Carbon Tax Center

We Explain Gasoline Demand (including why it’s sticky)

05/12/2008 by Charles Komanoff

With gas at $3.50 a gallon in April, the U.S. mainstream media is replete with stories of drivers abandoning SUV’s, hopping on mass transit, and otherwise cutting back on gasoline. Yet a year or two ago, when pump prices were approaching and even passing the $3.00 “barrier,” the media mantra was that demand for gasoline was so inelastic that high prices were barely making a dent in usage.

Which story is correct? We lean toward the more “elastic” view, and here we’d like to share some of the data that inform our belief.

I’ve been tracking official monthly data on U.S. gasoline consumption for the past five years, and compiling the numbers in this spreadsheet. You’ll find that it parses the data in several different ways: year-on-year monthly comparisons (say, March 2008 vs. March 2007); three-month moving averages that smooth out most of the random variations in reporting; and full-year comparisons that allow a bird’s-eye view.

Here’s what we see in the data:

1. Gasoline demand is trending downward, though only slightly. In the 49 year-on-year comparisons, monthly gasoline use dipped below the year-earlier level only eight times, but these include each of the last five months (see Moving Avgs worksheet).
2. Gasoline’s short-run price-elasticity is rising. After a low of -0.04 in 2004, the short-run price-elasticity increased to -0.08 in 2005, -0.12 in 2006 and -0.16 in 2007. (I assume an “income-elasticity” of two-thirds in calculating price-elasticity; see Full Years worksheet.)
3. A big reason that gasoline use kept rising until recently was the growing economy. Demand is heavily affected by economic activity. The minimum year-on-year GDP growth for any month in all four years was plus 1.7% (see Moving Avgs worksheet).
4. Another reason gasoline demand was slow to drop is that the price signal, while significant, was less than advertised. Adjusted for general inflation, the average 2007 pump price was only 54% higher than the 2003 price. Amid all the talk of a doubling or even tripling in gas prices, it's sobering to learn that you have to go all the way back to 1998 to find the last year that the real price was just half the 2007 price.
5. The biggest market barrier of all may have been gasoline price volatility. The spreadsheet spans 63 months, allowing 62 month-to-month comparisons. In 29 of these, the price went down (see 1-yr comparison worksheet). That’s right: the average gasoline price was less than the prior month’s an astounding 47 percent of the time (see graph). Pump prices have been so volatile that consumers didn’t know whether the price three months later would be up or down. The result? American families and automakers alike found it hard to justify long-term investments in more-efficient cars. And allied policies like de-subsidizing sprawl didn’t get taken seriously.
6. Nevertheless, gas prices have now risen five years in a row and are virtually certain this year to chalk up a sixth. There hasn’t been a comparable period of sustained increases since the late 1970s.

The big takeaway for carbon taxes is that the short-run price-elasticity of gasoline demand is rising (Point #2). (The long-run price-elasticity is probably around minus 0.4, as we discuss here.) While a rising elasticity contradicts the standard economic model in which price-sensitivities don’t change much over time, Point #5 provides a reasonable explanation: gasoline prices (and energy prices in general) had fluctuated so wildly for decades, and a sense of entitlement to cheap gasoline had become so ingrained in American society, that it took a long time for households and businesses to internalize the rise in pump prices — to regard it as real.

Perhaps now, however, a line has been crossed. Maybe the trigger was the price of crude breaching $100 a barrel, or the unspooling credit crisis signaling a fundamental change in the U.S. economy. Or it may simply have been the accumulating weight of price increases noted in Point #6. Whatever the reason(s), Americans seem, finally, to be getting the message that higher gas prices are here to stay.

That’s good news for the climate, national security, and green jobs. But bitter medicine for hard-pressed families as well as business and jobs that aren’t oil-intensive but are being pulled under by gasoline-caused belt-tightening. Imagine if the price rises had been delivered not by a rapacious market but via socially determined ramped-up increases in the gasoline tax (as some commentators have proposed since the 1970s, including, with renewed urgency, after 9/11).

Americans would have had time to adapt, along with real choices such as truly fuel-efficient cars and smaller houses in more-compact developments. And the extra revenues from the higher-priced gasoline would have belonged to all of us rather than just the owners of oil reserves. Those revenues could have been returned to households and businesses via tax-shifts or dividends, and not skimmed off for private enrichment.

The analogy to a revenue-neutral carbon tax couldn’t be more clear.

