See how a carbon tax works and why taxing carbon pollution must be the central policy to combat climate change:

Earth’s climate is changing in costly and painful ways. 2014 was the globe’s hottest year on record, and the dozen warmest have all come after 1997, as this graphic shows all too clearly.

Globe not warming? Look again.
Globe not warming? Look again. CO2 from fossil fuel-burning not the cause? Click here.

Yet the transition from climate-damaging fossil fuels to energy efficiency, renewable sunlight and wind energy is slow and halting. The Number One obstacle is that the market prices of coal, oil and gas don’t include the true costs of carbon pollution. A briskly rising U.S. carbon tax will transform energy investment, re-shape consumption, and sharply reduce the carbon emissions that are driving global warming.

  • A carbon tax is an “upstream” tax on the carbon contents of fossil fuels (coal, oil and natural gas) and biofuels.
  • A carbon tax is the most efficient means to instill crucial price signals that spur carbon-reducing investment. Download our spreadsheet (Excel file) to input your own tax levels and see how fast U.S. emissions will fall.
  • A carbon tax will raise fossil fuel prices — that’s the point. The impact on households can be softened through “dividends” (revenue distributions) and/or reducing other taxes that discourage hiring and investing (“tax-shifting or swapping”).
  • Carbon taxing is an antidote to rigged energy pricing that helps fossil fuels destabilize earth’s climate. Unlike cap-and-trade, carbon taxes don’t create complex and easily-gamed“carbon markets” with allowances, trading and offsets.

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Transformational It’s Not: Running the Numbers on Obama’s Latest Climate Regs

August 3, 2015 by Charles Komanoff Comments (0)

Notwithstanding the hype in the New York Times — “the strongest action ever taken in the United States to combat climate change,” “an aggressive plan to sharply limit greenhouse gases” — the final version of the US EPA “Clean Power Plan” being released today at the White House by President Obama actually constitutes a marked slowdown in reductions in electricity-sector emissions.

According to published reports, the administration plan calls for a 32% reduction in U.S. power-sector CO2 emissions in 2030, relative to actual 2005 power-sector emissions. That’s slightly more ambitious than the 30% reduction envisioned in the initial Clean Power Plan released in June 2014. Since 2005 power-sector emissions were 2,413 million metric tons (MMT), the targeted 32% reduction would be 772 MMT, or 7% of total projected U.S. emissions (from all sectors) of 5,684 MMT (projected by CTC in the absence of a U.S. carbon pollution price).

Emissions will fall 40% more slowly, under the Clean Power Plan rules released today.

Emissions will fall 40% more slowly, under the Clean Power Plan rules released today.

Nearly half of that reduction has already been achieved, however. Actual 2014 U.S. power-sector emissions were 2,038 MMT, or 375 MMT less than the 2005 baseline level of 2,413 MMT. Expressed on an annual average basis, power-sector emissions of CO2 fell during 2005-2014 by 42 million metric tons a year.

To fulfill the total 772 MMT 2005-2030 reduction target, the “remaining” 2014-2030 reduction in power-sector emissions need only be 397 MMT. The implied annual rate of reduction over the next 16 years is just 25 million metric tons a year. That’s 40% less than the actual annual 2005-2014 reduction rate in power-sector emissions of 42 MMT per year.

It is probably true that we’re not likely to see a repeat of two factors that contributed to the 2005-2014 reduction in power-sector emissions — the long and deep recession that began in 2007-2008, and the advent of cheap fracked methane that grabbed market share from higher-polluting coal-fired generation. But two other emissions-reducing phenomena remain in full swing: ongoing cost reductions in carbon-free wind and solar photovoltaic power, and the harnessing of both digital tech and new business models to boost energy efficiency in buildings, appliances and businesses.

In this light, it seems premature, if not downright bizarre, to bestow “legacy status” on a plan that targets just one sector (albeit a key one), and that settles for cutting emissions in that sector at a lesser pace than the rate at which they’ve already been falling for a decade.

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Feeling the Heat: A Carbon Tax Gains Grassroots Momentum in Washington State

July 16, 2015 by Matt Gordon Comments (0)

Seattle on the summer solstice. Crowds line Fremont Avenue in anticipation of the annual parade of naked bicyclists. Carbon Washington co-director Kyle Murphy is giving a pep talk to a group of volunteers that includes idealistic college students, veteran environmentalists, and former Seattle Mayor Mike McGinn.

“You’re simply offering them the opportunity to participate in the democratic process. You don’t need to persuade anyone, just give them a chance to say yes.”

Seattle, June 2015: Petitioning for Carbon Washington.

Seattle, June 2015: Petitioning for Carbon Washington.

I’m helping Carbon Washington (CW) collect signatures for Measure I-732, which would put a carbon tax on the state ballot in 2016. In general, people want to participate. Almost no one turns me down. I pass out multiple signature sheets as parade-goers fumble for pens. I’m talking to eight people at once, even while competing with the naked bikers for attention. A record-breaking drought is setting the stage for a long wildfire season, and climate change is already on everyone’s mind. In a single afternoon we collect more than 1,500 signatures.

