Countering Extremism, Engaging Americans in the Fight against Global Warming (Theda Skocpol, Harvard)
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Chairman Charles Rangel presided over an impressively substantive Ways & Means Committee hearing on economic policy to combat global warming this week. The seven witnesses at the March 26 hearing spanned a fairly broad spectrum of interest, representing the Congressional Budget Office, national environmental organizations, academia, think tanks and the corporate Right.
Among the takeaways: even stalwart supporters of cap-and-trade acknowledged the need to manage price volatility; two panelists suggested eliminating the market in carbon altogether and setting an explicit price based on scientific and economic principles.
Three witnesses displayed graphs showing that price volatility in the European Union’s carbon emissions trading system has risen with accelerating trading volume. They noted that such volatility along with collapsing prices discourages investment in energy conservation and alternatives but enriches speculators.
Michelle Chan, author of Friends of the Earth’s new “Subprime Carbon” report cautioned that a bubble in carbon-based derivatives is an almost certain consequence of a cap-and-trade system with unverifiable offsets, free allowances and unregulated secondary markets in carbon allowances. With Congress starting from scratch to design a carbon pricing system, Chan urged lawmakers to avoid the sub-prime carbon syndrome at the outset. Her warning seemed especially trenchant: across the Capitol, the Senate Banking Committee simultaneously heard testimony on how to untangle the wreckage from the collapse of the sub-prime mortgage bubble whose shock waves continue to rock financial markets and the world economy, throwing millions out of homes and jobs.
Reflecting the panel’s consensus, Douglas Elmendorf, director of the Congressional Budget Office said putting a price on carbon through either a carbon tax or cap-and-trade is the most cost-effective way to spur reductions in greenhouse gas emissions. He explained that flexibility about where, when and how to make emissions reductions is essential to capture all of the potential benefits from carbon pricing. Ideally, he said, carbon prices should not fluctuate in response to temporary factors such as weather or economic activity, but should reflect permanent factors that affect compliance costs over a period of years, such as new technologies. Elmendorf outlined the tools available to manage price volatility: banking, borrowing, a reserve pool, a price floor and ceiling, or a managed price approach.
Dan Lashof of NRDC (a member of the USCAP cap-and-trade coalition) said Earth’s atmosphere is “too big to fail” and argued that “a cap is the most effective way to re-power America.” He conceded that allowances will trade on a secondary market that could be volatile, regardless of whether they are auctioned or given away. Lashof insisted, however, that price fluctuations could have beneficial effects such as countercyclically providing price relief during a recession as is now occurring in the EU trading system. He listed six ways to manage volatility: 1) banking allowances, 2) market regulation, 3) access to high quality offsets, 4) complementary measures to promote energy efficiency, cleaner transportation and transformation of energy supply technology, 5) an allowance floor price established through a reserve price in the primary allowance auction and 6) a strategic offset and allowance reserve made available at a trigger price set to avoid undue economic harm.
Dallas Burtraw of Resources for the Future recommended a “symmetric safety valve” or “price collar” to set a floor and ceiling for allowance prices and limit market manipulation. Burtraw calculated that the acid rain (SO2) cap-and-trade program left roughly a billion dollars a year of environmental and public health benefits on the table because it lacks a price floor.
William Whitesell of the Center for Clean Air Policy agreed that a carbon tax would eliminate price volatility but expressed concern that even an adjustable carbon tax such as proposed earlier this month by Rep. John Larson might not reduce emissions enough to meet climate objectives. At the other extreme, he said, a pure cap-and-trade program lacks an effective mechanism to limit volatility. Whitesell called price volatility not only a market problem but a potential risk factor that would discourage investment in low-carbon energy supply and efficiency. He recommended Rep. Cooper and Doggett’s “Safe Markets” approach: an independent board would establish price targets to meet emissions reductions goals. The board would manage the supply of allowances to meet those price targets similar to the way the Federal Reserve manages interest rates.
Chan of Friends of the Earth predicted that carbon markets would experience boom-bust cycles. She noted that speculators now do the majority of carbon trading in the EU and predicted that they would continue to dominate as carbon markets grow. She suggested that speculation would drive prices higher, spurring development of sub-prime assets and creating the kind of bubble that precipitated the mortgage crisis.
Sub-prime carbon assets, Chan testified, would come from “shoddy” carbon offsets that would trade alongside emission allowances. She noted that in some proposals (e.g., USCAP’s January Blueprint for Legislative Action), offsets represent as much as 30% of carbon traded. Contending that regulatory agencies are often captured by well-heeled financial interests, Chan said FoE wants all offsets banned to preclude sub-prime carbon. She endorsed the structure of Rep. McDermott’s bill which eliminates the basic incentive for speculation by making prices predictable with quarterly sales that limit arbitrage opportunities.
Tufts University economist Gilbert Metcalf agreed with CBO’s Elmendorf that short-term price fluctuation is harmful and can obscure the longer-term price trends needed to set incentives. Metcalf testified that the trade-off between price certainty and emissions certainty can be managed under either a carbon tax or a cap-and-trade approach, but he cited these advantages of a carbon tax: first, it can be quickly implemented using existing structures; second, it avoids price spikes that can erode political support, such as the price spike that led to a relaxation of the cap in the Southern California smog emissions trading program, “RECLAIM.”
Metcalf recommended a “Responsive Emissions Autonomous Carbon Tax” (REACT) that would set an initial carbon tax with a specified growth rate, adjusted periodically to meet cumulative emissions goals, the structure that Rep. Larson’s bill employs. Metcalf suggested that in addition to straightforward implementation, and avoidance of price volatility, a carbon tax could be more easily made both revenue-neutral and regionally-neutral to reflect differing regional energy use patterns.
Alone among the panelists, Margo Thorning of the American Council for Capital Formation testified that all climate proposals would raise prices, hobble the economy, drastically raise unemployment and would not benefit the environment, because U.S. actions would not have any substantial effect on global emissions. She did, however, agree that a carbon tax would cause less volatility in energy prices than a cap and trade system.
Ways & Means Committee members questioned the panel extensively. Chairman Rangel (D-NY) asked whether revenue return would be easier with a carbon tax (as Metcalf had testified). Rangel said, “we want the most efficient system” and asked Elmendorf whether CBO had concluded that a carbon tax would work better. With the caveat that “CBO doesn’t advocate,” Elmendorf replied, “yes, cap-and-trade is less efficient than a carbon tax.”
Rep. McDermott (D-WA) asked why derivatives traders should be trusted to set carbon prices instead of EPA and Treasury. Lashof said we need market regulations. McDermott followed up: “Where have you seen a well-regulated derivatives market?” Metcalf and Chan nodded in agreement with his point.
Metcalf noted that the U.S. isn’t acting alone or first — the EU has led. He suggested that border tax adjustments provide a “GATT-legal” way to create economic incentives for other nations to follow and noted that such adjustments are easier with a carbon tax. Metcalf also noted that the EU had high unemployment long before its climate program started.
Rep. Doggett (D-TX) mentioned that last year’s Inslee-Doyle (“carbon leakage prevention”) bill included incentives for U.S. trading partners to enact their own carbon reduction systems. Doggett touted his “safe markets” approach — “training wheels” to limit volatility in the early years of the program.
Rep. Camp (R- MI) asked whether a carbon “cap and tax” would increase unemployment. Elmendorf replied that unemployment might temporarily rise in the transition to low-carbon energy, but because low-carbon energy production is likely to employ more workers, he expects the policy to reduce long-run unemployment.
Lashof disputed that climate policy would harm the economy. Even using Thorning’s estimate of a 1% relative reduction in GDP, Lashof calculated that the delay in the expected 50% growth to 2020 would amount to only several months. Lashof concluded that climate policy flexible enough to allow various compliance options should help build a more robust economy.