New Canadian Poll Shows Strong Support for Carbon Tax

05/9/2008 by Daniel Rosenblum

Carbon taxes having been getting much more attention in the Canadian press than they have in the United States. And familiarity with the concept of a carbon tax appears to produce support.

A Canadian Press Harris/Decima poll released last week revealed strong support for "a carbon tax levied on people and businesses based on the carbon emissions they generate," with 61% supporting such a tax and 32% opposed.

The poll showed even greater support for "an environmental tax refund paid to those who succeed in reducing their use of fossil fuels, electricity, water and the amount of garbage they produce," with 80% support and only 16% opposition.

According to Harris/Decima President Bruce Anderson, the basic concept of a carbon tax becomes more popular:

when the focus is on the broader aspects of our environmental footprint, not just carbon, when it is clear that the money raised would be used to incent environmental improvement, when the idea is that those who are taxed are those who aren’t trying, and when there is a signal that environmentally thoughtful behaviour will be rewarded." (Emphasis added.)

Rewarding the "thoughtful behavior" may explain the greater support offered for the "environmental tax refund" compared to the "carbon tax" poll question. Anderson concludes:

The central concept, of taxing particularly harmful behavior, and rewarding the opposite, is a potential political winner for the party that can get it right and describe it clearly. The tag "carbon tax" and the term "revenue neutral", from a political communications standpoint, are not ideal starting points, as communications go.

We agree with Anderson's conclusion that "taxing particularly harmful behavior, and rewarding the opposite" -- precisely what a revenue-neutral carbon tax is designed to do -- is a potential political winner.

We intend to give more thought to his political communications point and whether there is a better way to frame the case for a revenue-neutral carbon tax. Ideas?

Photo: Flickr / champy1013

UPDATE - May 11 - The Canadian Press reported today on unsubstantiated rumors that the Liberal Party's pollster has found far less favorable views about carbon tax when respondents were given details of British Columbia's carbon tax plan. According to the rumors, "the poll found 30 per cent strongly opposed to the idea and 12 per cent somewhat opposed, compared to 23 per cent strongly supportive and 25 per cent somewhat supportive." Based upon Anderson's conclusion above and assuming the rumored poll results are accurate, the Liberal Party pollster's results might have been more favorable had he avoided use of the terms "carbon tax" and "revenue-neutral."

Indiana and North Carolina Voters Reject Gas Tax Holiday, Open Door to Consideration of Revenue-Neutral Carbon Tax

05/7/2008 by Daniel Rosenblum

Press contacts:
Daniel Rosenblum, Co-Director • 914-837-3956 • dan@carbontax.org
Charles Komanoff, Co-Director • 212-260-5237 • kea@igc.org

NEW YORK (May 7, 2008)

Voters yesterday rejected Senator Hillary Clinton’s proposed gas tax “holiday” and, with it, the idea that energy taxes are political poison. The resounding victory in North Carolina and unexpectedly strong showing in Indiana by Senator Barack Obama, the only presidential candidate to oppose the Clinton-McCain tax holiday, could open the door to consideration of a revenue-neutral carbon tax.

While not every election serves as a referendum on a particular policy issue, yesterday’s clearly did. The proposal to suspend the federal gasoline tax this summer was the major policy issue distinguishing Senator Clinton from Senator Obama between the April 22 Pennsylvania primary and today. The issue received extensive media coverage due to both senators’ focus on it amid widespread concern over gasoline prices. [Update - As the New York Times noted this morning, "In both states, the candidates’ final arguments centered on a summertime suspension of the federal gasoline tax, which Mrs. Clinton proposed as an economic lift for voters and Mr. Obama derided as a political gimmick."] In rebuffing Senator Clinton's quick and simplistic fix, voters demonstrated that they will consent to a tax when it advances important economic, environmental and national security priorities.

“Voters sent a powerful message yesterday that they are not willing to sacrifice the environmental and economic benefits of the gasoline tax for trivial, short-term benefits,” said Daniel Rosenblum, co-director of the Carbon Tax Center. “Voters in Indiana and North Carolina have driven a spike through the conventional wisdom that supporting a tax is political suicide. The path is cleared for consideration of a revenue-neutral carbon tax-and-dividend approach that cost-effectively reduces greenhouse gas emissions, strengthens the economy, reduces America’s dangerous dependence on foreign oil and returns the tax proceeds to all Americans through monthly dividends,” Rosenblum said.