The appeal of CW’s proposal is rooted in its overarching simplicity. Polluters pay, everyone else benefits. The measure would put a price on carbon emissions, forcing fossil fuel companies to internalize some of the social and environmental externalities of their business. The tax starts at $15 per ton of CO2, rises to $25 in year two, and then increases at 3.5% plus inflation annually. This long and steady increase will drive down CO2 emissions in the state.

Emissions would fall more if Washington's power wasn't nearly all hydro. (Source: CTAM model)

Emissions would fall more if Washington’s power wasn’t nearly all hydro. (Source: CTAM model)

The tax is revenue neutral to appeal to conservatives. It uses the expected $1.7 billion in annual revenue to overhaul Washington State’s notoriously regressive tax code. Most of the money goes to lower the state sales tax from 6.5% to 5.5%. The 3.5% annual increase in the carbon tax is designed to carefully offset the rising value of the sales tax reduction, so that the measure stays revenue-neutral for 40 years. Another $200 million a year is used to fund the Working Families Rebate – an extension of the federal Earned Income Tax Credit. These two pieces make I-732 the state’s most progressive tax legislation since groceries were exempted from sales taxes in 1977.

The third element of CW’s plan takes $200M to eliminate the state’s Business & Occupation tax on manufacturers. The intent is to make the state’s businesses more competitive and cushion any job losses due to the tax. The average manufacturer will pay in carbon taxes close to what it will gain from the elimination of the B&O tax. Unlike the B&O tax, however, carbon taxes do not increase as the business grows – as long as it can grow without increasing its carbon emissions.

Still, Carbon Washington faces high hurdles. A ballot initiative requires 246,372 signatures – 8% of the votes cast for governor in the most recent election. Since up to one-quarter of signatures fail the verification process, CW is aiming for 315,000. Successful initiatives, like a Michael Bloomberg-financed gun-control measure that passed in 2014, have needed to raise around a million dollars to reach that threshold. Carbon Washington is hoping to rely on an extensive volunteer network to do it for less than half the price. Still, more funding and volunteers are needed.

Measure I-732 steers revenues to households and manufacturers.

Measure I-732 steers revenues to households and manufacturers.

Assuming CW succeeds, it’ll have to defend its proposal on the ballot against the inevitable onslaught of Koch-funded interest groups. Some other environmental groups are skeptical that Washingtonians will vote for a proposal that openly uses the dreaded ‘T’ word. Climate Solutions, a regional organization, threw its weight behind Governor Jay Inslee’s cap-and-trade proposal. Despite attempts to appeal to Republicans, including a carve-out for the state’s only coal plant, that proposal failed to gain traction in the legislature. Climate Solutions isn’t backing CW’s proposal, afraid to lose what will surely be a big fight.

Yet if the conversations I had were any indication, Washingtonians are receptive. They have an example to their north, in British Columbia, of a successful and popular carbon tax, so oil industry scare tactics may prove less effective with voters. In polls, support varies between 30% and 60%, depending on how the issue is framed. Victory will be determined by whether enough voters can be educated about the proposal. By talking to voters and collecting signatures one at a time, Carbon Washington is getting a head start.

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Here’s What’s New in CTC’s Carbon Tax Spreadsheet Model

June 27, 2015 by Charles Komanoff Comments (0)

We’ve just posted an update to our spreadsheet model — our powerful but easy-to-use tool for predicting future emissions and revenues from possible U.S. carbon taxes. We say taxes, plural, because the model accepts any carbon tax trajectory you feed it and spits out estimated nationwide emission reductions and revenue generation, year by year. Here’s a rundown of what’s new in the update.

1. A year of new data: The most obvious change is the addition of 2014 baseline data on energy use, CO2 emissions and emission intensity for each of the model’s seven sectors.

Our spreadsheet model lets you compare different carbon tax trajectories.

Our spreadsheet model lets you compare different carbon tax trajectories.

2. Smoothing the carbon tax impact: A new feature lets users smooth the impact of the tax to reflect real-world lags in households’ and businesses’ adaptation to more-expensive fossil fuels. (You get to set the adaptation “ceiling” rate; any excess gets carried over to future years.) This feature is helpful for trajectories like the Whitehouse-Schatz bill, whose rate starts with a bang at $45 per ton of carbon dioxide but then rises only slowly. Under our default setting, the reductions from the $45/ton initial charge are spread over four years rather than, unrealistically, assigned to the first year.

3. Future baseline is calibrated to official forecast: We tweaked a few model parameters to make our 2040 emissions forecast without a carbon tax match the analogous forecast in the Energy Information Administration’s “Annual Energy Outlook.” This allows for apples-to-apples comparisons with other models that are explicitly calibrated to the EIA/AEO forecast.

Read more…

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Who’s “Out of Step” on Climate — Pope Francis or Harvard Expert?