Links to written testimony:
- Douglas Elmendorf, Congressional Budget Office
- Daniel Lashof, Natural Resources Defense Council
- Dallas Burtraw, Resources for the Future
- William Whitesell, Center for Clean Air Policy
- Michelle Chan, Green Investments, Friends of the Earth
- Gilbert Metcalf, Tufts University
- Margo Thorning, American Council for Capital Formation
Graph: Point Carbon EUA OTC assessment
Note: British Columbia’s carbon tax remains the standard-bearer for carbon taxing in the Western Hemisphere. Click here for our Dec. 2015 report on its emissions impacts; click here for our press release; click here to download the data spreadsheet (xlsx).
Canada is set to impose a national carbon price in 2018. The initial price will be a minimum of $10 (Canadian) per metric ton (“tonne”) of CO2, and it will increase annually by $10/tonne to reach $50 in 2022.
The policy was announced on Oct. 3, 2016 by Prime Minister Justin Trudeau in an address to Parliament and widely reported across Canada. Here’s the lede from that day’s CBC News:
Prime Minister Justin Trudeau took provinces by surprise Monday by announcing they have until 2018 to adopt a carbon pricing scheme, or the federal government will step in and impose a price for them.
A tough-talking Trudeau told MPs in the House of Commons that provinces can craft a cap-and-trade system or put a direct price on carbon pollution — but it must meet the federal benchmark or “floor price.” “If neither price nor cap and trade is in place by 2018, the government of Canada will implement a price in that jurisdiction,” he said.
Trudeau made the announcement in leading off parliamentary debate on the Paris climate change agreement Monday, making the case for Canada to cut greenhouse gas emissions by 30 per cent from 2005 levels by 2030. Trudeau said the proposed price on carbon dioxide pollution should start at a minimum of $10 a tonne in 2018, rising by $10 each year to $50 a tonne by 2022.
Provinces and territories that choose a cap-and-trade system must decrease emissions in line with both Canada’s target and with the reductions expected in jurisdictions that choose a price-based system. Whatever model a province chooses, Trudeau said, it will be revenue neutral for the federal government, with any revenues generated under the system staying in the province or territory where they are generated.
In U.S. terms — applying a Fall 2016 exchange rate of 1.3 Canadian dollars to 1.0 U.S. and converting tonnes to tons — the price equates to $7 U.S. per ton at the start, rising to $35/ton in 2022. Inputting that price trajectory into CTC’s carbon-tax spreadsheet model suggests that a U.S. carbon tax at that rate would reduce CO2 emissions by 12-13 percent below “otherwise” emissions (without a carbon price) in 2022. While the two economies are far from identical, that result is probably a good first-order approximation of the prospective impact of the Canadian carbon price.
PM Trudeau’s policy appears to be modeled on the carbon tax adopted by British Columbia in 2008, discussed directly below. Both carbon prices employ a linear ramp-up plateauing in the fifth year, and both are revenue-neutral. The parallels point to the importance of putting an actual carbon tax in place to demonstrate its effectiveness and political acceptability and thus provide “proof of concept” to advance to the national level.
British Columbia is Canada’s third largest province (estimated 2015 population of 4.7 million). Its carbon tax is straightforward and transparent in both administration and revenue treatment, and it easily qualifies as the most significant carbon tax in the Western Hemisphere.
British Columbia inaugurated its carbon tax on July 1, 2008 at a rate of $10 (Canadian) per metric ton (“tonne”) of carbon dioxide. The tax incremented by $5/tonne annually, reaching its current level of $30 per tonne of CO2 in July 2012. At the U.S.-Canadian dollar exchange rate (1.00/0.75) in November 2015, and converting from tonnes to short tons, the provincial tax now equates to approximately $20.40 (U.S.) per short ton of CO2.
Emission Reductions from British Columbia’s carbon tax (this section is from our Dec. 2015 report)
From 2008 to 2011, British Columbia’s per capita emissions of carbon dioxide and other taxed greenhouse gases declined, continuing a downward trend that began in 2004. Averaged across the period with the tax (2008 through 2013; no data are available for 2014 or 2015), province-wide per capita emissions from fossil fuel combustion covered by the tax were nearly 13 percent below the average in the pre-tax period under examination (2000-2007), as shown in the graphic directly below.
The 12.9% decrease in British Columbia’s per capita emissions in 2008-2013 compared to 2000-2007 was three-and-a-half times as pronounced as the 3.7% per capita decline for the rest of Canada. This suggests that the carbon tax caused emissions in the province to be appreciably less than they would have been, without the carbon tax.
These figures come with an important caveat: They exclude emissions from electricity production ― a minor emissions category for British Columbia, which draws most of its electricity from abundant (and zero-carbon) hydro-electricity, but a major emissions source for much of Canada. This sector accounted for just 2 percent of total emissions from fossil-fuel combustion in British Columbia in 2013, but for nearly 20 percent in the rest of the country. More importantly, that sector constitutes most of the “low-hanging fruit” for reducing carbon emissions, since electricity generation affords more opportunities for quickly and easily substituting low-carbon supply than any other major sector. Eliminating it from our analysis allowed us to compare changes in emissions over time on an equal basis between BC and the rest of the country.
In terms of total emissions (not per capita), British Columbia emissions of CO2 and other greenhouse gases covered by the carbon tax (but excluding the electricity sector) averaged 6.1% less in 2008-2013 than in 2000-2007. (The reduction was 6.7% when electricity emissions are counted.) The 6.1% contraction is roughly what would be expected from a small carbon tax such as British Columbia’s.
We also found that British Columbia’s carbon tax does not appear to have impeded economic activity in the province. Although GDP in British Columbia grew more slowly during 2008-2013, the period with the carbon tax, than in 2000-2007, the same was true for the rest of Canada. From 2008 to 2013, GDP growth in British Columbia slightly outpaced growth in the rest of the country, with a compound annual average of 1.55% per year in British Columbia, vs. 1.48% outside of the province.
Nevertheless, as seen in the figure at left, GHG emissions increased in British Columbia in 2012 and again in 2013, not just in absolute terms but also per capita. This suggests that the carbon tax needs to resume its annual increments (the last increase was in 2012; its bite has since been eroded by inflation) if emissions are to begin again their downward track.
While we believe our report demonstrates unequivocally the success of the carbon tax at reducing BC’s emissions, our figures are less striking than reductions claimed in some other publications. For example, University of Ottawa law and economics professor Stewart Elgie, an eloquent supporter of the carbon tax, asserted in an 2015 interview in Yale’s “Environment 360” on-line journal, How British Columbia Gained by Putting a Price on Carbon (April 2015), that fossil fuel use in the province fell by 16 percent in the wake of the tax. While Prof. Elgie’s interview is a tour de force on the politics of designing, selling and implementing a carbon tax without disadvantaging vulnerable sectors and alienating the citizenry, we believe the figures in our report provide a more precise and comprehensive portrait.
Raise the Tax?
Not just the case for raising British Columbia’s tax, but a framework for doing so, was laid out in a Feb. 1 (2016) Huffington Post essay by Pembina Institute communications director Stephen Hui. Drawing on a report of the province’s Climate Leadership Team released in January by BC Environment Minister Mary Polak, Hui summarized the key recommendations (there were 32 in all):
- Increase B.C.’s carbon tax by $10 per tonne per year starting in 2018 (and use the incremental revenue to lower the provincial sales tax from 7% to 6%, protect low-income households and implement measures to maintain the competiveness of emissions-intensive, trade-exposed industry);
- Cut methane emissions from the natural-gas sector by 40 per cent within five years;
- Commit to 100 per cent renewable energy on the electricity grid by 2025 (except where fossil fuels are required for backup);
- Require new buildings to be so energy-efficient that they would be capable of meeting most of their annual energy needs with onsite renewable energy within the next 10 years (and starting in 2016 for new public buildings);
- Require an increasing percentage (rising to 30 per cent by 2030) of light-duty vehicles sold in the province to be zero-emission vehicles;
- Review the Climate Leadership Plan every five years.