“These past few weeks, Sen. Obama has stood up for energy prices that tell the truth about climate damage and national insecurity,” said Charles Komanoff, co-director of the Carbon Tax Center. “The voters have rewarded Obama’s political courage and sent a clear signal to Washington that they support price incentives to conserve oil and curb carbon emissions,” Komanoff added.

As Senator Obama stated in his North Carolina victory speech last night, “the American people are not looking for more spin. They’re looking for honest answers to the challenges we face.” An honest answer to the climate change challenge includes truth in energy pricing.

The Carbon Tax Center is a non-profit educational organization launched in 2007 to give voice to Americans who believe that taxing emissions of carbon dioxide -- the primary greenhouse gas -- is imperative to reduce global warming. Co-founders Charles Komanoff and Daniel Rosenblum bring to CTC a combined six decades of experience in economics, law, public policy and social change.

A Convenient Tax - May 2008

05/4/2008 by Daniel Rosenblum

Thanks to the gas tax “holiday” proposed by Senators McCain and Clinton, gasoline taxes (a component of carbon taxes) have become a major issue in the presidential campaign. Senators McCain and Clinton have been attacked across the political spectrum for pandering. Politicians from President Bush to House Speaker Pelosi have rejected the idea, as have newspaper editorial boards from the New York Times to the Wall Street Journal.

New York City Mayor Michael Bloomberg, a powerful carbon tax advocate, may have been the most succinct, calling a temporary suspension of the federal gasoline tax “about the dumbest thing I’ve heard in an awful long time from an economic point of view” and saying he did not see “any merit to it whatsoever” (NY Times, May 2). Economists have been nearly unanimous, with over 100 economists, including three Nobel Prize winners, signing a statement opposing the gas tax holiday.

In our last newsletter we acknowledged that “the ‘T’ word is unpopular with politicians,” but asserted that “awareness is growing that ‘putting a price on carbon’ is an essential element of any successful strategy to significantly reduce greenhouse gas emissions.” In fact, awareness is growing faster than we expected. We’re heartened by the widespread recognition that the gas tax holiday proposal is fundamentally flawed because it undercuts the need to properly price gasoline and would encourage gas use just when it is essential to discourage consumption. In breaking news, the Monday (May 5) New York Times will report that by 49% to 45%, more Americans think that lifting the gas tax is a bad idea than approve of the plan.

In addition, we are intrigued by a Wall Street Journal report that some members of Congress are advocating that proceeds of a windfall profits tax be used to provide rebates for consumers. It sounds a lot like the rebate we have proposed to return carbon tax revenues to the American people. While we take no position at this time on the merits of a windfall profits tax, it’s good to see thought being given to returning the windfall profit tax proceeds. It’s a step toward a revenue-neutral carbon tax.

Our next challenge is to convert the well-reasoned opposition to a gas tax holiday into support for a carbon tax. As a first step, we have begun preliminary planning for a Carbon Tax Conference to be held in Washington, D.C. in mid-November. The conference will be designed to focus public attention on a carbon tax as the best policy for reducing U.S. greenhouse gas emissions and is timed to occur just as a new administration and Congress begin establishing priorities and mapping out strategies. Interested in being involved in the early planning? If so, please let us know.

Please check our web page regularly for the latest developments on carbon tax issues and progress. We add important news stories to the “Headlines” column on our home page almost every day. Take a look at the excellent guest post by James Handley, an extraordinary volunteer at CTC, addressing the gas tax holiday issue. It was on our web page until today (in case you haven’t noticed, previous blog posts are listed just below the current post). Our next post will take up a related issue, the impact on demand of rising gasoline prices. There is more and more evidence that higher prices, such as would result from a carbon tax, lead to reduced consumption. That’s the premise of our proposed carbon tax and it’s being validated every day.

Finally, CTC does have to admit to one major failing. We’ve been so focused on policy issues and getting the message out that we haven’t spent the necessary time on fundraising. The result is predictable. We’re desperately short of money just when we need it the most. To continue playing our essential role, we need your financial help.

You can contribute to CTC in three ways, two of which are tax-deductible:

* Tax-deductible:

Write a check or money order to ELPC (Environmental Law & Policy Center), writing Carbon Tax Center in the memo line; mail it to ELPC at 35 East Wacker Drive, Suite 1300, Chicago, IL 60601. ELPC is CTC's fiscal sponsor.

