Why taxes on carbon pollution are essential, what’s happening now, and how you can help


McDermott economy-wide charge eliminates nearly 6x as much CO2 as EPA power plant rule.

McDermott economy-wide charge eliminates nearly 6x as much CO2 as EPA power plant rule.

Earth’s climate is changing in costly and painful ways. Yet the transition from climate-damaging fossil fuels to energy efficiency renewable sunlight and wind energy is slow and halting. The biggest obstacle to clean energy is that the market prices of coal, oil and gas don’t include the true costs of carbon pollution. A robust and briskly rising U.S. carbon tax will transform energy investment and consumption and sharply reduce the carbon emissions that are driving global warming.

  • A carbon tax is an “upstream” tax on the carbon content 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. View our spreadsheet to see how fast emissions will fall at different tax levels.
  • 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.

Latest from the Blog:

One Cheer for a New “Cap-and-Dividend” Bill

July 30, 2014 by Charles Komanoff Comments (9)

If you believe that the best policy for cutting U.S. carbon emissions — and the easiest political sell — is “cap-and-dividend,” you’re loving a NY Times op-ed keyed to a bill being introduced today by Rep. Chris Van Hollen (D-MD).

Van Hollen’s Healthy Climate and Family Security Act of 2014 would (i) create a permit system covering CO2 emissions for all fossil fuels extracted or brought into the U.S., (ii) auction off permits equaling U.S. emissions in 2005, (iii) ratchet down the number of permits by 80% by 2050, and (iv) distribute all of the proceeds “to the American people as equal dividends for every woman, man and child,” according to the op-ed, entitled The Carbon Dividend.

CTC finds that a 100% carbon-dividend will improve finances for 65% of U.S. households, not for 80%.

CTC finds that a 100% carbon-dividend will improve finances for 65% of U.S. households, not for 80%.

A bill structured like that is fairly ambitious, and it’s good to see it submitted to Congress alongside the McDermott Managed Carbon Price Act of 2014 introduced two months ago on May 28. (Our write-up of the McDermott bill is here.) And the Times op-ed, by U-Mass economics professor James Boyce, is written with unusual grace and persuasiveness, especially at the start:

From the scorched earth of climate debates a bold idea is rising — one that just might succeed in breaking the nation’s current political impasse on reducing carbon emissions. That’s because it would bring tangible gains for American families here and now.

A major obstacle to climate policy in the United States has been the perception that the government is telling us how to live today in the name of those who will live tomorrow. Present-day pain for future gain is never an easy sell. And many Americans have a deep aversion to anything that smells like bigger government.

What if we could find a way to put more money in the pockets of families and less carbon in the atmosphere without expanding government? If the combination sounds too good to be true, read on.

That’s terrific writing, and smartly keyed to the compelling theme that climate policy need not be sacrificial or a greased path to so-called big government.

But the op-ed raises a handful of cautionary flags worth attending to:

First, why debut the cap with enough permits to cover 2005-level emissions? U.S. CO2 emissions are now (2013) 9 percent less than in 2005. (See CTC’s carbon-tax spreadsheet model [Excel download], Summary tab, Cell Q121.) Auctioning 10 percent more permits than would have been needed last year would virtually guarantee anemic permit prices that won’t spark carbon-reducing investment and won’t deliver the kinds of dividends the public will be counting on. (Addendum: The bill is now available (pdf) on Rep. Van Hollen’s Web site, and on p. 6 specifies that year-2016 permits will be 10% less than 2005 emissions, largely vitiating this concern.)

Second, the op-ed is silent as to how the Van Hollen bill will handle permit trading. This question goes to the paradox at the heart of cap-based systems: without trading, the market signals will be cordoned into a thousand separate sectors, without the fluidity needed to engender the lowest-cost array of carbon-reducing investments and behaviors; but trading invites the magicians of high finance to game the system with complex derivatives that will destabilize and hide the price of permits, impeding the intended long-term investments in renewables and efficiency.

Third — and this is an issue with the op-ed rather than the bill per se — Prof. Boyce’s promise that “more than 80 percent of American households would come out ahead financially” may not withstand close scrutiny. As skewed as U.S. wealth, spending and energy consumption are toward the upper echelons, it’s unlikely that so much fossil fuel use is purchased by the top quintile that the dividend checks going to everyone in the bottom four quintiles will exceed their passed-through higher carbon costs. (My best estimate, shown graphically here, is that around 65% of households will come out ahead financially under a 100%-dividend system with either a carbon cap or tax.)

