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.

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 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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Book Review: “Climate Shock”

May 26, 2015 by Rachael Sotos Comments (4)

Rachael Sotos is a political theorist and adjunct professor with a background in philosophy, classics and environmental studies.

Climate Shock: The Economic Consequences of a Hotter Planet, is both a tidy summation of the state of the art in climate economics and a powerful call for action. For all the uncertainties and challenges, “the overall policy framework needed for addressing climate change is clear and has been for decades,” state co-authors Gernot Wagner and Martin L. Weitzman (p. 23). “Carbon dioxide is the problem. Pricing it properly is the solution.”(38)

climate shock coverWagner, a senior economist at the Environmental Defense Fund, and Weitzman, a celebrated economist at Harvard, are an intriguing blend of young and elder, and realist and idealist. They exhort economists and climate advocates to get past the “epic debates” between taxes and cap-and-trade and, while consensus builds toward carbon pricing, to engage in the work required for “second -, third-, and fourth-best solutions”(26): electricity grid reform, stronger CAFE standards, and strategic application of subsidies and U.S. EPA regulations. “At the very least,” they say, “these regulations could provide a real bargaining chip when it comes to U.S. Congress considering comprehensive climate policy and a direct price on carbon down the line.”(19).

Flying their Pigovian colors from Preface to Epilogue, the authors are emphatic and unambiguous; “Putting a proper price on carbon isn’t a question of if, it’s a question of when.(xi) Our best hope is “a high enough price on carbon to reflect its true cost to society.”(152)

Unfortunately, the bracing clarity of Climate Shock appears to have been lost on some reviewers. Earlier this month, NY Times columnist Joe Nocera misconstrued Wagner and Weitzman’s extensive discussion of geo-engineering as surrender to the political obstacles to carbon pricing. On Nocera’s reading, insofar as “a carbon tax on the worst emitters has gotten nowhere,” it’s time for Plan B: “chemo for the planet.” Au contraire, Wagner and Weitzman do not delve into geo-engineering scenarios like sulfates dispersal in lieu of ambitious policies to reduce emissions. Rather, they insist, “the specter of geo-engineering should be a clarion call for action. Decisive, and soon.”(29)

If Nocera reconfigured Wagner and Weitzman to suit his own techno-utopian ends, Yale Nobel economist Robert J. Shiller, also in the Times, willfully invested Climate Shock with libertarian designs. Directly contravening the thoughtful and informative discussion of social change presented in Climate Shock (and previously thematized in Wagner’s 2011 But Will the Planet Notice?), Shiller proposed idealistically-motivated incrementalism as a way around Kyoto’s failure “to impose strict taxes on carbon emissions.”

According to Shiller, Wagner and Weitzman “say that we should be asking people to save our climate by taking many small, individual actions.” Climate Shock actually says the opposite: “the numbers don’t add up. They’ll only begin to add up when environmentalists use their collective political powers to move the policy needle in the right direction, toward a price on carbon.”(40) (See also CTC director Charles Komanoff’s recent takedown of Shiller’s piece in regard to both facts and theory.)

Shiller’s misreading is doubly unfortunate because, as Wagner and Weitzman point out, the imperative to seriously engage policy must be directed toward average citizens, “those in the middle of the political spectrum,” as well as those already conversant with climate economics.(136) Certainly we should all do what we can to encourage virtuous cycles of ethical engagement and political participation – “Recycling well leads to better environmental policies, which allow for a more environmentally enlightened citizenry; a more enlightened citizenry, in turn, leads to more people recycling well.”(132)

"Climate Shock" authors Martin Weitzman (left) and Gernot Wagner.

“Climate Shock” authors Martin Weitzman (left) and Gernot Wagner.

Indeed. But, as Wagner and Weitzman are right to remind: in a greenwashed world seemingly structured to distract and misinform the average person, the most virtuous deeds can dead end. In the practical economics of everyday life, single actions sometimes crowd out other forms of engagement: “when people substitute single, individual actions – like recycling – for larger policy actions – like voting.”(133) Pigovians from start to finish, Wagner and Weitzman are emphatic: “if you have to make a choice between recycling and voting for a price on carbon, choose voting.”(137)

Yet another review, this one by Yale economist William D. Nordhaus in the current New York Review of Books, is notable on several grounds, not least of which is Nordhaus’s outsized reputation as a pioneering climate economist and modeler. Respectful in tone, Nordhaus engages of Climate Shock’s discussions of geo-engineering, the economics of uncertainty and the pitfalls of negotiating climate treaties. Strangely, however, Nordhaus takes up Weitzman’s path-breaking analyses of catastrophic risk without acknowledging any critiques of his own perennially optimistic approach.
Read more…


Arctic Oil vs. Carbon Tax? It’s Not Even Close.