* Tax-deductible:

Make an on-line contribution via Groundspring by clicking on the DONATE NOW box on our website, www.carbontax.org.

* Not deductible:

Write a check or money order to Carbon Tax Center and send it to our New York City mailing address: CTC, 636 Broadway, Room 602, New York, NY 10012.

Please be as generous as you can, and please donate today. Thank you.

Sincerely,

Charles Komanoff
Dan Rosenblum

The Gas Tax and the Un-Tax

05/1/2008 by Charles Komanoff

Guest Post by James Handley

Will you sell your vote for $25? Presidential candidates John McCain and Hillary Clinton are betting you will. They’re campaigning for a “holiday” on federal gasoline taxes for the summer months.

Of the three presidential contenders, only Barack Obama has demurred. Obama said last week:

[T]he federal gas tax is about 5 percent of your gas bill. If it lasts for three months, you're going to save about $25 or $30, or a half a tank of gas.

Obama insists that the only permanent solution to rising gasoline and diesel fuel prices is to reduce consumption and increase use of alternative fuels.

Haven't we been down this road before? Yes, a dozen years ago. The New York Times excoriated the same “gas tax holiday” in May 1996:

Fill 'er up, America, this is the Memorial Day holiday and the start of the "summer driving season." We are a road-running, gas-guzzling people and Bob Dole, Newt Gingrich and Bill Clinton all say our Federal tax should be lowered 4.3 cents a gallon. But the tax relief, if it ever comes, will be trivial -- and will have a negative impact on public policy. It is, in short, something of a political fraud.

Low prices and higher demand by consumers, many of them all too willing to pay any price to drive at and over higher state speed limits, will only increase American dependency on foreign oil. If people are worried about energy, not to mention the environment and the budget deficit, suspending the 1993 gasoline tax increase (many politicians would make it permanent next year) is exactly the wrong way to go.

Now the specter of catastrophic global warming is snapping into sharp focus like a jack-knifed tractor trailer blocking all lanes as we careen along at 75 mph. Sirens are wailing and lights are flashing thanks in large part to the Nobel-winning work of the Intergovernmental Panel on Climate Change and Dr. James Hansen’s NASA-Goddard Climate team, un-muzzled despite Bush Administration threats.

And yet, U.S. energy policy is still “pedal to the metal” on the global warming accelerator — with McCain and Clinton urging us to “step on it” with a gas tax break. The exact opposite of what economists say is the essential step: pricing carbon emissions.

Yale economics professor William Nordhaus offers this litmus test:

[W]hether someone is serious about tackling... global warming can readily be gauged by... what they say about the carbon price. Suppose you hear a public figure who speaks eloquently of the perils of global warming... propose regulating the fuel efficiency of cars, or requiring high efficiency light bulbs or subsidizing ethanol, or providing research for solar power -- but nowhere mentions the need to raise the price of carbon.

You should conclude that the proposal is not really serious and does not recognize the central economic message about how to slow climate change. To a first approximation, raising the price of carbon is a necessary and sufficient step for tackling global warming. The rest is largely fluff.

By declining to dangle the $25 bribe before the electorate, Sen. Obama has avoided the fluff. But he hasn’t yet taken the pro-active step of using prices to put the U.S. economy on a low-carbon diet.

Nordhaus provides the intellectual model, explaining that taxes on “bads” such as pollution and waste make our economy more productive and efficient and should therefore be viewed as the opposite of taxes on “goods” like products, income and employment.

Seven-Up soft drink was advertised in the ‘70s as the “Un-Cola.” Perhaps it’s time to market a carbon tax as the “un-tax.”

Photo: Flickr / pbo31

Carbon Tax Guarantees Tax Cuts for British Columbians

04/29/2008 by Daniel Rosenblum

The British Columbia Ministry of Finance issued this News Release on April 28. It speaks for itself and requires no comment from the Carbon Tax Center.

N E W S   R E L E A S E

For Immediate Release                                                                       Ministry of Finance

2008FIN0009-000615

April 28, 2008 

CARBON TAX GUARANTEES TAX CUTS FOR BRITISH COLUMBIANS

VICTORIA -- British Columbia is the first province to implement a comprehensive, revenue-neutral carbon tax – an initiative that returns every dollar raised to the people and businesses of British Columbia as tax cuts, Finance Minister Carole Taylor announced today.

