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.
The Carbon Tax Center has had qualms since day one about campaigns to compel institutions to divest from their fossil fuel holdings. The morality is great, but impact is lacking.
“Divestment can’t loosen the fossil fuel stranglehold without a carbon tax,” we wrote in a photo caption in our first stand-alone post on divestment four years ago.
Today, with a broadened outlook, we would write that divestment can’t loosen the fossil fuel stranglehold without a Green New Deal-level massive investment in decarbonization, with a robust carbon tax playing a major contributory role — a position we outlined in a post earlier this year, Carbon Tax Advocates Should Embrace a Green New Deal.
Our 2015 post outlined why fossil fuel divestment is a dead end:
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. (emphasis added)
Why bring this up now? Because we just stumbled across an illuminating 2018 interview with U-Mass economist Robert Pollin, a prominent climate academic-activist and co-author of a detailed financial analysis of fossil fuel divestment impacts. The interview, posted at Truth Out in May 2018, is entitled, Are Fossil Fuel Divestment Campaigns Working? A Conversation With Economist Robert Pollin. Sadly but unsurprisingly, Pollin concluded in his analysis, also from 2018, that they aren’t.
Here’s the key excerpt. The questioner is C.J. Polychroniou, a Truth Out contributor and political economist-scientist. We added boldfaced type, for emphasis.
Q: One approach that has become quite popular in recent years is the strategy of divestment. However, the recent study you coauthored with Tyler Hansen questions the effectiveness of the strategy of divestment in reducing carbon emissions. How did your study come to that conclusion?
A: In this new research paper, Tyler Hansen and I concluded that divestment campaigns have not been especially effective as a means of significantly reducing CO2 emissions, and they are not likely to become more effective over time. Our study includes both an analysis of the available data on global divestment patterns as well as a formal statistical modeling exercise that evaluates the impact of divestment events — such as when the New York City pension fund decided last January to sell off all of their fossil fuel company holdings — on the stock market prices of fossil fuel companies.
We found two basic things from this research. First, to date, we found the total level of divestment commitments to be at about 0.7 percent of total global private fossil fuel assets (assets committed to divestment are at about $36 billion while total global private fossil fuel assets are at $4.9 trillion). Second, we found no evidence that any divestment actions, including the recent New York City pension fund decision, has [sic] had any significant negative effect on the stock prices of fossil fuel companies.
The basic problem with the strategy is straightforward. Ethically motivated owners of fossil fuel stocks and bonds — such as the New York City Council — do certainly have the power to sell these assets as a statement of principle and act of protest. But this act of protest will have no direct impact on the operations of the fossil fuel companies as long as investors who are profit-seekers, as opposed to being motivated ethically, are willing to purchase the stocks and bonds that ethically motivated investors have put up for sale. Indeed, the core divestment strategy of selling fossil fuel assets is, at best, incomplete until one addresses this question: Is there somebody out there still willing to purchase these fossil fuel assets, and if so, and at what price? The answer is, yes, there are plenty of people ready to purchase shares of fossil fuel companies as long as they can profit by owning these shares.
In addition, the profit opportunities from owning oil, gas and coal company stocks are not diminished through the divestment-led sales per se. This is because divestment per se does not affect either how much it costs to produce fossil fuel energy or how much consumers are willing to buy. In theory, divestments might be capable of pushing down stock market prices of fossil fuel companies. But it is also likely that any such impact on stock prices is going to remain negligible as long as profit-seeking investors continue to make money. And they will continue to make money unless we succeed in either raising costs of producing fossil fuels or limiting how much fossil fuel energy consumers can buy.
Pollin hastens to add, as we did in 2015, that he and his co-author Tyler Hansen “greatly respect the accomplishments of the divestment movement”:
[Divestment campaigns] enable activists to fight for goals that can be clearly articulated and achieved within the institutions and communities in which they work and live, as opposed to attempting to influence public policies where the decision-making process is more remote. Divestment campaigns also have a demonstrated record of success in raising consciousness as to the urgency of dramatic action on climate change, and the need to confront the power of the fossil fuel industry as the single greatest barrier to advancing a viable climate stabilization project.
