Progressive Democrats Say: “Cut Out Wall Street — Price Carbon Directly and Recycle Revenue to Households.”

10/20/2009 by James Handley

The growing movement for transparent carbon pricing to combat global warming reached a major milestone this week: Progressive Democrats of America, the nationwide grassroots voice for progressive values founded in 2004, has strongly endorsed direct carbon pricing to create incentives for a transition to renewable, low-carbon energy. PDA also advocates “recycling” substantial carbon revenues to households to counteract the potentially regressive effects of carbon pricing and to build long-term public support for carbon pricing

PDA played a key role in the Democratic Party’s surge in the 2006 mid-term elections, as well as in the Democrats’ 2008 victories. Its board includes prominent members of the Progressive Caucus as well as peace, labor and civil rights advocates. PDA says that it seeks to reclaim the Democratic Party as a voice for the people by educating, organizing, and lobbying within as well as outside the Party. Its statement follows:

PDA logo

Global Warming Policy Statement, adopted Oct. 19, 2009. (Footnotes omitted.)

No issue is more of a threat to civilization than the accelerating menace of catastrophic climate destabilization.  To avert this disaster, we must make a collective, long-term investment in a new energy infrastructure in order to protect the welfare of future generations.

Focus group research shows that the “…public has come to view clean energy as an immediate and long lasting economic driver,…something that is vitally important to the health of our economy.”  Scientists call for urgent action: “Continued growth of greenhouse gas emissions, for just another decade, practically eliminates the possibility of near-term return of atmospheric composition beneath the tipping level for catastrophic effects.”

PDA calls on the President and Congress to lead boldly in reducing our country’s oil dependence and use of fossil fuels by investing in walkable, bikeable communities, efficient public transportation, energy conservation technologies and alternative energy development, which all create good-paying and dependable jobs.

PDA supported 2008’s “climate principles letter” circulated in the House of Representatives.  To repeat and expand upon its goals, we agree that climate/energy legislation should meet these criteria:

1. Reduce greenhouse gas emissions on a long-term trajectory that will avoid the worst effects of global warming;

2. Transition the United States to an efficient, clean energy economy by putting a price on carbon that will guide investment and personal decisions on every level and lead the world with both incentives and example;

3. Recognize and minimize any adverse economic impacts from global warming legislation and build political support for a price on carbon pollution by “recycling” carbon pricing revenues directly to households; and

4. Aid communities and ecosystems vulnerable to harm from global warming.

To help achieve these goals, PDA supports revenue-neutral direct carbon pricing over carbon trading.

Direct carbon pricing:

  1. Can push America toward an efficient, clean energy economy, and reduce greenhouse gas emissions on a long-term trajectory, by providing a gradually-increasing price on carbon pollution;
  2. Can minimize adverse economic impacts of legislation by “recycling” a substantial portion of carbon revenue to households through a direct “carbon dividend” or a payroll tax reduction;
  3. Can provide revenue to aid communities and ecosystems vulnerable to harm from global warming;
  4. Reduces the need for complex and difficult-to-verify regulations and cannot be gamed in a multi-trillion dollar unregulated secondary energy trading market;
  5. Eliminates offsets, which are difficult to measure and substantiate;
  6. With WTO-sanctioned border tax adjustments would create immediate incentives for international implementation, as all countries have a taxing mechanism in place but few (if any) can manage a complex carbon trading system;
  7. Can be set at levels to form the basis for international cooperation and treaties to reduce greenhouse gases to levels consistent with the findings of the IPCC; and
  8. Would maintain the EPA’s authority to regulate carbon emissions.

The Carbon Tax Center welcomes PDA to the movement for a clear, simple, effective and fair carbon-pricing system as a key component of climate policy.

Filed under Carbon Tax

18 Comments »

  1. Just wanted to say that PDA’s position was not lightly taken – it came after months of sometimes-intense internal debate engaged in by quite a few individuals with different initial perspectives. IF ONLY Congress would have such a free, open and public-interested debate, it might well come to the same conclusions.

    Comment by Joe Libertelli — October 20, 2009 @ 4:53 pm

  2. Mr. Libertelli is exactly right: if Congress put good public policy above political expediency, they very well might have come to the same conclusion.