“British Columbia is leading the way in addressing climate change, and the revenue-neutral carbon tax is another pioneering step forward for our province,” said Taylor. “Each step we take to change our habits and behaviours, as individuals and as a community, will help leave a legacy that our children and grandchildren can be proud of.”

By tying the carbon tax to reductions in personal and business taxes, the Province is giving the people of British Columbia the power to make their own choices.

“Pricing carbon sends a clear message that there is a cost to the environment involved in emitting carbon,” said Taylor. “Leading economists and scientists agree that introducing a revenue-neutral carbon tax is the right thing for our province, today and for the future. We took time to design a model that protects low-income families and moves British Columbia to being one of the lowest-taxing provinces in Canada.”

In the first three years, the carbon tax is estimated to generate $1,849 million in revenue, which will be returned to British Columbians as follows:

The bottom two personal income tax rates will be reduced for all British  Columbians, resulting in a tax cut of two per cent in 2008, rising to five per cent in 2009 on the first $70,000 in earnings – with further reductions expected in 2010: $784 million.

Effective July 1, 2008, the general corporate income tax rate will be reduced to 11 per cent from 12 per cent – with further reductions planned to 10 per cent by 2011: $415 million.

Effective July 1, 2008, the small business tax rate will be reduced to 3.5 per cent from 4.5 per cent – with further reductions planned to 2.5 per cent by 2011): $255 million.

Beginning July 1, 2008, the new Climate Action Credit will provide lower-income British Columbians a payment of $100 per adult and $30 per child per year – increasing by five per cent in 2009 and possibly more in future years: $395 million.

Total tax cuts over three years:$1,849 million.

This groundbreaking legislation is supplemented by an immediate Climate Action Dividend, $100 for every man, woman and child in British Columbia. This dividend, which will further support our community’s ability to make greener choices, will go out to residents of British Columbia starting in late June.

For further information about the carbon tax and ideas for making greener choices, please visit:

http://www.bcbudget.gov.bc.ca/2008/backgrounders/backgrounder_tax_impacts.htm 

Media Contact

Finance Communications

Public Affairs Bureau

250 387-5013

For more information on government services or to subscribe to the Province’s news feeds using RSS, visit the Province’s website at www.gov.bc.ca.

Near-Unanimity for Tax at TV Roundtable on Carbon Pricing

04/24/2008 by Charles Komanoff

When brand-new Clean Skies TV invited me to advocate a carbon tax at its Webcast roundtable, I worried that I might be cast as a fringe type. Instead, the taping (on-line soon, use link above) went off like a grad school seminar, yet livelier.

My co-panelists were heavy hitters: economists Robert Shapiro (Commerce Undersecretary under Pres. Clinton) and Eric Toder (formerly of IRS and Treasury), and Barack Obama's energy and environment advisor, Bob Sussman (former Deputy EPA Administrator).

Moderator Susan McGinnis set the stage with a clip from Al Gore's latest slide show:

Here's the solution. We need a CO₂ tax, revenue-neutral, to replace taxation on employment, which was invented by Bismarck -- and some things have changed since the 19th Century.

I explained that a gradually-increasing carbon fee imposed upstream on fossil fuel energy sources would create price expectations to encourage energy conservation and renewables. A carbon fee would also disproportionately tax those who fly more, drive bigger vehicles longer distances and choose oversized, sprawled-out houses, thus embodying the "polluter pays" principal.

Moreover, a carbon tax wouldn’t divert funds for government spending so long as it was revenue-neutral. The Carbon Tax Center suggests recycling carbon fee revenue through the economy via equal distributions or “dividends” to every household. Each household’s "carbon dividend" would increase annually as the carbon tax rises. Gore suggests using carbon tax revenue to replace regressive payroll taxes. Either revenue-neutral approach would reward low-carbon-users without penalizing the poor or increasing the total tax burden.

Shapiro was trenchant:

The only reason anyone is talking about cap-and-trade now is because the U.S. (at Gore’s urging) insisted on cap-and-trade in Kyoto. Gore has since abandoned cap-and-trade and is now calling for a carbon tax to replace other taxes. Caps just aren't working.

CO₂ reductions under the EU's cap have been "negligible and very costly," Shapiro said. Exemptions (e.g., for coal power plants in Germany) "overwhelm the cap." Shapiro also noted out that China and India have rejected cap-and-trade. In contrast, he argued, a U.S. carbon tax would encourage our trading partners to tax carbon to avoid forfeiting revenues on their exports to us.