Despite these substantial accomplishments, we nevertheless conclude, based on the findings we present here, that most efforts now devoted to divestment campaigns would be better spent on more direct efforts to drive down fossil fuel consumption and CO2 emissions. We simply don’t have time to lose in pushing as effectively as possible on the fundamental goal which we cannot lose sight of — which is to drive CO2 and other greenhouse gas emissions down to zero as quickly as possible. We need to remember that, at best, divestment is a means to an end, with the end itself being eliminating emissions.
There’s a wealth of supporting analysis in the Pollin-Hansen paper (here’s link, again). But the takeaway remains that divestment is primarily a tool for movement-building rather than carbon-busting. Climate laggards like New York City Mayor Bill de Blasio who wrap themselves in the mantle of fossil-fuel divestment are just green-washing.
This page, begun in spring 2019, covers the intersection of carbon pricing and other climate policy issues with the 2020 presidential campaign. We update it continually. Last update: June 11, 2019
Inslee demands DNC rescind its climate-debate ban
Washington Gov. Jay Inslee used his June 11 appearance on “Democracy Now” (downloadable MP3) to demand the Democratic National Committee withdraw its threat to exclude from its forums any presidential candidate who participates in non-DNC-sanctioned debates.
Inslee addressed the DNC stance at the start of his 30-minute interview with Democracy Now hosts Amy Goodman and Juan Gonzalez (the segment begins at minute 13:00 of the program). The interview focuses, as does Inslee’s campaign, on climate change but it also ranges across related topics such as immigration, health care and economic development.
Biden climate plan includes a fee on carbon pollution . . . and carbon tariffs
Former V-P and current Democratic front-runner Joe Biden “proposes that Congress pass a law by 2025 to establish some form of price or tax on carbon dioxide pollution, a policy championed by most economists as the most effective way to fight climate change,” the New York Times reported on June 4.
Though Biden did not specify a dollar level for a carbon tax, and a 2025 launch date appears very far off, his climate plan, which goes far beyond a carbon price, was applauded by some activists. “He put out a comprehensive climate plan that cites the Green New Deal and names climate change as the greatest challenge facing America and the world,” Varshini Prakash, executive director of the Sunrise Movement, told the Times. “The pressure worked.”
The Biden plan also includes “carbon tariffs” on imported goods, according to the Times. Such a measure presumes a U.S. carbon tax, since carbon tariffs would be levied on the excess of domestic U.S. carbon taxes relative to other countries’ own carbon price. (For more on carbon tariffs see our Border Adjustments page.)
Dems: 8 out of 18 strongly for taxing carbon emissions
A year and a half out, the 2020 presidential campaign has already paid more attention to climate change than any previous election — perhaps even every previous election combined. (Bill McKibben surveyed the depressing history as part of an election preview for Politico.)
The best news of all is that voters are speaking up. In an April 2019 Monmouth University Poll of Iowa Democrats, climate change ranked second among issues of concern, albeit far behind health care. (Environmental concerns generally also ranked fairly high, which may also reflect climate concern.) The June 4 Times article cited above (re Biden) quoted a Democratic pollster proclaiming, “Climate change is an incredibly important issue for the Democratic base right now. It’s about the future, and it’s something that [President Trump] has made worse in the minds of the Democratic base.”
The candidates — well, the Democrats, anyway — are responding:
- Every sitting senator in the race has cosponsored the Green New Deal resolution sponsored by Sen. Edward Markey (D-MA). (CTC policy associate Bob Narus identified the policy synergies between carbon taxes and the Green New Deal in two recent posts, Green New Dealers Should Embrace a Carbon Tax and Carbon Tax Advocates Should Embrace a Green New Deal.)