    Comment by CTF — October 20, 2009 @ 10:14 pm

  3. “Cap-and-trade mirage” by Laurie Williams and Allan Zabel, in the Washington Post, Saturday, October 31, 2009, is an outstanding essay; thanks for drawing it to our attention.

    My husband and I have written our representative and senators to abandon the Waxman-Markey bill; it is worse than nothing, as pointed out by Williams & Zabel.

    Even more to the point, my husband points out that the fierce opposition to Waxman-Markey, coming from the likes of the US Chamber of Commerce, Bit Coal, plus some of the unlikely support, is to delude us Hoi Polloi into thinking that there is something good in it. A Moslem friend said that Mohammed himself once said it is good that eating camel dung is not prohibited it, or else many people would have to try it, saying it would not be forbidden if it didn’t have some great effects. So we suspect that these folks are telling us to eat camel dung as a substitute for the Carbon Tax.

    One of the benefits of a Latin American upbringing is a good, solid paranoia: you suspect everything.

    Comment by La Buscona — October 31, 2009 @ 4:15 pm

  4. I would like to see ALL revenue from a carbon tax be divided into equal shares for ALL Americans, except those under 16 years of age would get a half share (since they don’t drive). Pay the dividend out monthly using the Social Service Administration.

    Stop all government subsidies for energy, including wind, nuclear, ‘clean’ coal, biofuels, etc. Let the people decide how they want to spend their carbon dividend. The market will respond with the most efficient products. Government intervention tends to reward the most effective lobbyists, not the best solutions. I share La Busconna’s paranoia in this regard.

    To keep domestic industry competitive, carbon duties would need to be levied on product imports unless the producing nation charged an equivalent fee on emissions. This would be difficult, but I’m sure it could be accomplished.

    People proved last year that they will reduce consumption when faced with higher fuel prices. The carbon dividend will give them the funds they need to adopt more planet-friendly ways.

    The consequences of not doing this are just too dire to contemplate.

    Comment by waguy — November 2, 2009 @ 6:01 am

  5. oops – Social Security Administration.

    Comment by waguy — November 2, 2009 @ 6:03 am

  6. Response to waguy: I think this kind of “gimme the money” mentality is what has kept carbon tax policy permanently stuck in the political outfield.

    Suppose you’ve got 10 competing power plants, all with the same generation capacity, of which 9 are coal-powered and one is renewable. The 9 coal plants pay a one cent-per-kWh carbon fee, which is all given to consumers; so the renewable plant has a one-cent-per-kWh price advantage over coal.

    Alternatively, suppose that the fee is not given away, but is rather used to subsidize clean energy; so the renewable plant gets a 9-cent-per-kWh subsidy, giving it a 10-cent-per-kWh price advantage over coal. Consumers would still benefit because price competition from subsidized renewable energy would yield consumer dividends in the form of low energy prices.

    Considering the renewable plant’s ten-fold gain in its price advantage under the second alternative, which approach would be expected to more quickly decarbonize electricity production while keeping clean energy affordable?

    Comment by Ken Johnson — November 2, 2009 @ 9:36 pm

  7. Response to Ken Johnson: I look at it from the standpoint of, what could that consumer do with that money? S/he could choose to use it to insulate, or buy more efficient machinery, or, as a last resort, buy the same amount of power from the renewable source. Energy conservation is the cheapest route to lower carbon fuel usage.

    Your approach limits the options and attempts to pick the winners through subsidies, without lowering overall consumption. Deciding who gets the subsidies tends to complicate matters.

    Comment by waguy — November 4, 2009 @ 4:54 am

  8. waguy – “… S/he could choose to use it to insulate, or buy more efficient machinery, …” or take a trip to Europe, or buy a bigger house …

    “… without lowering overall consumption …” You don’t lower consumption by giving people free money.

    Comment by Ken Johnson — November 4, 2009 @ 1:53 pm

  9. Response to Ken and Waguy

    We are better of with a simple, transparent carbon tax that is fully refunded. More carbon = higher tax. less carbon =lower tax

    The best idea I have heard is use all of the collected revenues to reduce the employee FICA tax on the first $20,000 or $30,000 of annual earnings. That way it goes directly to working people who are most affected.