Shapiro further noted that controlling quantity, as a cap does, adds volatility to energy prices, leading to disruptive price spikes, harming the economy and undermining support for the system. McGinnis noted that Southern California’s cap-and-trade system for smog emissions was crashed by price spikes during their electricity crisis.

Toder contended that either a carbon tax or cap-and-trade could work, depending on the specifics. He conceded that a under a cap, a "safety valve" (setting a maximum permit price) is needed to prevent destabilizing price spikes, a problem that doesn't arise under a tax.

The panelists were unanimous that economy-wide incentives are essential to spur carbon-cutting technology. Either a cap or a carbon tax would drive innovation and alternatives, favoring wind power over coal, for example, But only Sussman advocated mandatory cap-and-trade, citing greater certainty of meeting climate goals. Noting that "there’s never a perfect time to start a climate policy" and that excuses like economic recessions or high gas prices will always be available, Sussman insisted that we can't afford to wait any longer.

McGinnis asked why candidates avoid carbon taxes. Shapiro replied that candidates use the term "cap-and-trade” as a "placeholder” to indicate that they’re serious about climate policy, not that they've embraced that particular system. He's hopeful that a detailed discussion of more effective options including revenue-neutral carbon taxes can begin after the election.

Sussman countered that the public supports cap-and-trade and expressed hope that the Lieberman-Warner bill would be enacted without further climate-damaging delay.

McGinnis asked: What would success in ten years look like? Toder expressed our consensus: If greenhouse gas emissions are dropping, we'll have turned a crucial corner.

Gore is calling on Americans to "fix our democracy" so we can set policies to avert climate disaster. By hosting a thoughtful discussion of carbon pricing, Cleanskies.TV has taken a solid step toward informed public prticipation in our democracy.

Photo: Flickr/FredArmitage

Dingell: My Carbon Tax Bill is “Off the Table”

04/16/2008 by Charles Komanoff

The carbon tax camp lost a powerful Congressional voice yesterday when Rep. John Dingell announced he was taking “off the table” the hybrid carbon tax proposal he floated last fall that featured a national carbon fee, supplemental increases in taxes on gasoline and aviation fuel, and a reduction in the mortgage interest deduction for super-large houses.

In a prepared statement, the Michigan lawmaker, who for much of his 54 years in Congress has chaired the House Energy & Commerce Committee, reiterated that “economists and other experts continue to inform us that a carbon tax is the most effective and efficient way at getting at the problem of global warming.” Dingell also noted that his on-line poll query, “Do you approve of the idea of a carbon tax?,” earned a "Yes" from 61% of the 2,900 respondents.

In his statement, which was first reported yesterday in The Hill, Dingell pointed to rising gas prices and the gathering recession, saying, “Times have changed; our economy has taken a hard downward turn and now is not the time for us to put any additional financial burden on the working families of Michigan or this nation.”

The irony, as visitors to this Web site know, is that a revenue-neutral carbon tax would not act as a drag on economic activity, since the return of the tax revenues to Americans via tax-shifting or dividend rebates would fully offset the higher costs of fuels and energy. Indeed, the progressive impact on incomes would make for healthier economic growth, as wealth flowed from the rich to the middle class and the poor. In a 2007 report strongly supporting a U.S. carbon tax, the conservative American Enterprise Institute pointed to the "double dividend" in which "a carbon tax can be paired with a reduction in other taxes in a manner that improves the overall efficiency of the economy."

Moreover, because the tax level would be ramped up rather than imposed all at once, any bite from a carbon tax would largely occur during the next upturn in the economic cycle rather than in the current downturn.

Citing the positive response to his carbon tax poll, Dingell emphasized that “people desperately want action on global warming.” He added, “I will continue to work on a comprehensive climate change bill that will seek to reduce greenhouse gas emissions by 60-80 percent by 2050 and will include a cap-and-trade proposal.” The Hill commented that "policymakers seem intent on avoiding any potential political fallout that could come with a big tax increase and instead favor a cap-and-trade program," omitting the fact that putting a price on carbon -- which is central to both carbon taxing and carbon cap-and-trade -- means higher energy prices.

Despite Dingell's announcement, the carbon tax movement doesn't lack for prominent supporters. These include New York City Mayor Michael Bloomberg and former Vice-President Al Gore, along with numerous scientists, economists, pundits, opinion leaders and other current and former public officials. Although Bloomberg was defeated earlier this month in his effort to enact a congestion fee to drive into the Manhattan Central Business District, he has also forcefully made the case for a federal carbon tax in a number of major addresses.