- A dozen candidates have sworn off campaign contributions from fossil-fuel companies, according to Oil Change International (see graphic).
- Most importantly, a number of candidates — Beto O’Rourke, Jay Inslee, Elizabeth Warren and, now, Joe Biden have rolled out serious, detailed climate programs. (See below for coverage of these proposals.)
Only three candidates have explicitly endorsed a carbon tax, however. Aside from Biden, Former Maryland representative John Delaney was an original cosponsor of the Energy Innovation and Carbon Dividend Act of 2018, which largely followed Citizens’ Climate Lobby’s fee-and-dividend template. And South Bend, Indiana, mayor Pete Buttigieg made an articulate case for the same approach in an appearance on the Tonight Show (beginning at 6:15):
There’s also a plan called a carbon tax and dividend. Basically you set a price on things that put carbon into the atmosphere, but then you can rebate that back out to the American people so most of us would actually be better off if we did it. Meanwhile it would help change the economic incentives so that you’d see less activity that hurts the environment. Because the true cost is not reflected in the price of, for example, energy that comes from coal. If you were facing the true cost of it you’d have to set that price a lot higher.
Most of the field has been tiptoeing around the issue, perhaps fearing, in the words of New York Times columnist David Leonhardt, that carbon taxes “focus people’s attention on the short-terms costs of moving away from dirty energy” instead of on the benefits of clean energy.
But if they aren’t running on carbon pricing, at least some of the candidates aren’t running away from it, either. In April 2019, when the Times surveyed the announced Democratic candidates (18 at the time) on climate change, it found seven who “put their weight firmly behind a carbon tax”: Cory Booker, Pete Buttigieg, Julián Castro, John Delaney, Kirsten Gillibrand, Marianne Williamson and Andrew Yang. (Presumably, Biden has joined the ranks.)
Five others said they were “willing to consider” a carbon tax, according to the Times: Jay Inslee, Amy Klobuchar, Beto O’Rourke, Tim Ryan, Eric Swalwell.
In May 2019, Citizens Climate Lobby posted a more detailed survey, Which 2020 candidates support carbon pricing?, with thumbnails of eight Democratic candidates as well as two possible Republican challengers to President Trump.
Sanders is said to “demote” carbon taxing
A Climatewire story in early June examined the reticence of climate hawk and erstwhile carbon tax proponent Sen. Bernie Sanders to express support for carbon taxing in 2019. Though the story, Sanders demotes carbon taxes. Here’s what it means for Dems, leads with the Vermont senator, it finds a similar reluctance across much of the Democratic field.
First, about Sanders:
His [Sanders’] 2020 presidential campaign still focuses on global warming, but gone are the regular broadsides over carbon pricing. Missing, too, is any reference to carbon taxes in the climate section of his official campaign website. Instead, Sanders has chosen to emphasize the Green New Deal when talking about climate change — a shift that underscores how much the politics of global warming have transformed in a few short years. Part of that, perhaps, is a broader decline in enthusiasm for carbon pricing among left-leaning politicians and activists.
Climatewire also notes:
Sanders’ shift in focus is striking. During the 2016 campaign, Sanders repeatedly hammered Clinton over her unwillingness to get behind a tax on carbon emissions. “I would ask you to respond. Are you in favor of a tax on carbon?” he asked in one debate. Later — after Clinton had sewn up the Democratic nomination — Sanders pressed to include carbon taxes in the party’s 2016 platform in part by appointing longtime environmentalist Bill McKibben to the drafting committee.
(We reported those 2016 developments in two posts, What the Sanders-Clinton Clash over a Carbon Tax Says about Democrats and Climate Change, and Democratic Platform Vote Was a Win for Carbon Taxes.)
The Climatewire story concludes with a curious but revealing quote from an advisor to Congressmember and Green New Deal spearhead Alexandria Ocasio-Cortez. “I feel we’re very locked into what we can do when we lead with a carbon tax,” says Andrés Bernal. The operative word is “lead,” as the story implies by noting that Bernal’s statement “doesn’t mean [he] doesn’t see carbon taxes as part of the equation at some point.”