(Although Hui didn’t say so, one can speculate that the financial incentives inherent in the robustly rising carbon tax levels in the first bullet point might by themselves exert enough force to effectuate most of the other recommendations).
In late March, more than 130 British Columbia businesses called on BC government to increase the carbon tax by $10 per tonne per year, starting in July 2018, as reported by Pembina.
The new Climate Leadership Plan is due out this spring, and the web-based public consultation period expires on April 8 (deferred from March 25). As Hui notes, this is a critical opportunity to rally public support for ambitious new actions.
Revenue from British Columbia’s tax funds more than a billion dollars worth of cuts in individual and business taxes annually, while a tax credit protects low-income households who might not benefit from the tax. All carbon tax revenues are being returned to taxpayers through personal income and business income tax cuts, as well as a low-income tax credit, fulfilling the 2008 promise of revenue-neutrality by Carole Taylor, who as BC finance minister shepherded the tax to implementation. A 2015 study by University of Ottawa graduate students concludes that BC’s carbon tax is “highly progressive” distributionally.
Mary Polak, BC’s minister of environment, commented in 2014, “We were told it would destroy the economy and we’d never get elected again, but we’ve won two elections since [our carbon tax] was enacted five years ago. It’s the revenue neutrality that really makes it work. We collected C$1.2 billion last year and a little bit more was returned.”
The Feb. 2008 BC Budget and Fiscal Plan spelled out the rationale, impacts and mechanics of the tax, including the revenue return provisions. The first 40 pages in particular make essential reading for any carbon tax advocate seeking to master not only the details of carbon taxing but communication tools for making a carbon tax palatable to the public. We also recommend Alan Durning’s March 13, 2008 Grist post, which usefully parsed the four principles embodied in BC’s carbon tax: revenue neutrality, phased implementation, protection for families, and broad coverage.
In May 2009, British Columbia voters re-elected Liberal Party Premier Gordon Campbell, under whose aegis the province’s carbon tax was proposed, devised and instituted, to a third four-year term. Our post, BC Voters Stand By Carbon Tax, reported on the election’s significance for carbon tax campaigners. See also Macleans magazine’s detailed take, Did Gordon Campbell Win Because of His Carbon Tax? In the same vein, the Vancouver Sun reported in November 2009 on the cost to the opposition New Democratic Party of its strident opposition to the BC carbon tax during the May provincial election.
In July 2012, on the occasion of the fourth (and final) annual increase in the BC carbon tax, the Toronto-based Financial Post newspaper chimed in with 4 key reasons why BC’s carbon tax is working. (The Post drew its text from the June, 2012 report by Sustainable Prosperity, British Columbia’s Carbon Tax Shift: The First Four Years.)
- Drop in Fuel Consumption: “The carbon tax has contributed substantial environmental benefits to British Columbia (BC). Since the tax took effect in 2008, British Columbians’ use of petroleum fuels (subject to the tax) has dropped by 15.1% — and by 16.4% compared to the rest of Canada. BC’s greenhouse gas emissions have shown a similarly substantial decline (although that analysis is based on one year’s less data).”
- Growth Unaffected: “BC’s GDP growth has outpaced the rest of Canada’s (by a small amount) since the carbon tax came into effect – suggesting that it has not adversely affected the province’s economy, as some had predicted. This finding fits with evidence from seven other countries that have had similar carbon tax shifts in place for over a decade, resulting in neutral or slightly positive effects on GDP.”
- Revenue-Neutral: “The BC government has kept its promise to make the tax shift ‘revenue neutral’, meaning no net increase in taxes. In fact, to date it has returned far more in tax cuts (by over $300 million) than it has received in carbon tax revenue – resulting in a net benefit for taxpayers. BC’s personal and corporate income tax rates are now the lowest in Canada, due to the carbon tax shift.”
- Greenhouse Gas Emissions Declining: “From 2008 to 2010, BC’s per capita GHG emissions declined by 9.9% — a substantial reduction. During this period, BC’s reductions outpaced those in the rest of Canada by more than 5%.”
A similar tack was taken in a July, 2012 NY Times op-ed, The Most Sensible Tax of All, by Yoram Bauman, an environmental economist and fellow at the Sightline Institute in Seattle, and Shi-Ling Hsu, law professor at Florida State University and former law professor at the University of British Columbia, and author of “The Case for a Carbon Tax” (Island Press, 2011). (Bauman has since become the spearhead of Carbon Washington and its Measure I-732 Carbon Tax initiative.)
A later summation is a July, 2014 Toronto Globe & Mail op-ed, The shocking truth about B.C.’s carbon tax: it works. Also useful is a July, 2014 op-ed in the Guardian, A carbon tax that’s good for business?, that cogently compares B.C.’s successful revenue-neutral carbon tax with Australia’s short-lived revenue-raising one.
BC’s Advantage — Abundant Hydro-Electricity
British Columbia’s carbon tax applies to energy sold and consumed in the province from fossil fuel combustion. (Notably, the tax excludes coal exported for combustion elsewhere.) Because the province is blessed with abundant sources of hydro-electric power, the price of electricity there is only minimally affected by its carbon tax. But BC’s power grid is linked to the U.S. Pacific Northwest and Alberta. Seasonal and daily fluctuations in power availability and electricity demand result in electricity inflows and outflows, in turn raising the question of whether BC’s carbon tax applies to the full carbon content of electricity consumed there.
Recent analysis indicates that at times, up to a quarter of BC’s electricity may be generated by fossil fuel sources outside the province, whose carbon emissions are not covered by the tax. Nevertheless, this should be seen as a minor flaw in BC’s carbon-tax leadership. Indeed, this instance of carbon leakage points to the need for adjacent jurisdictions, perhaps especially those linked through the power grid, to enact their own carbon taxes, as part of the march to a globally-harmonized carbon price.
Canada (other than British Columbia)
Why Saskatchewan should join the carbon-pricing club, Christopher Ragan, Globe & Mail, 29 Feb 2016.
Canada’s Atlantic provinces eyeing regional carbon price – PEI environment minister, Mike Szabo, Carbon Pulse, 14 Feb 2016.
Ottawa seeks to set national minimum on carbon pricing, Shawn McCarthy, Globe & Mail, 17 Feb 2016.
Canada’s second largest province began collecting a carbon tax on “hydrocarbons” (petroleum, natural gas and coal) on Oct. 1, 2007. Though the tax rate is quite small, the tax nevertheless made Quebec the first North American state or province to charge a carbon tax.
Here are details from the Toronto Globe & Mail (June 7, 2007, updated April 3, 2009):
Quebec will introduce Canada’s first carbon tax this fall, forcing energy producers, distributors and refiners to pay about $200-million a year in taxes as one part of an ambitious plan to fight global warming.
About 50 energy companies will be required to pay the new tax, including Ultramar Ltd., Petro-Canada and Shell Canada Ltd., which operate refineries in the province as well as distributors Imperial Oil Ltd., Irving Oil Ltd. and independent retailers.
Oil companies will be required to pay 0.8 cents for each litre of gasoline distributed in Quebec and 0.938 cents for each litre of diesel fuel. The tax is expected to generate $69-million a year from gasoline sales, $36-million from diesel fuel and $43-million from heating oil.
At March 2008 exchange rates, the petroleum tax rate equated to just 3.1 cents (U.S.) per gallon of gasoline and 3.6 cents for diesel. Moreover, because only a tiny fraction of electricity in Quebec is generated from fossil fuels (virtually all is from hydroelectricity), power prices are essentially unaffected.