Gore continually advocates for revenue-neutral carbon taxing in his public appearances, most recently last month, saying, "Here's the solution. We need a CO₂ tax, revenue-neutral, to replace taxation on employment, which was invented by Bismarck -- and some things have changed since the 19th Century."

The Carbon Tax Center appreciates Rep. Dingell's past advocacy for a carbon tax. We regarded Dingell's hybrid carbon tax as a stroke of near-genius and only regretted that his proposal, along with a phase-out of the mortgage tax deduction for luxury homes, wasn't supported by the mainstream environmental groups. We were proud to work with Rep. Dingell's office in analyzing the efficacy of his hybrid carbon tax. Our National Hybrid Carbon Tax Model remains available to anyone wishing to analyze the carbon-reducing and revenue-producing impacts of carbon taxes.

Photo: Flickr/simplehiker

Sprint vs. Marathon — A New Frame for Cap vs. Tax

04/10/2008 by Charles Komanoff

Guest Post by James Handley

NYC “Congestion” Failure Provokes Questions on Carbon Pricing

04/8/2008 by Charles Komanoff

The year-long effort to enact congestion pricing in New York City had a lot going for it:

• Traffic congestion is roundly despised. Gridlock has few defenders.
• NYC's mass transit system, the asserted beneficiary of revenues from the traffic fee, is riding a 25-year upswing and is understood to be the linchpin of the city's prosperity.
• A broad coalition of business, labor and environmental groups supported and actively campaigned for congestion pricing.

The demise of the pricing plan -- it passed the City Council last week but wasn't brought up for a vote in the State Legislature yesterday -- is prompting much hand-wringing in the City. The New York Times today decried the powerful Speaker of the State Assembly for failing to throw his weight behind the proposal. The blogs, from the estimable Streetsblog ("covering the Livable Streets Movement") to the Times' dot Earth, are asking what pricing's defeat says about the fate of other, larger issues, from livable urban streets to the campaign to stop climate change.

There's soul-searching at the Carbon Tax Center as well. Having argued last year that congestion pricing and carbon taxing were thematically linked -- both entail valuing the commons to preserve it; both appear income-regressive but can be made strongly progressive by fairly and effectively allocating the revenues -- we're obliged to ponder what the failure of congestion pricing portends for carbon taxes in America.

We've already posted a Top 10 Reasons piece to Grist. It's a bit on the lite side, but it makes some salient points, such as this:

Misplaced emphasis on climate: Hitching congestion pricing to climate protection, even in part, was disingenuous. The anticipated traffic reductions would have eliminated no more than 1% of NYC's CO₂. The emphasis should have been on cutting the scourge of traffic, whose theft of time, sanity, and safety from New Yorkers outweighs the climate damage from CBD-bound tailpipes by a couple of orders of magnitude.

(That was reason #10; it would probably rank higher on this blog.)

Our Grist post elicited a number of candid, private replies. Here are three worth pondering (edited, and with the names redacted):

A chemical engineer and policy analyst who worked with congestion pricing theorist and Nobel Laureate Bill Vickrey, honed in on the winners/losers conundrum:

The central problem policy problem, both here and around the world, continues to be that the losers from any policy change know who they are and are always far better organized than are the winners. Indeed, some winners are bamboozled into thinking that they will be losers. Nowhere is this more true than with congestion pricing -- invariably this has been opposed by a majority before introduction but is warmly welcomed by a majority afterwards.

This is why political leadership is so important. Such leadership emerges in New York only very rarely if ever and is one of the reasons New York continues to decline relative to other states.  History tells us that this has long been true however; consider how T.R. got on the national ticket with McKinley in 1900.

A writer on transportation and public spaces blamed congestion pricing's messenger:

Appalling though this setback is, I think it has its up-side -- Bloomberg is not really the champion you want for this kind of fundamental change.  He (your reason #3) never really "got it" in anything other than a gaudy, intellectualized fashion and, as you say, certainly never put in the work needed to make this real. The plan was never properly linked to specific, pre-visualized, and fully explained transit and other benefits (your reason #2); and for all of Bloomberg's newly-donned, enviro-conning green robes he is planning a Manhattan top-heavy with the swaggerers (your #6 reason). So I think your 10 reasons actually boil down to 1: the Mayor.

Another writer on public policy was more pessimistic: