In a new research study sponsored by the American Consumer Institute, Dr. Robert Shapiro, former Undersecretary of Commerce for Economic Affairs under President Clinton "finds that carbon taxes would be a better response to the risks of global warming than emissions caps and tradable permits (commonly referred to as cap-and-trade)." Dr. Shapiro states that carbon taxes "are much less vulnerable to evasion and market manipulation, providing a more stable and transparent system for consumers and industry alike." Dr. Shapiro points out that carbon taxes "do not create the price volatility and administrative problems associated with cap and trade." Quotes from Executive Summary of Study.
Yesterday Gristmill ran a curious article by Bill Chameides of Environmental Defense, attacking a carbon tax strawman that no one is advocating, least of all the Carbon Tax Center.
Chameides stated that the "government would use additional tax dollars to subsidize the development of selected low-carbon technologies." We invite him to look at CTC’s proposed carbon tax, which is revenue-neutral. Revenues will go to reduce regressive taxes or to finance progressive, equal rebates to all U.S. residents. Contrary to Chameides’ charge, we have never advocated targeting tax revenues to any technology, privileged or otherwise. Nor, to our knowledge, have the Washington Post‘s Anne Applebaum, whom he also took to task, or the dozens of columnists, economists, scientists, and other public figures who support taxing carbon.
Chameides and ED are throwing their weight behind a carbon cap-and-trade system, on the premise that the successful sulfur cap-and-trade model can be extrapolated to carbon. We believe this is flirting with disaster. A model that worked when the parties were limited to a few dozen electric utility companies is ill-suited when the stakeholders — essentially every business and household in the country — number 100 million or more. Moreover, electric generators seeking to reduce sulfur emissions had a variety of technological alternatives available. There are no comparable methods available to reduce carbon emissions other than fuel-switching and, perhaps sometime in the future, sequestration.
Chameides claims that the "marketplace does a better job of developing new technologies, and a tax takes money out of the marketplace." That argument was pertinent when the alternative to cap-and-trade was "command and control" regulation of NOx and SO2 emissions, but it’s irrelevant to a comparison with a carbon tax. Both a cap-and-trade and a carbon tax provide price signals that encourage polluters to look for ways to avoid the cost of emitting CO2.
A carbon tax actually provides more precise price signals, provides them sooner, and provides them in a more understandable and transparent fashion. To attack global warming, every energy-critical decision needs to be predicated on a trajectory of rising energy prices. A phased-in carbon tax allows this, whereas cap-and-trade will do little to mitigate the price roller-coaster that discourages emissions-minimizing investment.
Not only would a carbon cap-and-trade system provide less effective price signals, it would do so only after considerable delay consumed by protracted negotiations, making a mockery of Chameides’ claim that a cap will guarantee climate-stabilizing cuts. Compounding the problem, once a cap-and-trade system is finally implemented, we’re likely to be locked into the approach for years, with industry insisting, "Don’t change it until we see how it works." Carbon taxes will require no new administrative structures, can be implemented now, and can be adjusted as necessary.
Another serious drawback to cap-and-trade is that its inherent complexity leaves it open to exploitation by special interests, not to mention perverse incentives to "bank" pollution now against future credits. Carbon taxes are relatively immune to manipulation.
Ironically, Chameides’ hesitancy about trusting the government with tax dollars applies more aptly to his cap-and-trade proposal. Since the tax proposed by CTC and most other carbon tax proponents is revenue-neutral, there are no tax dollars to spend and potentially misuse. In contrast, even an optimal cap-and-trade system such as the Northeast’s Regional Greenhouse Gas Initiative, in which emissions allowances are auctioned, would saddle end-users with the functional equivalent of a tax, along with the same conundrum Chameides raised about how to spend the money. Except worse, because the cap-and-trade model necessarily requires that a chunk of the "tax revenues" be used to provide market participants with a profit paid by consumers.
And that’s under a relatively benign cap-and-trade, in which the allowances are auctioned. The alternative, giving polluters the
allowances outright, combines the worst of both worlds: a hidden tax on energy users, with all the increased energy costs given to the polluters or other market participants. An explicit tax that offsets other taxes is preferable to a covert tax that goes into someone else’s pocket.
Finally, we reject Chameides’ defeatism over the chances of Congress passing a carbon tax. On the contrary, the stars are aligned as never before to actually do something about carbon emissions. There is now a general acceptance of the need for action (even Exxon concedes there’s a problem), and no less than Wall Street demigod Paul Volcker
called last week for taxing CO2. The question is what will work best. For reasons discussed in more detail on our website, we believe that a carbon tax coupled with progressive tax-shifting can be a winner politically.
