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.

Near-Unanimity for Tax at TV Roundtable on Carbon Pricing

04/24/2008 by Charles Komanoff

Guest Post by James Handley 

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

Yes, Dingell is Beholden to Detroit, But He’s Right about Carbon Taxes

10/11/2007 by Charles Komanoff

After being roundly ignored, or worse, by the mainstream environmental groups, Rep. John Dingell's carbon-tax proposal finally gained a ringing defense last weekend in the Financial Times (U.K.), reprinted below.

While we don't share Clive Crook's disdain for CAFE standards -- he overplays the "rebound effect," for one thing -- we appreciate his clear expression of the need for carbon taxes.

Incidentally, according to ACEEE, the enviro-backed Markey-Platts CAFE bill would save an estimated 2.1-2.8 million barrels of oil a day by 2025, reducing CO₂ emissions by roughly a third of a billion metric tons a year. By our estimates (see spreadsheet), Dingell's hybrid carbon tax would save 4.5 million barrels of petroleum and over 1.5 billion tonnes of CO₂ -- nearly double the oil and almost five times the carbon -- if the 5-year ramp-up in Dingell's proposed bill is extended to 2025.

Still, regulatory mandates and market-correcting price incentives are complementary, not mutually exclusive. How much more must the climate spin out of control before the environmental community figures that out?

Posturing will not save the planet

By Clive Crook

[Published in the Financial Times (registration required), Oct. 7 2007]

The website of the Sierra Club, the environmental group, says that "the biggest single step" America can take to reduce global warming and save consumers tens of billions of dollars is to adopt a stricter corporate average fuel economy (Cafe) standard. Legislation that would force carmakers to sell more fuel-efficient cars is being debated again on Capitol Hill. A lot of people think the Sierra Club is right.

Last week Thomas Friedman, the trope-injected megapundit of The New York Times, assailed the country's big three carmakers for resisting. He especially deplored their allies, Toyota – green Toyota, for shame – and the congressional delegation from Michigan, led by John Dingell. In opposing a strict new rule, they are helping Detroit to "commit suicide". America's car industry got into trouble in the first place only because of its reluctance to be made to innovate, Mr Friedman explains. Washington offers to compel it to make the cars people want (and hence become more profitable) and the idiotic manufacturers, cheered on by Toyota and Mr Dingell, object. This is not pork-barrel politics, Mr Friedman says, but "empty-barrel politics". Empty barrel, you see, as in a barrel of oil.

Far from being the biggest single step the US can take on this issue, tighter Cafe standards might be the smallest single step – apart that is, from doing nothing, and doing nothing at least has the virtue of being cheap. The endless posturing and counter- posturing over Cafe is Washington displacement activity in its purest form – something to entertain the voters while failing to confront the actual problem. Support for a stricter Cafe rule is not a sign of being serious about climate change but just the opposite.

Greenhouse-gas emissions from cars and light trucks account for about 20 per cent of the US total and Cafe rules affect only new vehicles. The initial effect of the rules is therefore on the margin of a margin. Yes, the impact would increase over time, but over time other things will change as well. If you make driving cheaper, people will drive more. Some of these savings will be spent on more cars or bigger cars or on sport utility vehicles. New cars get dearer relative to old cars because the regulation adds to costs, so people hang on to older, less efficient cars longer.

All these self-nullifying effects were seen in response to the existing Cafe standard. In the end, a tighter rule would make America burn less gasoline and emit less carbon dioxide than otherwise – but not that much less.

Mr Friedman would put this in terms you can understand. It is not small beer but low-carb beer, in a bigger glass, with a whisky chaser.

Cafe is a kind of tax, of course – but a tax that is hidden. This is both its greatest political attraction and the clearest proof of its supporters' unseriousness. Put this mandate on the car companies, its advocates say, and they must deal with it: everybody else is better off. The companies themselves would gain, for heaven's sake, if only they had the wit to see it.