Even so, any “lock-in” would be in the realm of politics, not policy. A carbon tax was never going to be a stand-alone, but rather both a market-pulling force and a pay-for, as this site has pointed out practically since its founding in early 2007, most recently in the April post by CTC policy associate Bob Narus, Green New Dealers Should Embrace a Carbon Tax.
On April 29, former Texas representative Beto O’Rourke surprised everyone by being first out of the Democratic gate with a comprehensive climate policy. His four-part plan includes:
- Immediate executive and regulatory actions ranging from controlling methane leakage and building efficiency standards to “clean” government procurement
- $1.5 trillion in spending (paid for by taxes on the wealthy and corporations), leveraging an additional $3.5 trillion in non-government spending, on clean energy investments and R&D
- A 2050 target date for net-zero emissions
- Efforts to protect communities, agriculture and military installations from the impacts of climate change
O’Rourke doesn’t use the term “carbon tax,” but he does promise a “legally enforceable standard” for meeting the 2050 deadline, explaining:
This standard will send a clear price signal to the market to change the incentives for how we produce, consume, and invest in energy, while putting in place a mechanism that will ensure the environmental and socio-economic integrity of this endeavor — providing us with the confidence that we are moving at least as quickly as we need in order to meet a 2050 deadline.
That language seems to envision some form of carbon pricing.
On May 3, Washington Governor Jay Inslee released his “100% Clean Energy for America Plan” in several media (video, Web page, 8-page pdf). Carbon pricing isn’t mentioned. Excerpts from the Inslee campaign’s Web page:
Governor Jay Inslee’s 100% Clean Energy for America Plan will achieve 100% clean electricity, 100% zero-emission new vehicles and 100% zero-carbon new buildings. This plan will empower America to make the entire electrical grid and every new car and building climate pollution-free, at the speed that science and public health demand.
The 100% Clean Energy for America Plan is the first major policy announcement in Governor Inslee’s Climate Mission agenda – a bold 10-year mobilization to defeat climate change and create millions of good-paying jobs building a just, innovative and inclusive clean energy future, with meaningful targets and plans for execution based on his experience as a governor. Governor Inslee will announce additional major planks of his detailed climate plan in the coming weeks.
Two weeks later came Phase 2 — Inslee’s Evergreen Economy Plan. The 38-page plan defies easy summarization, but highlights include:
- a Rebuild America Initiative to upgrade buildings
- a $90 billion green bank to support clean energy projects
- a $3 trillion infrastructure program
- a clean manufacturing program, including federal procurement standards
- greatly expanded clean-energy R&D
- higher wages, benefits and union rights for clean-energy workers
All told, Inslee proposes spending $300 billion per year, leveraging another $600 billion in private investment , for a total of $9 trillion over a decade. No word yet on where he plans to get that $300 billion/year. “I have plans,” he told us at a Manhattan meet-and-greet the same day he released the proposal.
Not surprisingly, Inslee is winning the David Roberts Primary:
To put it bluntly, Inslee is writing a Green New Deal. . . . This isn’t just a campaign play, it’s a document the next Democratic president is going to want in-hand when the time comes to get to work.
Alexander Kaufman at Huffington Post also has a good summary of Inslee’s plan.
This page will be continually updated as candidates release major climate proposals.
CTC policy associate Bob Narus wrote last month that Carbon Tax Advocates Should Embrace a Green New Deal. Here is his mirror-image brief for including a robust carbon tax in a Green New Deal.
The Green New Deal isn’t a policy yet. Right now, it’s mostly an aspirational slogan and a set of bullet points, which is fine for the moment. There’s time to work out the policy details. But it’s important that a robust carbon tax become one of those bullet points, because without it no deal, no matter how new and green, can do everything we need to do to prevent global climate change from spinning out of control.