    I am sure that politicians, lobbyists, and various special interest groups would want to be able to distribute this carbon tax revenue to their favorite pet projects. However, American individuals and businesses have proved to be very resourceful in reducing their energy use as those costs increase. In the longer term, America is a country of innovators and we innovate best when individuals and businesses risk their own money to develop new technologies in the hope of later getting a profitable return on their investment. Most Americans do not benefit when businesses and other special interests are given our tax dollars in subsidies, earmarks, and bailouts.

    Senator X will want a larger subsidy for wind because the wind industry has a large plant in his state. (and he just happens to get a large campaign contribution from those interests)

    Senator Y will want a larger subsidy for solar because he has thousands of solar jobs in his state.

    Senator K will want large bailouts for wind EXCEPT those that he can see from his summer home in Cape Cod.

    Comment by bernie mihm — November 9, 2009 @ 9:47 am

  10. “More carbon = higher tax. less carbon =lower tax” Right. And Zero carbon = Zero tax. If your policy succeeds in achieving carbon neutrality the government will lose its tax base. Brilliant.

    Comment by Ken Johnson — November 9, 2009 @ 7:03 pm

  11. Ken,

    We propose a revenue-neutral carbon user fee, NOT as a revenue source for the government, but as a way to level the playing field. It’s now tilted so heavily in favor of fossil fuels that the price disparity makes both public and private investment in low-carbon alternatives extremely unattractive and excessively risky. We propose to recycle all or nearly all carbon tax revenues to households via a reduction in the payroll tax (Rep. Larson’s carbon tax bill would initially exempt the first $3800 of earnings from the payroll tax; the exemption would rise with the carbon tax rate) or via a direct distribution (“dividend”) to households.

    Thus, the “good” problem you describe would not arise. But it’s nice to dream of the time when emissions start falling enough for declining revenues to even be a concern…

    Comment by James Handley — November 9, 2009 @ 8:45 pm

  12. James,

    Okay, I think I understand. You want to tax fossil fuels and give the revenue to consumers to offset the taxes that consumers pay to subsidize fossil fuels. A more direct way to achieve the same end would be to eliminate preferential fossil fuel subsidies. But the field would still not be level because fossil fuel prices do not reflect health and environmental impacts.

    Your last comment is telling. You view avoidance of catastrophic climate change as a “dream”.

    Comment by Ken Johnson — November 10, 2009 @ 2:43 am

  13. Ken,

    Not an “impossible dream” if we choose good policies. US fossil fuel use (and thus GHG emissions) declined twice in my lifetime: 1) for a brief time, in response to price increases from the ’73 oil embargo and, 2) the current recession. Shows the power of price. We need it as a policy tool.

    Comment by James Handley — November 10, 2009 @ 10:25 am

  14. James,

    I fully agree that we need price as a policy tool, but we need policy instruments that can create sustained incentives for full decarbonization of the global economy — not just the kind of marginal reductions that result from reduced demand. (Furthermore, you should recognize that the money that was lost in the ’73 oil embargo and in the current recession was not rebated to consumers — if it had been, it might have largely nullified the price response.)

    Can you respond to my query in my original comment: “Considering the renewable plant’s ten-fold gain in its price advantage under the second alternative, which approach would be expected to more quickly decarbonize electricity production while keeping clean energy affordable?”

    Comment by Ken Johnson — November 10, 2009 @ 1:29 pm

  15. Ken,

    I think you’re asking why not subsidize low carbon energy instead of (or in addition to) taxing hi carbon energy.

    My answer: We don’t really know which (new? undiscovered?) low carbon technologies will prove most effective. We know what we don’t want: more CO2 emissions. We want to oust the “incumbent” technology. But we want to let all challengers compete.

    We have strong indications that energy efficiency measures lead the challengers’ pack and many would save money even at today’s fossil fuel prices. (See the recent McKinsey report.) That suggests the need to clear away some institutional and cultural obstacles that won’t be overcome by a price signal alone. But that “path clearing” is not a substitute for a predictably rising price that assures an increasing return on the investments needed for efficiency and alternative energy.