But if this is true, then the tight new standard is surely too loose. Why not tighten it more, and forget about phasing it in? Instant innovation for free. Before you know it the carmakers will be paying pensions again and we shall be getting 500 miles to the gallon. Why not run the whole economy this way?

It is bad that the underlying cost of Cafe is hidden, but worse that its effects are misdirected. The climate does not care whether greenhouse gases come from Hummers or Priuses, or from cooling your house or heating your swimming pool. We can set stringent fuel-economy rules for all energy-consuming activities, or we can recognise that the problem is carbon emissions, whether they come from tailpipes or power plants, and tax those instead. Make all carbon-based energy dearer and innovation on a wide front will follow, as it must if this problem is to be seriously addressed. If people want SUVs, fine – so long as they pay the full costs of driving them and economise efficiently on other forms of carbon-releasing energy too.

If Americans chose to, of course, they could buy fuel-efficient cars already – no innovation required. While nobody was looking, engineers in Europe and Japan were cunningly designing smaller cars. Yes, you just make them smaller! And drivers there snap them up because they have to pay two or three times as much for gasoline as Americans. Makes you think.

Switching to a lower-carbon economy has a cost. A high tax on gasoline makes it explicit, and is therefore dismissed as politically impossible. But the idea that the Cafe approach is costless, or that its costs will fall entirely on companies that had it coming anyway, is infantile. Given a choice between the ambitious and the fatuous, is it not better to press for the first?

And is the carbon-tax approach really so unrealistic?

Its chances are not improved by calling for inferior alternatives. A lot depends on who speaks up for the idea. Mr Dingell, so criticised by Mr Friedman and others on this issue, is trying to drum up support for a gas tax, a carbon tax and a cap on mortgage-interest tax relief for energy-guzzling houses. He has put draft legislation out for comment. Sure, Michigan's Mr Dingell is in the pocket of America's car companies. That does not mean he is wrong.

Note: Thanks to Tom Stokes of the Climate Crisis Coalition for posting the FT piece and supplying our headline.

Congressional Climate Poll — Hold the Pessimism

02/7/2007 by Charles Komanoff

Washington climate circles are abuzz over a National Journal poll released last weekend suggesting that concern over climate change is waning among Republican House members just as public alarm is mounting.

The Journal, a highly respected print and e-magazine covering politics from Washington, DC, asked Members of Congress, "Do you think it's been proven beyond a reasonable doubt that the Earth is warming because of man-made problems?" While the number of Democratic members answering No was a gratifyingly low 2%, the same as last April, the share of Republican naysayers rose to 84%, from 77% in April.

Though the Dem-Rep split is noteworthy, the absolute percentages should be viewed with caution. For one thing, the response rates were low: 1 in 7 Republicans, 1 in 8 Democrats. (Hmm, could it be that the more "extreme" Senators and Representatives from either party were more apt to respond, skewing the divisions between the parties?) Second, the poll predated the Feb. 2 release of the IPCC-4 report. The Journal's questionnaire was sent out Jan. 29 and the answers were received Jan. 29 - Feb. 1, too early to reflect the sobering findings from the report and the extensive media coverage.

The second (and last) poll question concerned solutions: "Which of these actions to reduce global warming could you possibly support?" Respondents could vote Yes or No to six choices, which included measures such as higher CAFE standards and greater spending on alternative fuels.

A carbon cap-and-trade program far outpolled a carbon tax, by 83% to 50% among Democrats and 42% to 3% among Republicans. We regard this, at least in part, as a reflection of the active promotion recently of cap-and-trade and the relative silence from carbon-tax supporters. In addition to the  poll's unfortunate timing, we wonder if the wording ("A 'cap-and-trade' carbon dioxide emissions-reduction program" and "A carbon tax", respectively) inadvertently tilted responses toward cap-and-trade. Perhaps next time National Journal can ask about "An emission-reducing carbon tax" or "A revenue-neutral carbon tax".

We also expect that Congressional understanding of the merits of carbon taxing will increase as a result of efforts by carbon tax supporters who can now benefit from the information on this site.