Whether a carbon tax is part of the Green New Deal depends on whose Green New Deal you mean. The Data for Progress report, A Green New Deal — essentially Document Zero for the Green New Deal movement — doesn’t endorse a carbon tax but does note that “there is new analysis that a carbon tax will not hamper the economy, particularly as revenues are reinvested smartly in communities.”
The Alexandria Ocasio-Cortez/Ed Markey resolution, H.R. 109/S.R. 59, doesn’t mention a carbon tax, or any other potential source of funding for its ambitious goals, but AOC herself has publicly recognized the need for taxes to internalize the externalities of some industries or markets.
The policy details will fall into place over time. In particular, one hopes the many Democratic presidential candidates who have endorsed a “Green New Deal” will say more about what they mean by that — which policies they would include, what they’ll cost, how to pay for it all.
In short, we will have a national conversation about the Green New Deal. To everyone engaged in that conversation, here’s a quick take on why a carbon tax should be part of it:
1. If you believe the IPCC, we have to do everything.
In its most recent report, the IPCC called for roughly halving (from 2010 levels) world carbon dioxide emissions by 2030. Achieving that in the U.S. would require a 5 percent annual decrease in carbon emissions from fossil fuels, which would quadruple the actual rate of decline from the mid-aughts to 2017 (see technical note at end). And right now we’re going in the wrong direction: The Rhodium Group estimates that U.S. CO2 emissions rose 3.4 percent in 2018.
With a challenge like that ahead of us, we can’t afford to take any option off the table. As I argued recently, a carbon tax alone will not do the job. But neither will anything else. We need to throw everything we’ve got at the climate crisis, and that definitely includes the most economically efficient tool.
2. A carbon tax will make everyone a partner in the effort.
Addressing the climate crisis is going to demand a heavy dose of government intervention in the economy. But it will require more than that. A carbon tax will deliver economy-wide impact, giving every business and household incentives to change how they produce things and what things they buy. Getting the job done will take billions of dollars in public investments and millions of smaller decisions in the marketplace. A carbon tax will make more of the latter happen.
3. A carbon tax can affect industries that are hard to regulate.
There’s no question that performance standards and other regulations must be a major part of climate policy. But not everything lends itself to such regulation. As energy analyst Hal Harvey explained to Vox’s David Roberts late last year:
It’s hard to set a performance standard that works for glass, pulp and paper, steel, chemicals, and so forth. So in those realms, setting a price is a nice way to handle it. Then businesses can simply internalize the costs and make better decisions.
4. A carbon tax makes everything else we need to do easier.
Want to subsidize renewables? Higher fossil fuel prices will allow smaller subsidies to close the cost gap between carbon-based and renewable power. The same amount of spending on subsidies will then bring more renewables online.
Want to incentivize clean energy investments, like energy efficiency? Higher fossil fuel prices shorten the payback period on those investments. Again, we’ll be able to reduce the degree of subsidies or other inducements required to get households and businesses to make those investments.
Carbon taxes can even replace some regulatory efforts. Citizens’ Climate Lobby argues that its fee-and-dividend proposal could reduce emissions in the power sector more and faster than President Obama’s Clean Power Plan proposal. That means regulatory efforts could concentrate instead on sectors, like transportation and buildings, that are less responsive to energy pricing signals than power generation.
5. A carbon tax can affect emissions beyond our borders.
It’s not enough to reduce U.S. emissions. The rest of the world must do its part. (Of course, right now the rest of the world is saying that about us.) A carbon tax with a border adjustment can pressure other countries to impose their own robust carbon pricing measures. The border adjustment adds a fee to imports tied to the level of carbon emissions required to make that product. (This is, admittedly, not an easy thing to do. Adele Morris of The Brookings Institution treats the complications in a policy brief.)
The border adjustment would be waived on imports coming from countries with carbon pricing equivalent to ours. Each country would face a choice: Pay the U.S. a border adjustment on your exports, or pay yourself the equivalent amount via a carbon tax. For countries that export to the U.S. market, that shouldn’t be a hard decision.