May 20, 2015 by Charles Komanoff Comments (4)

It is true that the stroke of the presidential pen with which Barack Obama last week granted Shell Oil Corp. permission to drill off Alaska’s Arctic Coast cannot also put into force a U.S. carbon tax, without authorization by Congress. And it is all too possible that when climate reality eventually sweeps over the Capitol, the resulting carbon tax may be modest in scale and take a lot longer than a decade to reach the $100/ton level that would drive massive reductions in fossil fuel use and CO2 emissions.

All the same, it’s instructive to compare the capacity of Arctic drilling to supply oil with that of a robust carbon tax to quench the need for it. The outcome — the carbon tax wins — may not surprise. But the lopsidedness is startling: in just its tenth year, the carbon tax proposed last November by Rep. Jim McDermott (D-WA), starting at $12.50 per metric ton of carbon dioxide and rising annually by $12.50 as well, would be eliminating the need for oil at around a dozen times the rate at which Shell would be pulling the stuff from the Arctic.

Oil savings from a robust carbon tax dwarf oil "gains" from Arctic drilling.

Oil savings from a robust carbon tax dwarf oil “gains” from Arctic drilling.

Here are the numbers:

♦ Royal Dutch Shell’s Chukchi Sea project is projected by the U.S. Bureau of Ocean Energy Management to extract 4.3 billion barrels of crude over a 44-year period. (See Chukchi Sea Oil & Gas Lease Sale 193 Draft Second Supplemental Environmental Impact Statement, Volume 1 [pdf]; go to pp. 6 or 62 or 182 of 694.) This equates to daily production of 268,000 barrels. An estimated 2.2 trillion cubic feet of methane (natural gas) would be extracted as well; on a btu basis that equates to 360 million barrels of oil, or 23,000 barrels a day. Combined extraction of hydrocarbons is then around 290,000 barrels a day. (Note that we have not netted the energy expended to “discover,” extract and transport the oil.)

♦ For the carbon tax, we modeled McDermott’s Managed Carbon Price Act of 2014, setting the annual increases as the midpoint between the bill’s floor and ceiling prices. The price per U.S. (not metric) ton of CO2 in the tenth year, 2024, is $113.40. (Our model, which we’ll update soon, had the tax starting in 2015.) As indicated in the graph, the reductions in petroleum requirements would be substantial in every consuming sector. They sum to 3,486,000 barrels a day — 12 times the 290,000 bpd equivalent anticipated from Shell’s Arctic venture.

The estimated oil savings from the McDermott carbon tax amount to nearly one-fifth of U.S. oil consumption in both 2013 (the last data year in our model) and 2024 projected without a national carbon price. The biggest reduction in absolute terms is in what we call personal ground travel (chiefly driving), which dominates petroleum use. But on a proportional basis the savings would be greater in commercial sectors such as freight movement, oil refining, and construction, as the unmistakable price signal from the annually rising tax drives innovation enabling lower usage.

Still, the projected reduction in gasoline consumption for personal ground travel in 2024, 1.4 to 1.5 million barrels per day, commands attention. Read more…


Harvard Economist Charts Escape From Kyoto

May 5, 2015 by James Handley Comments (2)

[T]he quantity-based Kyoto-type approach [to UN climate negotiations] has pretty much broken down, leaving the world with a highly non-optimal patchwork of sporadic regional volunteerism that does not address centrally how to correct the critical externality of global warming.  — Harvard economist Martin Weitzman.

Which is simpler: negotiating one price, or 190 emissions caps?

The Kyoto Protocol is broken. What can replace it? Professor Weitzman, considered one of the world’s most influential economists, proposes a game change: Instead of squabbling over the quantity of fossil fuels each nation may burn, negotiate a single carbon price all can adhere to.

Weitzman is best known for modelling the economics of catastrophic climate change. In a ground-breaking 2009 paper, he demonstrated that conventional cost-benefit analysis under-weights the risk of catastrophic scenarios. In two new papers, he scrutinizes the Kyoto Protocol’s quantity-based structure through the lens of game theory. He calls Kyoto’s attempt to set and divvy up a global emissions cap “the ultimate… top-down worldwide treaty.” That’s not a compliment. Observing that Kyoto hasn’t come close to its goal of “an internationally harmonized binding system of emissions caps,” Weitzman shows why: the Kyoto framework induces each nation to game the system by attempting to maximize the efforts required of others while minimizing its own.