Fourth, the op-ed took this gratuitous swipe at a carbon tax:

Unlike a carbon tax, which brings in more revenue for the government, Mr. Van Hollen’s bill is, in effect, a tax cut.

Ouch. That one sentence undercuts work by carbon-tax advocates to educate policymakers and the public that a carbon tax, like a cap, can be revenue-neutral via either “tax swaps” that phase out existing federal taxes like payroll taxes as the carbon tax revenue is phased in, or the same dividend approach embodied in the Van Hollen bill. Any tax, including one on carbon pollution, need not be a revenue-raiser for bigger government (or even for deficit reduction). Indeed, the choice of pricing mechanism (permits or fees) and the choice of revenue treatment (dividend, tax swap, or revenue-raiser) are independent of each other.

To spell it out: A tax or fee can have (or not have) a dividend as easily as can a cap. And the magnitude of the dividend will be a good deal more predictable and steady under a fee-and-dividend system than with cap-and-dividend, thus guaranteeing a stronger version of the compact with American households that Boyce rightly touts (“The tighter the cap, the bigger the dividend. Voters not only would want to keep the policy in place for the duration of the clean energy transition, they would want to strengthen it.”)

Finally, there’s a larger question as to the political salience of cap-based federal climate legislation. The Van Hollen bill seems curiously stuck in 2009-2010, when the Big Green groups were pushing furiously for cap-and-trade in the form of the Waxman-Markey bill. With the lords of Wall Street no longer valorized, and with the opacity of cap-based systems now seen as a drawback instead of an asset, many carbon-pricing advocates have moved on. Sentiment is coalescing around a carbon tax, especially the fee-and-dividend approach supported by the fast-growing Citizens Climate Lobby and embodied in the McDermott bill noted earlier.

A Breatkthrough in Polling on a U.S. Carbon Tax

July 22, 2014 by Charles Komanoff Comments (0)

A surprising but frustrating obstacle to carbon tax progress has been opinion polling. It took years for pollsters to even *ask* about a carbon tax rather than (or in addition to) cap-and-trade proposals. Even when that changed, little or no context was provided about possible uses of the revenues. Asking “do you support a carbon tax?” without at least hinting at possible revenue uses was akin to asking “Where should we land this punch?”

A revenue-neutral carbon tax, in which all tax revenue would be returned to the public as a rebate check ["dividend"], receives 56% support. The largest gains in support [relative to opinion on a carbon tax w/o revenue mention] come from Republicans.

A revenue-neutral carbon tax, in which all tax revenue would be returned to the public as a rebate check ["dividend"], receives 56% support. The largest gains in support [relative to opinion on a carbon tax w/o revenue mention] come from Republicans.

Happily, a poll released yesterday by researchers at the University of Michigan breaks the mold. Here’s their abstract:

Conventional wisdom holds that a carbon tax is a political non-starter. However, results from the latest version of the National Surveys on Energy and Environment (NSEE) provide evidence of substantial public support for a tax on the carbon content of different fossil fuels when specific uses of tax revenue are attached. A majority of respondents support a revenue-neutral carbon tax, and an even larger majority support a carbon tax with revenues used to fund research and development for renewable energy programs. The carbon tax coupled with renewable energy research earns majority support across all political categories, including a narrow majority of Republicans. These findings generally confirm previous NSEE results when revenue use options are linked to carbon taxation. These are among the latest findings from the Spring 2014 NSEE [National Survey on Energy and Environment] from the Center for Local, State, and Urban Policy at the University of Michigan and the Muhlenberg College Institute of Public Opinion. (Click here for source; emphases added.)

The Center’s press release on the new survey follows, printed in full.

FOR IMMEDIATE RELEASE — Public Views on a Carbon Tax Depend on the Proposed Use of Revenue, from the National Surveys on Energy and Environment (NSEE) / Press Release /July 21, 2014
Read more…

On the Latest Distraction from Carbon-Taxing: “Carbon Budgets”

July 8, 2014 by Charles Komanoff Comments (3)

Over the Fourth of July holiday, Lorna Salzman forwarded me half-a-dozen emails about “global carbon budgets” that had been posted to an informal list-serve of U.S. and U.K. climate advotes. Lorna and I have been friends and colleagues since 1974; she may have been the first person to take seriously my interest in carbon taxing, circa 2003, and her encouragement had a lot to do with my starting the Carbon Tax Center several years later and more recently to my ramping up my involvement in CTC. This morning I posted the following response.

I have four points:

1. I’m flat-out befuddled by the interest from some in this group in “carbon budgets,” whether national, global or whatnot. I think they’re a dead end politically as well as a dodge scientifically.

The author, 40 miles from his lower-Manhattan home (2012 photo).

The author, 40 miles from his lower-Manhattan home (2012 photo).

Why a dead end? Because nations cannot and will not agree on who should be allowed to consume and emit how much carbon pollution. Because devilish “details” like offshoring will inevitably confound any negotiations. Ditto, population growth, which will require continual dynamic adjustments to national shares.

Why a dodge? Because every link in the emissions-to-catastrophe chain is riven with uncertainty. We don’t know with great precision what level of emissions will lead to any level of warming. We don’t know what level of warming will be catastrophic. There isn’t even agreement on what “catastrophe” is.

What we can agree on is that (i) any feasible level of emission reduction is insufficient, and (ii) deeper reductions are better than shallow ones. These facts are irreconcilable with carbon budgets.

2. A carbon tax must be at the center of any effective policy to rein in emissions. It’s folly to think that regulations (even enlightened ones) and/or clean-energy subsidies (even efficient ones) and/or public-sector mobilization such as by the Allies to win World War II can ever push back comprehensively against the massive tide of cheap fossil fuels (that is: cheap sans a price for their climate damage). Read more…

Cantor’s Defeat Won’t Change Much on Climate

June 13, 2014 by Charles Komanoff Comments (0)

Washington is still abuzz with the surprise defeat of House Majority Leader Eric Cantor in this week’s Virginia Republican primaries. We asked former U.S. Under Secretary of Commerce for Economic Affairs Rob Shapiro to comment. Rob, the co-founder and chairman of Sonecon, LLC, an advisory firm that analyzes changing national and world economic and political conditions and their relationship to government policies, is a member of CTC’s board of directors. — C.K.

Rep. Eric Cantor addressing the 2013 Conservative Political Action Committee. Photo: Gage Skidmore

Rep. Eric Cantor addressing the 2013 Conservative Political Action Committee. Photo: Gage Skidmore

Following Eric Cantor’s unceremonious primary loss, a carbon-tax climate program remains hostage to the divisions cracking apart the Republican Party. Majority Whip Kevin McCarthy, who represents Bakersfield and the southernmost part of California’s San Joaquin Valley, almost certainly will succeed Cantor as House Majority Leader, with no discernible difference in the GOP’s stance on climate or anything else.

Some pundits insist that Cantor’s defeat will make establishment Republicans more sensitive to Tea Party activists. But apart from raising the debt ceiling to avoid an economically (and politically) catastrophic debt default, when have the GOP’s traditionalists stood up to their ideological fringe on any significant issue? With even once-stalwart Republican supporters of climate reform sidling towards the caucus of climate-change-deniers, serious reforms that require Congress’ approval will attract little if any support from any Republican. Read more…

Next to Nothing for Climate in Obama Plan

June 2, 2014 by Charles Komanoff Comments (19)

The Environmental Protection Agency will unveil a draft proposal on Monday to cut carbon pollution from the nation’s power plants 30 percent from 2005 levels by 2030, according to people briefed on the plan. The proposed rule amounts to one of the strongest actions ever taken by the United States government to fight climate change. (emphasis added)

That’s this morning’s breaking news on President Obama’s climate action plan, from NY Times national energy-climate correspondent Coral Davenport. Yet peel back the numbers and the plan turns out to be precious little.

Relative to 2030 emissions projected from current trends, the drop in that year’s U.S. CO2 emissions sought by the President is a painfully modest 355 million tonnes (metric tons). That equates to just 7% of total actual emissions from all sources last year (5313 million tonnes).

White House’s 2030 CO2 Reduction Target: Just 7 Percent.

To be sure, the business-as-usual (no action) trajectory producing that 355 million tonne figure is mine, not the administration’s. (At the time I wrote this the White House hadn’t translated its percentage target into metric tons of CO2.) Read more…