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


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 clearly.

Global warming not happening? Look again.
Global warming not happening? Look again.

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, re-shape 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.
EPA power plant rule can't hold a candle to economy-wide CO2 charge.

EPA power plant rule can’t hold a candle to an economy-wide CO2 charge.

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Climate Idealism Can’t Hold a Candle to Collective Action

March 30, 2015 by Charles Komanoff Comments (0)

Why do Copenhageners ride bicycles? The key reason, says Yale economist and best-selling author (“Irrational Exuberance”) Robert J. Shiller, is that Danes are idealists who resolved, after the oil crisis of the 1970s, “to make a personal commitment to ride bicycles rather than drive, out of moral principle, even if that was inconvenient for them.”

“The sight of so many others riding bikes motivated the city’s inhabitants and appears to have improved the moral atmosphere enough,” Shiller wrote in yesterday’s New York Times, that the share of working inhabitants of Copenhagen who bike has reached 50 percent.

From “Copenhagen: City of Cyclists” (2010), a report by the City of Copenhagen.

From “Copenhagen: City of Cyclists” (2010), a report by the City of Copenhagen.

In much the same way, Shiller argues, “asking people to volunteer to save our climate by taking many small, individual actions” may be a more effective way to bring down carbon emissions than trying to enact overarching national or global policies such as carbon emission caps or taxes.

Goodness. Rarely do smart people so badly mangle both the historical record and basic economics this thoroughly. I say “people” because Shiller attributes his column’s main points to a new book, “Climate Shock: The Economic Consequences of a Hotter Planet” by Gernot Wagner of the Environmental Defense Fund and Martin L. Weitzman, a Harvard economist. And I say “smart” because the three stand at the top of their profession. Shiller won the Economics Nobel in 2013, Weitzman is a leading light in the economics of climate change, and Wagner is highly regarded young economist.

But mangle they have (I haven’t seen the Wagner-Weitzman book but assume that Shiller represents it fairly).

Let’s start with the history, which is fairly well known to anyone versed in cycling advocacy, as I’ve been since the 1980s, when I spearheaded the revival of New York City’s bike-advocacy group Transportation Alternatives (as recounted here.) Copenhagen’s 40-year bicycle upsurge, and indeed much of the uptake of cycling across Denmark, Germany and the Netherlands, came about not through mass idealism but from deliberate public policies to help cities avoid the damages of pervasive automobile use while reducing oil dependence.

If idealism played a part at the outset it was a social idealism that instructed government to undertake integrated policies ­― stiff gas taxes and car ownership fees; generously funded public transit; elimination of free curbside parking; provision of safe and abundant bicycle routes ― that enabled Copenhageners to do what they evidently desired all along: to use bikes safely and naturally.

The telltale is in the graphic. Only one in nine Copenhageners who cycle have environment and climate in mind. The majority do it because it’s faster than other ways to travel, and around a third of cyclists say they ride because it’s healthy, inexpensive and convenient ― belying Shiller’s meme of Danes idealistically choosing bikes despite their inconvenience vis-à-vis cars.

The mangling of economics, meanwhile, is baked into the very idea of “Putting Idealism to Work on Climate Change,” as Shiller titled his article. Expecting more than a small fraction of humanity to place deals above convenience and economy has to qualify as magical thinking under current social and economic arrangements. Market failures simply won’t allow it. Unpriced externalities, whereby carbon emitters get to pollute for free, in effect make it expensive to move off fossil fuels. The prevalence of free riders, whereby your emissions reductions benefit me and every other person as much as yourself, is a further disincentive.

Shiller touched on externalities and free riders, but only in passing. Perhaps they didn’t fit his narrative centered on Wagner and Weitzman’s “Copenhagen Theory of Change, [by which] we should be asking people to volunteer to save our climate by taking many small, individual actions.”

One wonders if any of the three economists studied the actual evolution of cycling in Copenhagen before coining that term. Did they talk with Copenhagen officials, who might have cautioned them that the individual’s decision to cycle depends on social constructions such as elaborate and continuous bike lane networks, ample and convenient bike parking, and a traffic justice system that holds reckless drivers accountable, and who could have explained that bicycle infrastructure works best in conjunction with policies to raise the price of urban driving closer to its social cost? Did they learn that the citizenry has to clamor for these measures to neutralize the inevitable opposition from car-owners and auto interests?

Concerning climate, recognition appears to be growing, if slowly, that carbon pricing, ideally delivered through transparent and robustly rising carbon taxes, is essential to correct the market failures that Shiller mentioned. The individual actions Shiller touts are important. I practice them and I constantly beseech everyone around me to try and do the same. But even more important are collective policies, like carbon taxing, that can make those individual actions possible and natural. That’s the only way our and other societies will succeed at pushing out carbon-emitting fossil fuels in favor of renewable energy and efficient use.