Spread across Quebec’s population of 7,546.000 million (2006), the anticipated annual carbon tax revenue of $200 million is only $26.50 per person per year ($26.75 U.S.). For the U.S. to generate the same per capita revenue through a carbon tax would entail a rate of just $4.26 per ton of carbon (equivalent to $1.16 per ton of carbon dioxide), which equates to 1.1 cent (U.S.) per gallon of gas.
The worldwide fossil fuel divestment campaign got a huge boost this week when Guardian editor Alan Rusbridger boldly thrust his paper into the fray. Britain’s most respected newspaper is urging readers to sign a petition by 350.org demanding that the Gates Foundation and the Wellcome Charitable Trust divest from the world’s top 200 fossil fuel companies within five years.
Combined, the two charities manage over $70 billion in assets. Both say they consider climate change a serious threat. But last year the Gates Foundation invested at least $1 billion of its holdings in 35 of the top 200 carbon reserve companies, while the Wellcome Trust invested $834 million in fuel-industry mainstays Shell, BP, Schlumberger, Rio Tinto and BHP Billiton.
We’re both elated and concerned by Rusbridger’s audacious move. Elated that this distinguished and brave journalist has thrown down the gauntlet to the global fossil fuel industry. But concerned that this divestment campaign may raise false hopes.
As Matthew Yglesias articulated last year in a thoughtful piece on Slate, divestment by socially responsible investors, universities and even governments won’t starve capital flows to fossil fuel corporations anytime soon. That’s because in a global market, every share of stock we activists dutifully unload will be snatched up in milliseconds by some trader who can bank on humanity’s continued dependence on fossil fuels to continue generating profits.
South Africa’s historic divestment campaign — the one that helped topple Apartheid and enshrined divestment as a tool against oppression — was paired with a UN-sponsored boycott of South African goods. Not just aiming at the supply of capital but destroying the demand for goods sheared the Apartheid regime’s economic lifeline to the rest of the world more than either policy could have done alone.
No, we’re not suggesting a global boycott of fossil fuels. Rather, we point to the Guardian’s campaign to reiterate that the best and maybe only broadly effective way to reduce fossil fuel demand (which is the point of a boycott) is with a carbon tax. Economists agree on that policy prescription just as strongly as climate scientists agree on the diagnosis. And national-level carbon taxes can be designed to draw our or any nation’s global trading partners into carbon taxing, which means that a move by a big economy to impose a carbon tax will trigger a wave of followers.
So by all means, divest. The cultural and perhaps political opprobrium that divestment can spark is long overdue for the fossil fuels industry. But let’s not assume that divestment alone will break the chains of fossil fuel dependence. Even with the Guardian’s welcome campaign, the world still needs a transparent price on carbon pollution to strangle demand for fossil fuels by replacing them with non-carbon alternatives.
A new report from a British Columbia think tank reveals the inside story behind B.C.’s successful tax on CO2 pollution. “How to Adopt a Winning Carbon Price, Top Ten Takeaways from Interviews with the Architects of British Columbia’s Carbon Tax,” published by Clean Energy Canada, draws on extensive interviews with senior government officials, elected representatives and a broad range of experts who helped shape or respond to this groundbreaking policy.
British Columbia inaugurated its carbon tax on July 1, 2008 at a rate of $10 (Canadian) per metric ton (“tonne”) of carbon dioxide released from coal, oil and natural gas burned in the province. The tax incremented by $5/tonne annually, reaching its current level of $30 per tonne of CO2 in July 2012. At the current U.S.-Canadian dollar exchange rate (1.00/0.80), and converting from tonnes to short tons, the B.C. tax now equates to around $22 (U.S.) per ton of CO2.
In the tax’s initial four years (2008 to 2012), CO2 emissions from fuel combustion in British Columbia fell 5% — or 9% per capita, considering the province’s 4.5% population growth over that span. [NB: These figures are revised downward from the original version of this post; see editor’s note at end.] During the same period, emissions from the rest of Canada increased slightly. Revenue from the tax has funded more than a billion dollars worth of cuts in individual and business taxes annually, while a tax credit protects low-income households who might not benefit from the tax cuts. [Read more…]
The entrenched power of the fossil-fuel industry and its political backers isn’t all that stands in the way of taxes on carbon pollution. Outmoded ideas and enduring myths about energy use and taxes are also factors.
This page describes and dissects some of these misconceptions. Please send us your own favorite fallacies about carbon taxes. Ditto your suggestions or criticisms of ours.
Myth #1. A tax on carbon pollution will harm the poor and middle class.
Who says? Some low-income advocates, some left-of-center activists, some conservatives masking as populists.
Rebuttal: The wealthy use more carbon-based energy than the rest of us, by far. For every gallon of gasoline used by the poorest quintile (20%) of households, the richest quintile uses three.
A similar pattern holds for the other sources of carbon pollution: electricity, jet fuel, even diesel fuel that powers the trucks that deliver goods. It’s true that consumption taxes, a category including carbon taxes, are “regressive” — they take a larger share of income from low-income households — but that’s true only when the use of the tax revenues is ignored. The net impact can be made “progressive,” i.e., beneficial to people of below-average means, by proper distribution of those revenues.
One policy option is to distribute the revenue directly to households as regular “dividends.” Climate scientist Jim Hansen and the Citizens Climate Lobby are among those calling for all carbon tax revenues to be returned to citizens in equal, monthly “green checks.” In 2016 CCL released a working paper analyzing the short-term financial impact of a $15/ton carbon fee under this plan.
The report, which estimated household carbon footprints with new levels of detail, including crucial geographical variation, found that 53% of U.S. households (58% of individuals) would reap a positive net financial benefit, i.e., receiving more via the dividends than they would pay directly and indirectly in higher fossil fuel prices. The benefits would be greatest for lower-income, younger, senior, and minority households with nearly 90% of households below the poverty line benefitting from a carbon tax. The distributional effect would essentially shift purchasing power from the top quintile of households to the bottom two quintiles, highlighting the income-progressive nature of a fee-and-dividend plan.
A worthy alternative, which Al Gore and many economists advocate, is “tax-shifting” — use carbon tax revenues to reduce regressive taxes such as sales taxes and payroll taxes. (See our Issues page, Managing Impacts.) British Columbia has enacted and annually increased its revenue-neutral carbon tax with popular support by dedicating all revenue to reducing a variety of other taxes ranging from sales taxes to business taxes.
What’s really regressive is the impact of global warming. Sea level rise, food shortages and storms like Katrina, Irene and Sandy hit the poorest hardest.
Myth #2. Carbon taxes won’t change habits — after all, high gasoline prices haven’t cut usage.
Who says? An odd collection of groups and individuals, including former Sierra Club “CAFE” (car fuel-economy) lobbyist Dan Becker (“Even as gas prices have doubled and trebled over the past several years, we see little change in driving behavior,” Becker told the New York Times in October, 2006.)
Rebuttal: Four points are key. First, rises in gasoline prices have cut usage, and by more than a little. Comparing 2008, the last pre-recession year, to 2003, U.S. gasoline usage was unchanged even though economic activity was up 13%. What did the trick was the 73% higher price “real” (inflation-adjusted) price. Second, much of the increase in energy prices in recent years was masked by price volatility; as we show here, over the past decade or more, gas prices have fallen almost as often on a month-to-month basis as they have risen, masking the upward trend and convincing millions of Americans that prices would head south soon enough to make adjustments unnecessary. Third, other sectors, especially electricity generation, which emits nearly twice as much CO2 as cars, are even more price-sensitive. Last, price-responsiveness will grow as households have opportunities to buy more fuel-efficient vehicles and appliances, and as society transitions to a more fuel-efficient infrastructure — once we enact carbon taxes to send clear and strong price signals. (See our Issues page, Carbon Tax Effectiveness, for more discussion.)