    To get to the long-term goal: emissions reductions of 80 or 90%, we’ll need to sustain rising carbon prices by continually pumping revenue back to households, so while we’ll all have incentives to de-carbonize, we’ll be “made whole” and can build political support. That “revenue recycling” limits the funds available for subsidies even if we could pick the best technologies.

    I’ve heard economists like Rob Shapiro say that recycling 3/4 or more of carbon revenue would do the job. He suggests using about 1/4 for basic alternative energy R&D and for transition assistance for displaced coal workers. That’s essentially the formula in Rep. Larson’s bill.

    Comment by James Handley — November 10, 2009 @ 8:12 pm

  16. Ken
    Sorry I did not explain myself more fully.

    The “revenue neutral” part means that the amount of revenues (taxes) collected would remain the same. It is only the source of those revenues which would change.

    For example
    If $100 billion were collected in carbon tax revenues over the course of a year, the FICA tax paid by employees would be reduced by $100 billion.

    If that number decreased to $50 billion, then the FICA tax would only be reduced by $50 billion.

    The government does not lose any of its tax base.

    On to another point, it would also be effective to replace at least a part of the employers FICA tax with the carbon taxes paid by business. This would have the added advantage of lowering the cost of employing workers.

    Comment by bernie mihm — November 10, 2009 @ 10:56 pm

  17. James,

    Re par. 1: What I am asking (for the electricity industry) is why not impose a carbon fee on high-carbon energy and use the proceeds to subsidize low-carbon energy (making the policy revenue-neutral within the industry)?

    Re par. 2: We need not know which low-carbon technologies will prove most effective because the fees and subsidies would be based strictly on emission performance, not on technology type.

    Re par. 3, point 1: Clean-energy generation (i.e., minimum CO2 per kWh) and energy efficiency (minimum kWh per unit of economic utility) can be incentivized using separate, but similar, pricing approaches. For example, appliance feebates would combine fees on low-efficiency appliances and rebates on high-efficiency appliances to motivate continuing improvements in efficiency. I believe that either this kind of pricing approach or financing incentives could, in fact, be more effective than performance standards at overcoming institutional and cultural obstacles.

    Re par. 3, point 2: The “predictably rising price,” as I understand it, would start at something like $10/ton-CO2 and “eventually” rise to perhaps $100/ton. In my view, this “gradual” approach, like cap-and-trade, is fundamentally a strategy of procrastination. However, a carbon fee starting at around $10/ton could create an immediate marginal incentive for clean energy equivalent to something like $100/ton if the revenue is applied to clean energy generation.

    Re par. 4: You are still missing the point. Consumers need to be “made whole” because of the high costs of clean energy, but clean energy would not be expensive if it is subsidized. To repeat my point from my original comment, “Consumers would still benefit because price competition from subsidized renewable energy would yield consumer dividends in the form of low energy prices.”

    Re par. 5: To paraphrase the question that I have already asked twice, have Shapiro et al investigated the relative efficacy of recycling revenue through direct cash dividends (or tax breaks) versus clean-energy subsidies, in terms of both decarbonization incentives and consumers’ long-term economic interests?

    mihm,

    Thank you for the clarification. So the correct equation is
    less carbon = higher FICA taxes
    So the government does not lose its tax base, but taxpayers lose their tax dividend as carbon is phased out.

    Here’s an alternative suggestion: Rather than giving the carbon tax revenue directly to consumers, give them equity shares in clean-energy companies (which would be purchased with carbon tax revenue). Then they would accrue dividends that increase, not decrease, as carbon is phased out.

    Which approach would garner more political support for decarbonization: letting consumers make money from carbon emissions, or letting them make money from clean energy?

    Comment by Ken Johnson — November 11, 2009 @ 12:48 am

  18. Ken
    The correct equation is FICA tax stays the same but is lowered as we collect carbon taxes. FICA does not increase over the amount we pay today.

    I can’t buy into your idea that taxpayers would somehow be given shares in clean energy companies. This sounds to me like a “state run” energy company and I don’t see that as something most of us in the US want.

    I think we are much better off with the simple, transparent approach of returning the collected taxes to consumers and businesses in the form of lower FICA taxes. Consumers do not lose purchasing power and business does not lose competitiveness.
    Thanks

    Comment by bernie mihm — December 13, 2009 @ 1:52 pm

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