Big thanks for assistance on this post to Jon Orcutt, who as senior policy advisor to DOT Commissioner Janette Sadik-Khan engineered the extraordinary expansion of NYC’s bicycle infrastructure during 2007-2014.

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For Bioenergy, Mandates and Subsidies Trump even Carbon Taxes

March 26, 2015 by James Handley Comments (0)

The Carbon Tax Center is often asked why a carbon tax is needed; wouldn’t removing tax subsidies be sufficient to let efficiency and renewables compete on even terms with fossil fuels?

Our stock answer is that the subsidies the tax code confers on fossil fuels (as well as on some other extractive industries) are peanuts compared to their environmental subsidies, especially free dumping of CO2 into the atmosphere. The needed market corrective is huge and can come about only via a significant tax on carbon pollution.

Ethanol refinery

Ethanol production has always been energy-intensive

But bioenergy presents a starkly different picture. As recently as a decade ago, bioenergy sources — biofuels for transportation and biomass for electricity — seemed to have gained full-fledged membership in the “renewable energy club” along with wind, solar, small hydro and geothermal energy. To boost bioenergy production, Congress endowed biofuels with subsidies that now amount to about $1 per gallon of ethanol and $2 per gallon of biodiesel.

Congress also enacted mandates that, if left in place, will compel a tripling of U.S. biofuel output by 2022. Biomass for electricity generation is also poised to gain a huge boost if the final version of EPA’s Clean Power Plan carries over a longstanding but highly questionable assumption that biomass burning is “carbon-neutral.”

Since that honeymoon, closer scrutiny of bioenergy’s lifecycle emissions has been revealing a complicated and far less promising picture. Biofuel production typically involves substantial fossil fuel inputs. Moreover, biofuel mandates and subsidies tend to push land out of other carbon-sequestering uses including food production. And closer study of biomass burning is calling into question the “carbon-neutral” assumption: that growing wood or other biomass captures the same amount of CO2 that subsequent burning for electricity generation releases.

We discuss these issues in detail — and with abundant links to the key literature — in our new “Carbon-Taxing Biofuels” page. While our views are still evolving, we think it’s clear that removing bioenergy subsidies and mandates and preventing EPA from letting electricity generators claim credit for biomass as carbon-neutral would do more to internalize the climate costs of bioenergy than even a hefty carbon tax.

It’s a thorny issue that will only grow more important. Take a look at our new page and let us know what you think.

Photo: Iowa State University Extension Service

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One Cheer for the Guardian’s Divestment Campaign

March 18, 2015 by James Handley Comments (4)

The worldwide fossil fuel divestment campaign got a huge boost this week when Guardian editor Alan Rusbridger boldly thrust his paper into the fray. Britain’s most respected newspaper is urging readers to sign a petition by 350.org demanding that the Gates Foundation and the Wellcome Charitable Trust divest from the world’s top 200 fossil fuel companies within five years.

Divestment can’t loosen the fossil fuel stranglehold without a carbon tax.

Combined, the two charities manage over $70 billion in assets. Both say they consider climate change a  serious threat. But last year the Gates Foundation invested at least $1 billion of its holdings in 35 of the top 200 carbon reserve companies, while the Wellcome Trust invested $834 million in fuel-industry mainstays Shell, BP, Schlumberger, Rio Tinto and BHP Billiton.

We’re both elated and concerned by Rusbridger’s audacious move. Elated that this distinguished and brave journalist has thrown down the gauntlet to the global fossil fuel industry. But concerned that this divestment campaign may raise false hopes.

As Matthew Yglesias articulated last year in a thoughtful piece on Slate, divestment by socially responsible investors, universities and even governments won’t starve capital flows to fossil fuel corporations anytime soon. That’s because in a global market, every share of stock we activists dutifully unload will be snatched up in milliseconds by some trader who can bank on humanity’s continued dependence on fossil fuels to continue generating profits.

South Africa’s historic divestment campaign — the one that helped topple Apartheid and enshrined divestment as a tool against oppression  — was paired with a UN-sponsored boycott of South African goods. Not just aiming at the supply of capital but destroying the demand for goods sheared the Apartheid regime’s economic lifeline to the rest of the world more than either policy could have done alone.

No, we’re not suggesting a global boycott of fossil fuels. Rather, we point to the Guardian’s campaign to reiterate that the best and maybe only broadly effective way to reduce fossil fuel demand (which is the point of a boycott) is with a carbon tax. Economists agree on that policy prescription just as strongly as climate scientists agree on the diagnosis. And national-level carbon taxes can be designed to draw our or any nation’s global trading partners into carbon taxing, which means that a move by a big economy to impose a carbon tax will trigger a wave of followers.