Myth #3. Taxes on carbon emissions aren’t necessary. Vehicle efficiency standards and mandates or subsidies for wind turbines, ethanol, hydrogen, nuclear power [pick one or more] will solve the problem.
Rebuttal: Standards and subsidies are blunt instruments — vehicle efficiency standards don’t reduce vehicle usage, for example — and are often contested for years and then undermined by “gaming” (viz., the “light trucks” exemption from CAFE standards, or tax credits for hybrid SUV’s). Moreover, fuel usage is ever-changing and diffuse (a majority of petroleum is not used in cars or light trucks, for example), while efficiency standards are by nature both usage-specific and frozen in time. As for supply, economic theory predicts, and experience confirms, that raising the price of a harmful activity is always more effective at reducing that activity than is lowering prices of the thousands of imaginable alternatives — as we documented in the comments we submitted in January 2014 to the Senate Finance Committee. Only taxes on carbon pollution from fossil fuels can create the clear, rapid, across-the-board incentives needed to propel a massive shift to clean alternatives.
Myth #4. Heavy fuel taxes will constrict the economy.
Who says? Traditional growth champions, fossil fuel interests.
Rebuttal: Price volatility wreaks far more economic havoc than high or even steadily rising energy prices. Even fairly steep increases can be manageable so long as they’re regular and predictable, particularly now that the share of economic activity occupied by the fossil fuels sector is at an historic low — provided the revenues are distributed or tax-shifted back to Americans. And carbon taxes need not be draconian to accomplish their mission. Our program of recurring annual increases of $10-15 per ton of emitted carbon dioxide equates to 5-10% increases in energy prices per annum (with the percentages shrinking as the “base” rises and as non-fossil energy assumes a larger share). By comparison, the average annual real increase in U.S. gasoline prices in 2003-07 was 11%, but that didn’t stop the economy from growing at 3% a year. Needless to say, the true long-term threat to the economy (and everything else) is unchecked global warming, as the National Academy of Sciences warned years ago and the National Climate Assessment reiterated more urgently in 2014.
Myth #5. Carbon taxes will provide more revenue for government to squander.
Who says? Anti-tax groups, some conservatives, Tea-Partiers.
Rebuttal: Not if the tax is made revenue-neutral” via dividends and/or tax-shifting (see rebutgtal to Myth #1). Because higher taxes on fuels will create a strong “market pull” to clean energy, carbon taxes will put a big dent in fossil fuel use and CO2 emissions without having to earmark revenues for hybrid cars, mass transit, biofuels, etc. — or to lawmakers’ pet projects.
Myth #6. Heavy fuel taxes will price U.S. goods out of the marketplace.
Who says? Some business groups, some labor unions.
Rebuttal: This argument assumes a static economy, sans adaptation and innovation. In reality, increased energy taxes will shrink the trade deficit (by cutting both volumes and pre-tax prices of imported oil). The higher prices will also spark innovation in clean, efficient technologies better suited for world markets than, say, supersized automobiles. Finally, taxing energy will create parity with our traditional competitors — the EU and Japan — while encouraging like-minded actions in India, China and other emerging economies. In the interim, border tax adjustments can equalize prices of imports from non-carbon-taxing nations.
Myth #7. A carbon cap-and-trade system is as good as a carbon tax, and more politically feasible.
Who says (or said)? Too many “Big Green” groups; elected officials seeking to “hide the price” signals; business organizations and corporations that know a complex program like cap-and-trade can be more easily gamed in their favor.
Rebuttal: Click here for CTC’s dissection of the logistical and strategic differences between carbon taxes and cap-and-trade (they’re not minor). As for political feasibility, the political process has borne out our belief that carbon cap-and-trade was too complex, regressive, cumbersome and undemocratic to succeed. Supporters of cap-and-trade were never able to resolve this contradiction: either it wouldn’t raise fossil fuel prices, in which case it would be ineffectual; or it would raise them after all, provoking an unstoppable backlash among a citizenry that hadn’t signed off on the higher prices and wouldn’t be getting the dividends from the tax revenues, while carbon-market participants skimmed big profits. Moreover, cap-and-trade’s complexity guaranteed that it couldn’t be implemented for several years — the Northeast states’ electricity cap-and-trade system took five years to institute — whereas a carbon tax can be implemented within months, as British Columbia demonstrated with its 2008 carbon tax startup.
Myth #8. Americans are too myopic, and our politics too broken, for even revenue-neutral carbon taxation to ever take root here.
Who says: Veterans of failed past efforts to take on entitlements; assorted skeptics and cynics — including, sometimes, ourselves.
Rebuttal: This is the myth even we at CTC can’t dismiss out of hand. Witness the failure of past fuel-tax efforts, the resistance to fossil-fuel-displacing wind farms in some areas, and the persistence of costly tax entitlements like the deductibility of home mortgage interest payments from federal taxes — each, in its own way, testament to the dictum that “losers cry louder than winners sing,” in the words of University of Michigan tax policy expert Joel Slemrod.
Nevertheless, we’re working for a different outcome for carbon taxes. For one thing, emphasizing revenue-neutral carbon taxing can help dispel the presumption that a carbon tax is a tax hike. Second, because the non-climate benefits of carbon taxes are enormous, from cleaner air to less road gridlock, there are many opportunities to broaden support from traditional environmentalists. Finally, unlike 1980 or 1993, when fuel-tax proposals that were primarily designed for budget-balancing went down to defeat, the stakes are frighteningly high. Stiff carbon taxes can’t rescue the climate by themselves, but without them a rescue is virtually inconceivable. We remain hopeful that the American people will rise to the challenge.
The Case for a Carbon Tax (by Prof. Shi-Ling Hsu), reviewed here. Chapter 4 offers forceful responses to standard (and largely mythological) arguments against carbon taxes and chapter 5 delves into some of the psychology that biases many people against using price instruments to address global warming.
[NB: This post is co-authored with Christopher Ketcham. A slightly different version was published earlier today in The Intercept under the headline “What The Coronavirus Pandemic Can Teach Us About The Climate Emergency.”]
Greta Thunberg couldn’t do it. Bill McKibben and 350.org couldn’t do it, and neither could the Paris climate accord. But Covid-19 is cutting human-caused emissions of carbon dioxide and other greenhouse gases as travel and other economic activity in much of the world slow or halt altogether.
While the contraction in CO2 emissions set off by the virus may not be as pronounced as the related though distinct fall in “conventional” pollutants like soot and smog, it is far more consequential. Soot and smog poison and kill only in the present, while greenhouse gases stick around to maim the climate for the next century. Burning a fossil fuel today is tantamount to signing a death warrant for future generations. Conversely, forgoing an action that would have caused a fossil fuel to be burned creates a permanent benefit.
Until now, the only downturn of note in total worldwide CO2 emissions during the era of climate awareness — defined as the period beginning in 1995 with the first U.N. Climate Change Conference — was in 2009, the onset of the Great Recession. That downturn was brief and mild.
In contrast, the current contraction could be severe enough to cut in half this year’s addition to the atmosphere’s carbon dioxide concentration — the metric that dictates climate change — according to calculations by co-author Charles Komanoff for the Carbon Tax Center.
Is it cruel to point approvingly to the steep reduction in carbon emissions now unfolding, given the skyrocketing deaths, lost livelihoods, and widespread privation? And won’t the reductions be negated as the virus is tamed and emissions come roaring back? No and no.
Like so much else, whether or not the current reduction in CO2 is sustained will depend on who gets to reconstruct society after the virus. But the reduction will not be negated. Just as carbon emissions persist long enough in Earth’s upper atmosphere to act as permanent climate change agents in terms of one individual’s lifetime, avoided emissions are a permanent balm.
The airplane trips you won’t take this year won’t be made up in 2021, for the simple reason that most people who use airplanes do so regularly. A missed trip isn’t a once-in-a-lifetime experience that will be put back next year; it’s a missed trip, period. Ditto for work commutes and leisure activities.
So yes, the precipitous drop in burning petrol for vehicles and aircraft has a lasting imprint. The contraction of the U.S. economy this year could purge 30 to 40 percent of carbon emissions we would otherwise spew. Similar but milder jettisoning of carbon-burning in the rest of the world could collectively trim up to one part per million from the atmosphere’s present 415 ppm concentration of CO2 — a modest climate-protective achievement, to be sure, but one without precedent in the modern era.
The suffering is a different story. Were a happiness/misery calculator able to quantify the pluses and minuses to well-being from events befalling human society, the coronavirus’s flattening of the rising CO2-in-the-atmosphere curve would obviously be swamped by the lost life and the disordering of business as usual.
And yet business as usual must come to an end if we are to hand down a livable planet to our children.
The rub is how to slash carbon emissions with minimum suffering and maximum social and economic justice, and without nature forcing the reductions on us via pandemics or other chaotic black swan events that are surely in store.
The fact that human behavior and activity are undergoing climate-beneficial changes in the crucible of Covid-19 suggests that “business as usual” can be altered, and quickly. Though we can’t yet point to new models of planned and equitable carbon reduction, there are four identifiable pandemic-driven upheavals of social consciousness that should give us hope of instituting the transformations necessary for civilization not to commit collective climate suicide.
One is that science’s prestige and value are being restored. Americans watching Trump’s circus-like coronavirus daily briefings see National Institutes of Health immunologist Dr. Anthony Fauci stepping in to correct the president’s dangerously ignorant commentary. Similarly, we know it is the community of front-line doctors, nurses, and health care workers who will care for the sick; the epidemiologists and science journalists who will inform the public’s response; and trained chemists, biologists, and statisticians who will synthesize and prove the vaccines that will bring the pandemic to an end. As environmental legal scholar Michael Gerrard wrote last week, the climate change lessons of Covid-19 are to heed the warnings of scientists, do everything possible to minimize the hazards they predict, and prepare to cope with the impacts that remain.
Second, the crisis is helping us see just how much our well-being depends on muscular, proactive governance. Government of the people and for the people is literally the thing that’s now needed more than ever. The people must be sovereign over corporations and not vice versa — a point driven home by the tepid response of big business to Trump’s exhortations to step up manufacture of equipment to protect health care workers.
Third, we may be shaking loose the defeatism that nothing can be done quickly. Take the example of those of us sheltering in place: We are learning, overnight, that simplicity isn’t necessarily austerity, frugality need not be privation, and that we can forgo quite a lot of our leisure and consumer entitlements if it serves some higher purpose — at present, to stop the sickening and death of our fellow human beings; in the longer run, to bend the rising curve of carbon emissions and put a hard stop on climate chaos.
Moreover, if our society can act, finally, to manufacture a million ventilators and a billion protective masks, surely we can within a few years act on a far grander scale to erect, say, a million wind turbines, insulate and solarize a hundred million buildings, carve ribbons of bicycle paths throughout our cities and suburbs, and so on. With the pandemic enforcing a brutal but necessary reset, the NIMBYism that has impeded this kind of progress practically everywhere might be swept into the dustbin for good.
My well-being depends on your not being sick. My ability to be fed depends on your ability to grow and transport and distribute food. My life is now literally in your hands, as you make decisions whether to restrain your activity in the public sphere, keep your distance, self-quarantine.
If we so fully need each other, how can I abide your not having affordable health care? In this moment when the precarity of half or more of American households is laid bare, how can I abide a government that places the well-being of billionaires — whose wealth each week generates more money than many of us earn in a lifetime — above that of the 90 percent of Americans who make less than $100,000 a year?
What does solidarity have to do with climate? Everything. People whose health is tenuous and whose pocketbook is empty can’t easily stand up for climate action, but they may do so if government has put them on a solid footing and, in the Green New Deal, provided a framework for paying them good wages to actually implement it.
Synergies abound. With the U.S. government providing direct payments to American households, it’s only a step or two to paying coal miners and cattle ranchers to become solar installers and wind farm maintainers. Enacting some form of guaranteed income, even just temporarily, could pave the way for the “carbon fee and dividend” approach to taxing carbon fuels without further burdening the less well-off. In a different vein, trading frenetic foreign travel for staycations could downsize socially destructive companies like Airbnb, making rental apartments more affordable and in turn diminishing long-distance commuting and slashing carbon footprints.
As for the super-rich, never have their fortunes been so fully revealed as hollow and corrosive. Worldwide, the wealthiest 5 percent of households collectively burn more carbon than the entire bottom half, according to a comprehensive new report from the University of Leeds. Could the past decade’s research and agitation on economic inequality now culminate, in the pandemic’s wake, in an insistence on transmuting extreme private wealth into a new collectively shared wealth of renewable energy and sustainable communities?
Table presents the calculations and assumptions underlying Carbon Tax Center’s assertion that economic disruption from the pandemic could cut 1 ppm from atmospheric CO2. For fuller discussion, follow link from “calculations” higher up in the text.This, more than fossil fuel divestment or class-action litigation, is the kind of program that will actually cast off the yoke of the fossil fuel empire upon which the portfolios of the super-rich depend. In the process, the toxic aspiration to join the super-rich could be swept aside. Bye-bye, lusting after commuter helicopters. Bye-bye, hungering for one’s own island. Bye-bye, legislatures purchased by dark money.
As for those in the rarified upper classes who, in Margaret Thatcher’s iconic phrasing, embrace the libertarian right-wing precept that “there is no such thing as society,” let’s hope they will be answered by the millions of commoners who see clearly, as the pandemic rages, that we are all in this leaky boat together.
Charles Komanoff, a New York City-based economist and activist, directs the Carbon Tax Center. Christopher Ketcham, an upstate New Yorker, is author of “This Land: How Cowboys, Capitalism, and Corruption are Ruining the American West.”
Calculations by the Carbon Tax Center suggest that the worldwide economic contraction from steps being taken to slow the spread of deadly COVID-19 could halve this year’s rise in the atmosphere’s carbon dioxide concentration.
This finding is largely illustrative and encased in caveats. First, the average CO2 level wouldn’t actually fall; rather the business-as-usual annual rise of around two ppm would be trimmed to just one. And for that to happen, the slowdowns in travel, industrial production, goods movement and commercial activity, and the accompanying reductions in use of fossil fuels and carbon emissions, would have to be steep and prolonged, as our calculations show below.
The most critical caveat, of course, is the widespread deaths and massive dislocations bound up with these events. Megadeaths and cataclysmic job losses are not anyone’s preferred path for slowing climate change. Nevertheless, the calculations provided here may be instructive.
Federal bean-counters divide U.S. energy use into four categories: Industrial, Transportation, Commercial, Residential. We assume that the first three contract by 50 percent as factory production tumbles, aviation evaporates, commuting recedes, recreational travel dissipates, and offices, stores and performance spaces remain empty. (April 2 addendum: U.S. gasoline demand for the week ending March 27, before the economy fully shut down in all 50 states, was 27 percent less than in the same year-earlier week, according to Energy Information Administration data.) We assume that residential energy use, which currently is around a fifth of the total, rises by 10 percent due to enforced home-stays.
These assumptions add up to a 37 percent shrinkage in U.S. energy use measured in Btu’s. The fall in carbon emissions might be a bit greater since carbon-free energy sources — nuclear power, wind turbines and solar panels — would keep humming while dirtier coal and petroleum bore the brunt of the cutbacks. We’ll watch to see how other modelers handle the complex calculations.