6. A carbon tax will raise revenue that can be used for other climate mitigation programs.
A Green New Deal will create lots of jobs primarily by spending lots of money — rebuilding the power grid, subsidizing clean energy, retrofitting buildings, redesigning cities to be less automobile-dependent, creating an infrastructure to recharge electric cars, etc. That money comes from somewhere, and a carbon tax is a logical source of funds — especially a robust tax that would, in the out years, bring in hundreds of billions of dollars per year.
This is only half an argument for a carbon tax, however, because there are reasons based in economic justice to use the revenue differently. Any carbon tax will hit low-income households proportionally harder than high-income ones, and some or all of the revenue ought to be used to offset the tax’s regressive effects. Fortunately, there are many progressive funding streams — including taxes aimed at high incomes, wealth, or financial transactions — for raising the revenue to fund a Green New Deal. But if the only politically practical way to pay for a Green New Deal requires some carbon tax revenue, the revenue will be there.
* * *
A carbon tax was never an easy sell on its own, and it won’t be an easy sell as part of a Green New Deal either. David Leonhardt at The New York Times just posted a good history of its difficult political fortunes, and comes down about where we are:
The better bet seems to be an “all of the above” approach: Organize a climate movement around meaningful policies with a reasonable chance of near-term success, but don’t abandon the hope of carbon pricing. Most climate activists, including those skeptical of a carbon tax, agree about this.
Carbon tax advocates should take this call to heart. Even with a Democratic takeover in 2020 — which is no sure thing — the U.S. is some years away from either a Green New Deal or a carbon tax. We should use that time to make sure the ultimate answer is “both.”
Here’s how we calculated our figures in the first numbered paragraph: CTC’s carbon-tax spreadsheet model (downloadable Excel file) puts U.S. CO2 emissions from fossil fuels at 5,409 million metric tons (MMT) in 2010 and 4,992 MMT in 2017. With Rhodium’s 3.4% one-year increase, emissions were 5,162 MMT in 2018. To cut that to 2,704 MMT (half of 2010 emissions) in 2030 requires a 5.2 percent annual drop (calculated by exponentiating 2704/5409 to the 1/12 power – 12 years – which is 0.948). A similar calculation from 2005 emissions of 5,822 MMT to the 2017 figure of 4,992 MMT yields an average annual drop of 1.3% over those 12 years.
The following statement was published today in The Guardian under the headline, Our Manifesto to Save Europe from Itself, under the signature of Thomas Piketty, the French economist who rose to global renown with the 2013 publication of his scholarly work, Capital in the Twenty-First Century.
The statement, co-signed by over one hundred European economists, outlines a plan to revitalize the European Union with with a “new, sovereign European assembly capable of producing a set of fundamental public goods and services in the framework of a lasting and solidarity-based economy,” paid for by a suite of “four major [new] European taxes” including a carbon tax set at a minimum of 30 euros per metric ton (equivalent to around $31 per U.S. short ton).
While the proposal presumably was provoked by the ongoing “Gilets Jaunes” protests rocking France, its ambitions are far greater than simply responding to the current unrest. We are of course encouraged that the proposed program includes a carbon tax.
We are grateful to the editors of The Guardian for publishing the manifesto in full. The original version on The Guardian’s site includes a complete list of signatories. We have changed European syntax in some places to American style and have bolded passages deserving emphasis.
— Carbon Tax Center
Since the election of anti-European governments across the EU, and with Brexit looming, it is no longer possible to continue as before. We cannot simply wait for the next departures, or further dismantling without making fundamental changes to present-day Europe.
Our continent is caught between political movements whose program is confined to hunting down foreigners and refugees, on one hand, and on the other those who claim to be European but in reality continue to consider that hardcore liberalism and the spread of competition are enough to define a political project. They don’t recognize that this lack of social ambition is what leads to feelings of abandonment.
