – between carbon taxes and alcohol taxes – is surprisingly illuminating. That’s because alcohol taxes work. Fifty years of studies show that as alcohol prices rise, so do society’s alcohol-related problems.

But it’s also educational because you consider the history of alcohol taxes. When Congress first tried to raise taxes on alcohol, the Americans staged a violent uprising that literally had to be crushed by George Washington. When carbon tax proponents point out the history of alcohol taxes, I don’t think that’s the anecdote they have in mind.

Nevertheless, it is worthwhile to sit by this story for a moment and see what we can learn for climate policy. In 1791, Treasury Secretary Alexander Hamilton advised Washington and Congress to introduce an excise tax on distilled spirits. Hamilton’s goals were more modest than modern carbon tax advocates: he didn’t want to reduce alcohol consumption at all; he just needed a simple source of income to pay off the country’s debts in the war of independence. The tax initially appeared to be popular with business and financial elites. But in 1794 it was vehemently rejected by small producers of raw materials, especially in western Pennsylvania – doesn’t that sound familiar? – who distilled their own spirits at home and relied on the growing whiskey business for a living. When more than 400 men attacked a tax collector’s house, something had to be done. Washington rode in with 13,000 men and peacefully put down the rebellion.

However, the political ramifications persisted. The backlash contributed to the establishment of the Democratic Republican Party and thus the first US party system. The tax remained unpopular until 1802 when President Thomas Jefferson repealed it.

Alcohol was arguably just as important to the early American republic as fossil fuels were to the way we live today. In the 1790s, the average American adult drank the equivalent of more than five gallons of 200 percent alcohol per year. Whiskey was used as a medium of exchange on the border. By 1830, the average American adult was drinking the equivalent of seven gallons of 200 percent alcohol annually. Seven gallons.

That was as high as consumption was ever reached – but what reduced alcohol consumption was not a tax. It was economic expansion coupled with a social movement. A new religious crusade, the temperance movement, stigmatized alcohol consumption and public drunkenness and framed them as sins. “You could say [the temperance movement is] the practice round for just about any other activist movement that would follow in American history, ”Jon Grinspan, curator at the National Museum of American History, told me in an email. Americans also began replacing one legal drug with another: from the 1820s through the 1850s, tea and coffee consumption more than doubled.

What followed was a historic drop in alcohol consumption. In the 1850s, the average American adult drank less than two gallons a year. When the Civil War broke out a decade later, Congress desperately needed revenue and passed a new consumption tax on alcohol. (It helped that many of the same religious moralists who led the temperance movement now joined the Republican Anti-Slavery Party.) When the war ended, the tax stayed in place – and became indispensable. At the turn of the century, the alcohol tax generated more than 30 percent of federal revenue each year. (When Congress introduced the modern income tax in 1913, its percentage dropped to 10 percent.)

Read: America has a drinking problem

I think this story is important because it shows that even in a case where America was pursuing economically rational policies, we did not adopt it through any particularly rational process. In 1790 the government could not collect alcohol taxes without facing a rebellion; In 1890 the government was dependent on an alcohol tax for a large part of its income. The policies that made this change possible were due, first, to a campaign led by one of the country’s earliest activist movements and, second, to the greater availability of alcohol substitutes such as coffee and tea. Even then, temperance activists later tried to pass their preferred policy, a supply-side ban on the production, transport and sale of alcohol that we call prohibition.

These two prerequisites appear to be more important for fossil fuels, which in our industrial society provide most of the primary energy. The US could one day introduce a carbon tax. But cheap fossil fuel substitutes seem likely to come first – and policies that focus on securing them as an option should not be fundamentally rejected.