Rest of World
U.S. carbon emissions now (2017) account for only 15 percent of the world’s total. To baseline the rest of the world’s CO2 we turn to the superb data compilations and visualizations assembled under the aegis of “Our World in Data.” Analysts Hannah Roser and Max Ritchie divide the globe into nine regions, plus International Transport (largely long-distance shipping and aviation).
We assigned various percentage reductions to each region as shown in the graph at right, starting with our U.S. figure of 37% derived above. Other reductions range from highs of 40% (International Transport) and 30% (European Union) to lows of 10% (Africa) and 15% (most of Asia; also Latin America).
We again stress that these are guesses and are skewed to the high side; as dire as things are, it still seems unlikely that fossil-fuel burning and consequent carbon emissions will fall this steeply. Moreover, deep contractions probably won’t be sustained for a full year.
Translating CO2 emissions to CO2 levels
The numbers are largely illustrative and we’ve pushed them hard. Summing the reductions shown in the graph, they imply that 2020 emissions conceivably could fall short of the 2017 baseline or “default” value by 7 to 8 billion metric tons (gigatonnes).
The redoubtable “Skeptical Science” brief, Comparing CO2 emissions to CO2 levels, tells us that each 7.8 gigatonnes of emitted carbon dioxide adds 1 part per million to atmospheric concentrations of CO2. Equivalently, reducing emissions by 7-8 gigatonnes — whether absolutely or relative to a baseline trajectory — averts a 1 ppm rise in atmospheric CO2.
Keep in mind that this would constitute a permanent drop. Atmospheric concentrations of CO2 would be 1 part per million less than otherwise not only at the end of 2020 but at the end of 2021, 2022 and every year going forward. The boon to climate and humanity, though slight (considering that the world has overshot the postulated 350 ppm maximum safe level by more than 50 ppm), would be indelible.
We hope in future posts to explore how much of the current reduction in CO2 might be negated by economic “bounceback” (short answer: not much); and, more importantly, how the economic and social upheavals from the coronavirus crisis might open up political pathways leading to decisive, longer-term action to bring down carbon emissions without widespread suffering.
[NB: A longer version of this post was published on March 13, 2020 in Counterpunch.]
Bike ticket sting at 59th and 1st Avenue. Two cops ticketing, I think, when folks turn right on red coming south/off the Queensboro Bridge.
Good lord, how do you schedule the spring ticket traps at the same time as you tell people to bike to work?
Those tweets, from a bicycle commuter and local journalist, respectively, are New York City Mayor Bill de Blasio in a nutshell. While encouraging Coronavirus-concerned commuters to cycle to work, he not only fails to carve out special lanes on streets and bridges, he also lets NYPD conduct its customary cyclist-summonsing traps as if nothing has changed.
Same goes for climate. De Blasio makes a show of divesting from and suing fossil fuel companies, winning him the allegiance of the climate vanguard. Yet throughout his mayoralty he has doggedly rejected mounting pleas to “break car culture” in the very place where his authority matters. His administration gives drivers a free pass to contribute to rising global temperatures even as their driving repeatedly puts other New Yorkers at risk.
I have a foot in both the climate camp and New York’s “livable-streets” camp. I’ve fought fossil fuel use for almost half a century and currently head the militant pro-climate Carbon Tax Center. Locally, I’ve been an architect of congestion pricing, a bicycling activist and a direct-action campaigner for pedestrians’ rights. The juxtaposition of de Blasio’s climate calls-to-arms with his pro-driving policies is head-spinning.
Is it worth calling out a lame-duck mayor’s complicity in car culture? Yes. New York retains an outsize influence on urban policy and culture. Actions here to de-emphasize automobiles could reverberate globally and help shrink burgeoning transportation emissions. Moreover, de Blasio recently returned to the national stage, stumping for Bernie Sanders. Before his self-proclaimed myth as climate mayor goes national, we should scrutinize his record.
De Blasio is M.I.A. on breaking car culture
Public interest in transit and traffic in New York City blossomed over the past decade. Ideas and activism abound. De Blasio remains oblivious.
Take congestion pricing. For years the mayor deflected talk about tolling drivers entering Manhattan with ginned-up sob stories about having to pay $12 to drive to $500 doctor visits. He got on board only after his hand was forced by the governor.
Or “Fair Fares,” a progressive idea to have city government pick up half of the cost of poor families’ Metrocards. De Blasio brushed it off until City Council activists attained a veto-proof majority. When it passed, City Hall slow-rolled the implementation.
Busways? Transit buses have hemorrhaged ridership for years, largely because mounting car and truck traffic has brought them nearly to a standstill. After de Blasio agreed to let transportation officials pilot car restrictions on one crosstown route, speeds and usage shot up. Yet the mayor won’t commit to replicating it elsewhere.
The story repeats on almost every transportation front. The mayor stood by as Uber and other ride-hailing services muscled into the Manhattan taxi franchise, bankrupting thousands of cab drivers, worsening traffic and undermining mass transit. He lets free-parking pleaders delay bicycle lanes even as biking fatalities hit a 20-year high. And de Blasio’s signature “Vision Zero” traffic-safety initiative is undermined daily by his denial of NYPD’s entrenched pro-driver bias. Police issued more summonses to bicycle riders than truck drivers last year. Unsurprisingly, pedestrian fatalities, many under the wheels of trucks, are on the rise.
The twin threads running through this account are passivity and fatalism. In de Blasio’s New York, everyone is a driver and every car and truck trip is sacrosanct.
Confronting Big Oil has delivered little
The mayor’s bold words on climate haven’t yielded much. On divestment, it took city officials two years simply to select advisers “to evaluate options and recommend actions.” The city’s lawsuit seeking to hold oil and gas companies liable for climate change harms was dismissed in federal district court, for pre-emption.
But a municipal climate strategy built on attacking Big Oil has a graver defect: Neither divestment nor litigation materially alters the systems of demand and supply that generate the carbon emissions that are wrecking the climate.
To be sure, divestment campaigns and demands to hold fossil fuel companies liable are contributing mightily to movement-building and elevating climate change politically. Because of these campaigns, climate advocacy has been surging, which promises big policy dividends down the road.
But it’s also true that even if fossil fuel stocks are dumped from city pension portfolios, every drop of drivers’ demand for fossil fuel will still be met at the gas pump.
From a carbon standpoint, divestment, litigation and general saber-rattling against Big Oil are essentially performative acts. Any payoff will take decades to appear. Yet de Blasio holds the reins over a multiplicity of policies that determine how much New Yorkers drive and, thus, how much gasoline they burn. He simply chooses not to wield them.
Why “breaking car culture” is anathema to de Blasio
De Blasio’s disinterest in reducing automobile use in New York City is easily explained. He lives inside a windshield world.
Questioned not long ago about possibly converting “free” parking on residential streets to metered parking, de Blasio said:
“If we’re going to tell people they can’t park on their street, no, that does not ring true to me. If you go so far as telling people they can’t park on their street, no, I’m not there.”
Yet the idea put to the mayor wasn’t to ban street parking but to charge for it — which could make parking easier for most by inducing a fraction of residents to stop storing cars on the street.
The same reflexive identification with driving underlies de Blasio’s gut-level resistance to nearly every proposal to alter the city’s streetscapes so New Yorkers can safely and easily get around without a car.
As one City Hall reporter put it, “De Blasio is a driver. He’s also a very affluent man who views himself as an average middle class guy. So he genuinely believes ‘Oh this [congestion pricing] is going to hurt lots of regular Joes’ without examining any data behind that belief.”
Yet congestion pricing alone will cut New York City’s CO2 pollution by nearly a million metric tons a year, an amount nearly triple the drop in New York’s car and truck emissions from 2005 to 2017 (which came about only because federal mileage standards made new cars less inefficient).