There are some movements attempting to end this fatal dialogue and address the structural problems that have arisen after a decade of economic crisis. There is no lack of these specifically European-critical situations: structural under-investment in the public sector, particularly in training and research, a rise in social inequality, acceleration of global warming and a crisis in the reception of migrants and refugees. But these movements often have difficulty in formulating a coherent alternative project, and in describing precisely how they would like to organize the Europe of the future.
This is why we, European citizens from different backgrounds and countries, are today launching this appeal for the in-depth transformation of the European institutions and policies.
Our manifesto contains concrete proposals, in particular a project for a democratization treaty and a budget project – and we have made it all publicly available. Our ideas may not be perfect, but they do have the merit of existing. The public can access them and improve them.
They are based on a simple conviction: Europe must build a new model to ensure the fair and lasting social development of its citizens. The only way to persuade them is to abandon vague and theoretical promises.
If Europe wants to restore solidarity with its citizens it can only do so by providing concrete evidence that it is capable of establishing cooperation and by making those who have gained from globalization contribute to the financing of public-sector good. That will mean making large firms contribute more than small and medium businesses, and the richest taxpayers paying more than poorer taxpayers. This is not the case today.
Our proposals are based on the creation of a budget for democratization that would be debated and voted on by a new, sovereign European assembly. This will at last enable Europe to equip itself with a public institution capable of dealing with crises in Europe immediately and of producing a set of fundamental public goods and services in the framework of a lasting and solidarity-based economy. The promise made at the treaty of Rome of “harmonization of living and working conditions” will finally become meaningful.
This budget, if the European assembly so desires, will be financed by four major European taxes, the tangible markers of this European solidarity. These will apply to the profits of major firms, the top incomes (over €200,000 a year), the highest wealth owners (over €1m ) and carbon emissions (with a minimum price of €30 a tonne).
If it is fixed at 4% of GDP, as we propose, this budget could finance research, training and the European universities, an ambitious investment program to transform our model of economic growth, the financing of the reception and integration of migrants, and the support of those involved in carrying out this transformation. It could also give some budgetary leeway to member states to reduce the regressive taxation that weighs on salaries or consumption.
The issue here is not one of creating a transfer of payments across Europe – taking money from the “virtuous” countries to give it to those that are less so. The project limits the gap between expenditure deducted and income paid by a country to a threshold of 0.1% of its GDP – this could only be increased should there be consensus to do so.
This threshold can be raised in case there is a consensus to do so, but the issue is primarily of reducing the inequality within countries, not between them, and of investing in the future of all Europeans. But those calculations would exclude spending that benefits all countries equally, such as action on climate change. Because it will finance European public goods benefiting all countries, the budget for democratization will de facto also foster convergence between countries.
Because we must act quickly but we must also get Europe out of the present technocratic impasse, we propose the creation of a European assembly. This will enable these new European taxes to be debated and voted as also the budget for democratization. This European assembly can be created without changing existing European treaties.
The assembly would, of course, have to communicate with the present decision-making institutions (in particular the Eurogroup in which the ministers for finance in the eurozone meet informally every month). But, in cases of disagreement, the assembly would have the final word. If not, its capacity to be a locus for a new transnational political space where parties, social movements and NGOs would finally be able to express themselves would be compromised.
Equally its actual effectiveness, since the issue is one of finally extricating Europe from the eternal inertia of intergovernmental negotiations, would be at stake. We should bear in mind that the rule of fiscal unanimity in force in the European Union has for years blocked the adoption of any European tax and sustains the eternal evasion into fiscal dumping by the rich and most mobile, a practice which continues to this day despite all the speeches. This will go on if other decision-making rules are not set up.
Given that a newly created European assembly would have the ability to adopt taxes and to affect the very core of the democratic, fiscal and social compacts of states, national and European parliamentarians must be central. This is why we propose, in the democratization treaty available online, that 80% of the members of the European assembly should be from national parliaments, with 20% from the present European parliament.