NY Times Blog Spotlights Carbon Tax Center

01/24/2007 by Charles Komanoff

Times science blogger John Tierney beamed the spotlight on CTC big-time in his front-page blog today:

If you thought there was something missing in the energy section of the State of the Union Address, there's a new Web site to fill in the gap.

President Bush last night dutifully mentioned the "serious challenge of global climate change" and reeled off ways to address it � burn less gasoline, subsidize other forms of energy. In the Democrats' response, Sen. James Webb of Virginia dutifully talked of "affirmative solutions" and "a wave of entrepreneurial growth in the form of alternate energy programs." But neither he nor Mr. Bush went anywhere near economists' favorite prescription for slowing global warming: a carbon tax.

The tax is taboo in Washington, but now there's a place it dares speak its name: the Carbon Tax Center, which opened this week with the aim of becoming "the village square for civic and political conversations about the why, who, and how of taxing CO₂ emissions in the U.S. and, eventually, the world."

Tierney notes that taxing carbon is an uphill fight. Okay, carbon taxers, let's start evening the odds. Post a comment on his blog and let the fur fly!

Prices, Taxes, and Amory Lovins

01/20/2007 by Charles Komanoff

Last week's New Yorker magazine carried a profile of energy-efficiency apostle (and, as it happens, my college classmate and longtime acquaintance) Amory Lovins by the magazine's global-warming reporter Elizabeth Kolbert. "Mr. Green -- Environmentalism's most optimistic guru" is a fair, digestible (at just 8 pages) portrait of the Rocky Mountain Institute CEO who reconceptualized the energy debate in the 1970s and is still tirelessly pitching his message of synergistic, human-scale energy solutions to the world's political, financial and industrial leaders.

Back in the day, I was a member of Amory's worldwide web of energy analysts who fed him our cutting-edge research (mine concerned cost escalation in the building and operating of U.S. nuclear reactors) and benefited in turn from his incisive editing and brilliant framing of our work. Along the way, however, I grew skeptical of his faith that human ingenuity and care would catalyze the dreamed-of wholesale shift to energy efficiency and renewables. Advances in efficiency, and there were many, seemed scattershot and outweighed by humankind's capacity to invent ever more uses of energy and our boundless appetites for using them.

The key difference in our outlook turned out to concern price. Amory, the physicist and optimist, considers high energy prices helpful but not necessary, whereas I, an economist and, dare I say, a realist, regard them as necessary though not sufficient. Thus, the Carbon Tax Center.

Toward the back of Kolbert's article, which unfortunately is not yet posted in full on the magazine's Web site, is this useful passage:

... the example Lovins likes to point to -- the drop in oil use in the early nineteen-eighties -- is, at best, equivocal. As Lovins notes in his book, what made people "pay attention" to oil consumption was the 1973 Arab oil embargo and the second, even more severe 1979 oil shock. Part of the drop was due to structural shifts in the economy away from oil-intensive activities. Part of it was fuel substitution by both individual consumers and industry, as homeowners and factories switched from oil to, for example, natural gas. The largest part of it was increased fuel efficiency in both automobiles and buildings, led by the creation of federal auto efficiency standards in 1975. And, finally, part of it was a change in consumer behavior as Americans bought smaller cars and turned down their thermostats. Thus what Lovins offers as a demonstration that federal regulation and new taxes are unnecessary could just as plausibly be seen as evidence of exactly the opposite.

My point -- and CTC's point -- exactly.

And Thomas Friedman's point too, perhaps. In his first New York Times column after Kolbert's article appeared, Friedman wrote of the need to require "power utilities, factories and car owners ... to pay the real and full cost to society of the carbon they put into the atmosphere." In case the point wasn't clear, Friedman added: "... prices matter. They drive more and cleaner energy choices."

Although Friedman didn't mention Lovins by name -- he's a big admirer of Amory, as am I -- I'll bet he wrote with the New Yorker profile in mind.