So by all means, divest. The cultural and perhaps political opprobrium that divestment can spark is long overdue for the fossil fuels industry. But let’s not assume that divestment alone will break the chains of fossil fuel dependence. Even with the Guardian’s welcome campaign, the world still needs a transparent price on carbon pollution to strangle demand for fossil fuels by replacing them with non-carbon alternatives.

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British Columbia’s Carbon Tax Architects Speak

March 3, 2015 by James Handley Comments (6)

A new report from a British Columbia think tank reveals the inside story behind B.C.’s successful tax on CO2 pollution. “How to Adopt a Winning Carbon Price, Top Ten Takeaways from Interviews with the Architects of British Columbia’s Carbon Tax,” published by Clean Energy Canada, draws on extensive interviews with senior government officials, elected representatives and a broad range of experts who helped shape or respond to this groundbreaking policy.

BC C-TX RPT CVRBritish Columbia inaugurated its carbon tax on July 1, 2008 at a rate of $10 (Canadian) per metric ton (“tonne”) of carbon dioxide released from coal, oil and natural gas burned in the province. The tax incremented by $5/tonne annually, reaching its current level of $30 per tonne of CO2 in July 2012. At the current U.S.-Canadian dollar exchange rate (1.00/0.80), and converting from tonnes to short tons, the B.C. tax now equates to around $22 (U.S.) per ton of CO2.

In the tax’s initial four years (2008 to 2012), CO2 emissions from fuel combustion in British Columbia fell 5% — or 9% per capita, considering the province’s 4.5% population growth over that span. [NB: These figures are revised downward from the original version of this post; see editor’s note at end.] During the same period, emissions from the rest of Canada increased slightly. Revenue from the tax has funded more than a billion dollars worth of cuts in individual and business taxes annually, while a tax credit protects low-income households who might not benefit from the tax cuts. Read more…

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Why is Naomi Klein So Cool on a Carbon Tax?

February 13, 2015 by Daniel Lazare Comments (14)

(Daniel Lazare is a writer living in New York City; his books include The Frozen Republic, The Velvet Coup, and America’s Undeclared War.)

Naomi Klein is not exactly bubbling over with enthusiasm about a carbon tax, and since she has emerged as a leading voice on climate change, it’s worth exploring why. She barely mentions the topic in This Changes Everything: Capitalism vs. The Climate, her magnum opus on global warming, and was oddly dismissive in a recent interview with Grist. “I don’t think a carbon tax is a silver bullet,” she said, “but I think a progressively designed carbon tax is part of a slate of policies that we need to make this transition … [to] rapid renewables.” But then she went on to disparage the analysis that is at the core of the carbon-tax argument:

You know, I’ve been making these arguments around economics, but there is nothing more powerful than a values-based argument. We’re not going to win this as bean counters. We can’t beat the bean counters at their own game. We’re going to win this because this is an issue of values, human rights, right and wrong. We just have this brief period where we also have to have some nice stats that we can wield, but we shouldn’t lose sight of the fact that what actually moves people’s hearts are the arguments based on the value of life.

So on one hand we have economics, the stuff of “bean counters” and other bloodless sorts, while on the other we have values and morality. A carbon tax would be beneficial, but since we will never beat the economic analysts on their own turf, there’s no point even trying. Instead, we should concentrate on things that stir the soul, such as human rights.

Naomi Klein: Why is she so cool on taxing carbon pollution?

Naomi Klein: Why is she so cool on taxing carbon pollution?

Or so Klein maintains. But there’s something off-putting about such arguments. The distinction between economic analysis and morality, for instance, smacks of anti-intellectualism. Not only are head and heart separate and distinct in Klein’s world, but there’s no question as to which is on top. But her view of a carbon tax is also incorrect. It’s not for bean counters only. Like any real-world phenomenon, a carbon tax is multi-dimensional, which means that it has not only an economic component but a political and moral aspect as well.

How so? Everyone knows what the purpose of a carbon tax is. It’s to internalize the externalities, to take the growing costs associated with fossil fuels and bundle them into the price of such fuels so that the individuals using them have a more accurate idea of how much a specific activity truly costs. When drivers understand how expensive gasoline really is when all the attendant costs are taken into account, then they’ll treat it with the respect it deserves.

This is the sort of economic wonkery that no doubt leaves Klein cold. But it is not only an economic argument. Externalities include not only environmental and congestion costs and the like, but such items as the cost of insuring an uninterrupted flow of oil from the Persian Gulf. Expenditures like these aren’t trivial, needless to say. Indeed, one study published in Energy Policy puts them at a stunning $7 trillion for the years 1976-2007, not including the Iraq War, which, according to Joseph Stiglitz and Linda Bilmes, may wind up costing $3 trillion more. Read more…

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