This choice merits further discussion. In particular, our project could also function with a lower proportion of national parliamentarians (for instance, 50%). But in our opinion an excessive reduction of this proportion might detract from the legitimacy of the European assembly in involving all European citizens in the direction of a new social and fiscal pact, and conflicts of democratic legitimacy between national and European elections could rapidly undermine the project.
Thus national elections will de facto be transformed into European elections. National elected members will no longer be able to simply shift responsibility on to Brussels and will have no other option than to explain to voters the projects and budgets they intend to defend in the European assembly. By bringing together the national and European parliamentarians in one single assembly, habits of co-governance will be created which at the moment only exist between heads of state and ministers of finance.
We now have to act quickly. While it would be preferable for all EU countries to join the project without delay – especially the four largest countries in the eurozone (which represent more than 70% of the GNP and population) – it is designed so that it can be adopted and implemented by any set of countries that wish to do so. It enables those who wish to make immediate progress by adopting this project to do so right now.
We must all assume our responsibilities to participate in a detailed and constructive discussion on the future of Europe, lest our continent is left to sink further into damaging division.
Thomas Piketty is professor of economics at the Paris School of Economics.
Other signatories: Sébastien Adalid, Michel Aglietta, Nacho Alvarez, Julie Bailleux, Marija Bartl, Marie-Layre Basilien-Gainche, Myriam Benlolo Carabot, Loïc Blondiaux, Karolina Borońska, Andreas Botsch, Patrick Boucheron, Emmanuel Bouju, Begnina Boza-Kiss, Hauke Brunkhorst, Bojan Bugarič, Klaus Busch, Julia Cagé, Lucas Chancel, Christophe Charle, Christian Chavagneux, Amandine Crespy, Fabio De Masi, Anne-Laure Delatte, Donatella Della Porta, Yves Deloye, Paul Dermine, Brigitte Dormont, Guillaume Duval, Susanne Elsen, Emanuele Ferragina, Bastien François, Philippe Frémeaux, Diane Fromage, Miguel Gotor, Julien Grenet, Ulrike Guérot, Gabor Halmai, Pierre-Cyrille Hautcoeur, Stéphanie Hennette, Rudolf Hickel, Mario Hübler, Élise Huillery, Simon Ilse, Liora Israel, Michael Jacobs, Yannick Jadot, Luis Jimena Quesada, Christian Joerges, Kädtler Jürgen, Iphigénie Kamtsidou, Jakob Kapeller, Pascale Laborier, Justine Lacroix, Sylvie Lambert, Camille Landais, Sandra Laugier, Rémi Lefebvre, Steffen Lehndorff, Nicolas Leron, Ulrike Liebert, Pascal Lokiec, Philippe Maddalon, Mikael Madsen, Paul Magnette, Maria Malatesta, Francesco Martucci, Frédérique Matonti, Dominique Meda, Robert Menasse, Sophie Meunier, Zoltan Miklosi, Eric Millard, Robert Misik, Éric Monnet, Alberto Montero, Daniel Mouchard, Ulrich Mückenberger, Jan-Wener Muller, Olivier Nay, Sighard Neckel, Fernanda Nicola, Silke Ötsch, Walter Ötsch, Bruno Palier, Mazarine Pingeot, Martin Pigeon, Sébastien Platon, Thomas Porcher, Christophe Prochasson, Thomas Ribemont, Julie Ringelheim, Daniel Roche, Pierre Rosanvallon, Ruth Rubio Marin, Guillaume Sacriste, Emmanuel Saez, Gisele Sapiro, Francesco Saraceno, Thomas Sauer, Patrick Savidan, Frédéric Sawicki, Axel Schäffer, Alan Scott, Thomas Sterner,Julien Talpin, Stéphane Troussel, Laurence Tubiana, Boris Vallaud, Fernando Vasquez, Antoine Vauchez, Brigitte Young, and Gabriel Zucman