And those million tons are just congestion pricing’s down payment for climate. As I wrote two years ago, when the mayor was still badmouthing the idea:
Congestion charging’s true climate payoff is in the households, jobs, and activities that will locate or remain in the city, rather than fleeing to the new exurban ring or the Sunbelt, which have carbon footprints many times larger than New York’s.
Is climate posturing de Blasio’s way to avoid reckoning with NYC’s car culture?
Notably absent from the livable-streets movement are most self-described climate activists — groups like Bill McKibben’s 350.org or Food and Water Watch. This prompts the question: are plaudits from climate leaders letting the mayor deflect efforts to downscale the primacy of cars and make the streets not just safer but more sustainable?
Make no mistake: the climate vanguard’s embrace of the mayor is powerful.
Just last month, McKibben posted on Twitter:
Remarkable: in his State of the City address, @NYCMayor Bill de Blasio just said NYC will never again approve new fossil fuel infrastructure. That is, the fossil fuel age is now officially in its twilight in the world’s financial and diplomatic capital. (emphasis added)
New Yorkers by the thousands have organized for years to win better subways, safe bicycling and vital public spaces — both for their own sakes and because they enable a city with fewer cars. The fossil fuel infrastructure confronting us daily is the hellscape of cars and trucks.
Livable-streets advocates are counting down the 22 months left in de Blasio’s second and final term. We’re weary of his inane climate pronouncements and his cluelessness about what being a climate mayor really means. We yearn to be free of the spectacle of a mayor pontificating about Greta Thunberg while refusing to use mass transit.
But mostly we long for, and are resolved to elect, a mayor who at long last understands that breaking car culture lies at the heart of urban climate action.
Economic inequality began entering widespread discourse in the U.S. in 2011, propelled by the “Occupy” movement. Attention to it has risen meteorically while the scope of the issue has broadened considerably.
First to be discussed was income inequality — the stark and widening gap between annual wages and earnings of the top 1 or 1/100 percent of U.S. households and everyone else. Among the many formulations, this one stood out:
Since 1980, the U.S. economy has transferred eight points of national income from the bottom 50 percent of households to the top 1 percent: the share of income going to the bottom 50 percent fell to 13 percent from 21 percent while the share accruing to the top 1 percent grew from 11 percent to more than 20 percent, according to a Chicago Tribune story summarizing the 2018 World Inequality Report. (See graphic at left.)
Stage two in inequality discourse was wealth inequality — the aggressive appropriation by the super-rich of U.S. assets: bank accounts, stock funds, bonds, partnerships and other financial assets, along with real property — houses, land, real estate, art and so forth.
Again using 1980 as a baseline, total wealth held by the top 1 percent of U.S. families “snowballed,” as the graphic at right states, increasing more than 6-fold, from $5 trillion to $33 trillion. At the same time, holdings of the bottom 50 percent of households inched upward by a measly $100 billion — from $400 billion to $500 billion. (Figures are in 2018 dollars.) The wealth of the top 1 percent now dwarfs that of the entire bottom 50 percent by a factor of 66. This makes for a per-household disparity of 3,300 (since 66 x 50 = 3,300).
The third and current “frontier” in the inequality discussion, and the most salient one not just for the 2020 election but potentially for climate policy as well, is tax inequality, encompassing the remarkable decline since 1980 in taxes paid by the wealthiest Americans relative to their incomes … and the rise in tax payments by ordinary households relative to their incomes.
The graphic below differs from the prior two in that the wealthy are represented by the 400 richest Americans — a far more rarified stratum than the roughly 1.3 million households that constitute the 1 percent depicted in the other graphs. It also reaches back to 1960 rather than 1980 to demonstrate that the share of pre-tax income that the super-wealthy are paying in taxes has fallen precipitously from 57-58 percent in 1960 to 23 percent, while taxes paid by the bottom half of Americans now (in 2018) have risen to 24 percent of their income.
“For the first time,” report U-C Berkeley economics professors Emmanuel Saez and Gabriel Zucman, in 2018 “billionaires paid lower tax rates than the working class,” which is how Saez and Zucman characterize the bottom 50 percent of U.S. households. This is no Warren-Buffet-is-taxed-less-than-his-secretary unicorn but a comprehensive finding based on exhaustive quantification of every type of tax to which Americans are subject: federal income taxes, state income taxes, state sales taxes, payroll taxes, property taxes, estate taxes, and excise taxes on gasoline, alcoholic beverages and imported goods (tariffs).
Over the course of 2019, Saez and Zucman helped put tax inequality on the political map by assisting Sen. Elizabeth Warren and, later, Sen. Bernie Sanders in formulating their plans to levy taxes on “extreme wealth.” The Warren plan would tax household wealth above $50 million at annual rates of 2 percent (Warren calls this her “2 cent” tax), rising to 3 percent on wealth in excess of $100 million. Sanders would similarly tax wealth above $32 million — a level enjoyed by the top 0.1 percent (1/10 of 1 percent) of U.S. households — at 2 percent, with the rate rising progressively until reaching 8 percent for household wealth exceeding $1 billion.
It doesn’t take a degree in economics to see why tax inequality has skyrocketed along with wealth inequality for a half-century, and especially since around 2000. The marked reduction in tax rates has allowed wealthy Americans to hold on to increased shares of their income and thus to amass ever-larger piles of wealth.
At the same time, the super-wealthy have invested some of their increased holdings in anti-tax think tanks, media, campaign contributions and lobbying that have steadily chipped away not just at tax rates themselves (on corporate taxes, capital gains taxes and estate taxes) but at the very conception of taxes and government as expressions and agents of the common good. A key development, as Saez and Zucman report in their new book (available via this link to the publisher, not Amazon), has been the emergence of a full-fledged tax-avoidance industry dedicated to enabling rich households to reduce the exposure of their income to even the lowered rates specified in the U.S. tax code.
“It is as if a century of fiscal history has been erased,” write Saez and Zucman. “The wealthy have seen their taxes rolled back to levels last seen in the 1910s, when the government was only a quarter of the size it is today.” Especially since 1980, they add, “the tax system has enriched the winners in the market economy” — particularly globalization, financialization, communications and digital tech — “and impoverished those who realized few rewards from economic growth.”
While these trends are powerful, they aren’t inevitable. “The history of taxation,” Saez and Zucman report, “is full of U-turns.” We at Carbon Tax Center intend to help American society execute a full U-turn toward tax equality. Our part will be to conceptualize and map a plan to tax extreme wealth and invest the proceeds in a Green New Deal of low- and eventually zero-carbon infrastructure based on 100% renewable power and conversion of all transport, heating and cooling and industry to electricity.
Don’t miss Saez and Zucman’s Web site, TaxJusticeNow, which not only includes the charts presented here (and many others) but allows viewers to input their own tax plans and see outcomes including revenue streams and reductions in the wealth of Bezos, Zuckerman and other prominent billionaires.
Note: As much as we admire and rely on the work of Saez and Zucman, they are far from the only sources quantifying and documenting U.S. economic inequality. The invaluable Center on Budget and Policy Priorities publishes and updates a useful Guide to Statistics on Historical Trends in Income Inequality. The Web site Income Inequality cuts a very wide swath that we are just beginning to explore. An extremely useful post in Vox by Dylan Matthews in August 2019, You’re not imagining it: the rich really are hoarding economic growth, considered various “technical” objections to the Saez and Zucman work (e.g., deflating income growth by the Consumer Price Index unfairly flattened lower-income families’ real income gains) and Saez-Zucman counterarguments to those.
Note: You can read more about Saez and Zucman in the New York Times’ Feb. 20, 2020 profile, The Liberal Economists Behind the Wealth Tax Debate.