Weitzman lays out three criteria for an effective global emissions reduction system:

1. It should induce cost-effective emissions reductions.

2. It should allow negotiators to focus on negotiating one central and highly salient parameter.

3. It should align negotiators’ incentives toward internalizing climate costs.

On the first criterion, Weitzman points out that while a carbon tax is more easily administered and more transparent than a cap-and-trade system, a carbon cap or a tax can both achieve cost-effective emissions reductions.

On the second, Weitzman builds on Nobel-laureate Thomas Schelling’s pioneering game theory analysis establishing the importance of a clear focal point in negotiations. Kyoto’s quantity-based approach assigning different binding emissions quotas to each nation has no focal point. In contrast, a price-based negotiation offers a single focal point for all parties.

And building on the seminal work of Ronald Coase, Weitzman stresses the importance of minimizing transactions costs. Coase showed that parties that might otherwise negotiate an agreement can be deterred by the high costs of getting to yes. Weitzman points out that any quantity-based structure such as Kyoto necessarily multiplies transaction costs: “It is easier to negotiate one price than n quantities — especially when the one price can be interpreted as ‘fair’ in terms of equality of effort,” he writes.

The bulk of Weitzman’s analysis focuses on his third and most important criterion: the need to negotiate a structure that counteracts parties’ national self-interests and aligns their incentives toward reducing emissions. Read more…


A Carbon Tax Can Carry Earth Day’s Legacy

April 22, 2015 by Charles Komanoff Comments (0)

In 1970 I was teaching math in a New York City suburb. On Earth Day I stood at a highway off-ramp with members of the high school ecology club. One of their signs read, “The Earth is a Closed Garage.” Another said, “Make Polluters Pay.”

There’s been some progress since then. Breathing New York’s air, once equated to smoking two packs of cigarettes a day, is many times safer. Wind turbines now provide five percent of the nation’s power, and electricity produced with solar cells rose ten-fold in the past three years. Driving has flatlined nationwide over the past decade, partly because Americans are strapped but also because the intoxication with cars is wearing off.

That’s great news for the environment, but it’s not nearly enough for climate. CO2 levels are still rising inexorably. Ditto global temperatures, polar ice melting and extreme weather. Emissions need to be cut radically even as seven-and-a-half billion people strive for prosperity.

For that to happen, prices of fossil fuels have to reflect the climate costs of carbon pollution. The way to do this, of course, is with carbon taxes:

To demystify carbon taxes and showcase their appeal, we’re rolling out the Carbon Tax Center’s first video. It explains how a carbon tax will transform investment, re-shape consumption and sharply reduce carbon emissions. As the video shows, no other policy can match its reach or simplicity. No other policy can be replicated globally, from China to Chile to Chad.

A carbon tax is no mere “technical fix.” It’s both a symbol and a means for us to respect nature and each other.

The central messages on Earth Day 1970 were to abide by nature’s limits and make polluters pay. On this Earth Day, let’s spread the word about a carbon tax. Let’s educate and organize so that the U.S. and other nations make taxing carbon the central policy to combat catastrophic climate change and sustain the Earth we love.


Carbon Tax Polling Milestone: 2/3 Support if Revenue-Neutral

April 15, 2015 by Charles Komanoff Comments (12)

For more years than I care to count, the Carbon Tax Center beseeched pollsters to take Americans’ temperature on revenue-neutral carbon taxes. Time and again we explained that polling about carbon taxes had to incorporate the option of returning revenues to households ― as most carbon tax bills would do. Otherwise, the tax came off as all stick and no carrot, and about as appealing to most folks as a cold shower.

Finally, a Stanford University-Resources for the Future poll asked that question. The results, released today, show that two-thirds of Americans support making corporations pay a price for carbon pollution, provided the revenues are redistributed, i.e., made revenue-neutral. The poll’s finding is the most powerful indication yet that the public is warming to carbon taxation as the premier policy for combating climate change.

Poll-Graphic-Pie-Chart-AltStanford and RFF commissioned the polling firm SSRS to interview 1,023 U.S. adults on climate-related issues in January. Two findings from the poll — that Americans of Hispanic descent are particularly climate-concerned, and that half of Republicans would favor a presidential candidate who supports fighting climate change — led to front-page New York Times stories. (Click here for the story on Hispanics and here for the story on Republicans.) The full poll was made publicly available today at a briefing at the National Press Club in Washington.

The poll was supervised by RFF university fellow Jon Krosnick, who has been polling Americans on climate change for two decades as head of Stanford’s Political Psychology Research Group. Its section on carbon taxation included these two questions: Read more…