June 19, 2015 by James Handley and Charles Komanoff Comments (5)

New York Times climate reporter Coral Davenport writes today that Pope Francis’s warning against cap-and-trade as a tool to address the climate crisis creates a “paradox”:

[W]here Francis’ environmental and economic agendas meet, he leaves something of a paradox. . . While urging swift action to curb the burning of fossil fuels that have powered economies since the Industrial Revolution, he also condemns the trading of carbon-emission credits, saying it merely creates new forms of financial speculation and does not bring about “radical change.” But carbon trading is the policy most widely adopted by governments to combat climate change, and it has been endorsed by leading economists as a way to cut carbon pollution while sustaining economic growth.

With due respect to Davenport as well as Robert Stavins, the Harvard climate economist whose concerns figure prominently in her story, there is no paradox. Francis’s encyclical, On Care For Our Common Home, doesn’t muddy the climate change debate because a carbon tax, not cap-and-trade, is economists’ preferred policy tool for curbing carbon pollution. Francis-cap-tradeFrancis criticizes emissions trading on three grounds: First, trading carbon allowances allows traders to profit from the climate crisis — indeed, it’s designed to do that. Second, “offsets” that are virtually hard-wired into cap-and-trade shift the burden of pollution to developing countries. Third, cap-and-trade with offsets absolves the wealthy of responsibility to rein in their carbon-intensive lifestyles. In Francis’s own words:

The strategy of buying and selling carbon credits can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors. [171]

What, then, does Francis demand? That societies internalize the costs of pollution, especially climate pollution:

[O]nly when the economic and social costs of using up shared environmental resources are recognized with transparency and fully borne by those who incur them, not by other peoples or future generations, can those actions be considered ethical. [195]

A reference in that passage attributes Francis’s calls for polluters to pay “the economic and social costs” they incur to his predecessor, Pope Benedict. (Both pontiffs presumably intended “impose” rather than “incur,” i.e., for costs to be borne by those who impose them, but no matter.) Those resources surely include clean air. The new encyclical thus aligns the Catholic Church with the century-old “Pigovian” tradition of economists urging policies to internalize costs. Francis-carbon4-taxNevertheless, in an email quoted by Davenport, Stavins brands Francis as “out of step with … informed policy analysts around the world,” in effect labeling the Pope as economically-illiterate and naïve:

“I respect what the pope says about the need for action, but this is out of step with the thinking and the work of informed policy analysts around the world, who recognize that we can do more, faster, and better with the use of market-based policy instruments — carbon taxes and/or cap-and-trade systems,” Robert N. Stavins, the director of the environmental economics program at Harvard, said in an email.

That Stavins is the lone environmental economist quoted in Davenport’s piece did not deter her from claiming that “environmental economists criticized the encyclical’s condemnation of carbon trading, seeing it as part of a radical critique of market economies.” Hardly. The Pope, like legions of environmental activists and economists worldwide, has seen the shams of emissions trading and carbon “speculation” for what they are. Read more…

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Earth Institute Chief Trashes the Carbon Tax

June 12, 2015 by Daniel Lazare Comments (2)

Steven Cohen, executive director of Columbia University’s prestigious Earth Institute, recently weighed in on the carbon-tax debate in the Huffington Post. The results are breathtaking – and not in a good way.

Cohen’s June 8 screed, “A Carbon Tax Is Not Feasible or Practical,” was a riposte to a New York Times editorial two days earlier endorsing a carbon tax as “one of the best policies available” to address global warming. The Times is wrong, says Cohen, as he proceeds to lay out a multi-count indictment. Among his anti-CT arguments are the following:

1. Carbon taxes are politically infeasible: Given the system’s deep hostility to tax hikes, “the space between the carbon tax as a policy idea and the reality of American politics is too vast to overcome. For better or worse, here in America we are in a period of tax policy paralysis that is unlikely to be surmounted anytime soon.”

2. Carbon taxes are unfair: They “cause people on the lower end of the economic ladder to pay a higher portion of their income on energy,” while corrective measures aimed at redistributing the costs “are far from simple to implement, might stigmatize recipients, and would become easy and obvious political targets.”

3. Contrary to The Times, carbon taxes are unequal to the problem of climate change because they would founder on the shoals of international politics: “China and India would need to go along, and given the urgency of their energy and development needs, it is difficult to imagine that they would agree to such a measure.”

4. Carbon taxes are anti-urban: “I sometimes think the push for a carbon tax comes out of an early 20th century environmentalist mindset that scolds people for consumption and living in evil, immoral cities.”

5. Finally, carbon taxes are unnecessary since tax breaks can be just as easily used to encourage alternative energy development: “Why waste time and effort on an infeasible policy that will never happen? Why not devote time and effort to building a real partnership between the public and private sector to create a sustainable economy?”

NYT-CohenCareful readers will notice that the first two items are variations on a theme, which is to say the futility of relying on the U.S. political system to pass a well-crafted carbon-tax plan that discourages fossil fuels without burdening workers and the poor. The same can be said for number three, which is about the inability of a beggar-thy-neighbor international system to institute significant reform. Whether the fault lies with Washington, Beijing, or New Delhi, Cohen argues, the point remains that politicians of all nationalities are too selfish and shortsighted to deal intelligently with a carbon tax, so it’s best to forget the whole thing.

Charges four and five are different, so let’s tackle those first. Read more…

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