The last thing we want to do is lock in a suboptimal solution and then have to wait years before the stars are again aligned. Now is the time to work for a real solution that maximizes environmental gains and minimizes hardships.
This article was written with CTC co-director Dan Rosenblum. It appeared first on Gristmill. Dan and I invite commenters to post there as well as here.
According to the Wall Street Journal’s Monthly Economic Forecasting Survey; February 2007, 85% of the surveyed economists believe the government should encourage development of alternatives to fossil fuels. When asked "what is the most economically sound way for the government to encourage development of alternatives to fossil fuels," 54% responded with "taxes that raise the cost of purchasing fossil fuels." The next largest category was "other" at 28%, followed by "subsidies for producers of alternative fuels" at 13%.
According to former Fed Chairman Paul Volcker, as quoted in the International Herald Tribune, taxes either on emissions or on petroleum could be effective in
reducing global warming, that it would be wiser to impose a tax on oil
than wait for the market to force prices up, that measures to reduce
global warming would not be economically devastating and, putting the
issue in perspective:
"What may happen to the dollar, and what may happen to
growth in China or whatever," he said, raising his voice, "pale into
insignificance compared with the question of what happens to this
planet over the next 30 or 40 years if no action is taken."
Washington climate circles are abuzz over a National Journal poll released last weekend suggesting that concern over climate change is waning among Republican House members just as public alarm is mounting.
The Journal, a highly respected print and e-magazine covering politics from Washington, DC, asked Members of Congress, "Do you think it’s been proven beyond a reasonable doubt that the Earth is warming because of man-made problems?" While the number of Democratic members answering No was a gratifyingly low 2%, the same as last April, the share of Republican naysayers rose to 84%, from 77% in April.
Though the Dem-Rep split is noteworthy, the absolute percentages should be viewed with caution. For one thing, the response rates were low: 1 in 7 Republicans, 1 in 8 Democrats. (Hmm, could it be that the more "extreme" Senators and Representatives from either party were more apt to respond, skewing the divisions between the parties?) Second, the poll predated the Feb. 2 release of the IPCC-4 report. The Journal’s questionnaire was sent out Jan. 29 and the answers were received Jan. 29 – Feb. 1, too early to reflect the sobering findings from the report and the extensive media coverage.
The second (and last) poll question concerned solutions: "Which of these actions to reduce global warming could you possibly support?" Respondents could vote Yes or No to six choices, which included measures such as higher CAFE standards and greater spending on alternative fuels.
A carbon cap-and-trade program far outpolled a carbon tax, by 83% to 50% among Democrats and 42% to 3% among Republicans. We regard this, at least in part, as a reflection of the active promotion recently of cap-and-trade and the relative silence from carbon-tax supporters. In addition to the poll’s unfortunate timing, we wonder if the wording ("A ‘cap-and-trade’ carbon dioxide emissions-reduction program" and "A carbon tax", respectively) inadvertently tilted responses toward cap-and-trade. Perhaps next time National Journal can ask about "An emission-reducing carbon tax" or "A revenue-neutral carbon tax".
We also expect that Congressional understanding of the merits of carbon taxing will increase as a result of efforts by carbon tax supporters who can now benefit from the information on this site.
“Feb. 2 will be remembered as the date when uncertainty was removed as to whether humans had anything to do with climate change on this planet,” declared Achim Steiner, executive director of the United Nations Environment Program. Steiner was quoted in the New York Times’ Feb. 3 front-page lead story on the release of the Intergovernmental Panel on Climate Change’s (IPCC) Fourth Assessment Report of the drivers of climate change, observed changes in climate and projections for future climate change.
The Summary for Policymakers released with the IPCC report states:
“Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global mean sea level…
“At continental, regional, and ocean basin scales, numerous long-term changes in climate have been observed. These include changes in Arctic temperatures and ice, widespread changes in precipitation amounts, ocean salinity, wind patterns and aspects of extreme weather including droughts, heavy precipitation, heat waves and the intensity of tropical cyclones…
“For the next two decades a warming of about 0.2 deg C per decade is projected for a range of … emission scenarios. Even if the concentrations of all greenhouse gases and aerosols had been kept constant at year 2000 levels, a further warming of about 0.1 deg C per decade would be expected…
“Continued greenhouse gas emissions at or above current rates would cause further warming and induce many changes in the global climate system during the 21st century that would very likely be larger than those observed during the 20th century…
“Anthropogenic warming and sea level rise would continue for centuries due to the timescales associated with climate processes.”
Urgent action is required. As set forth elsewhere on this site, charging American businesses and individuals a price to emit carbon dioxide (CO2) is essential to reduce U.S. emissions quickly and steeply enough to prevent atmospheric concentrations of CO2 from reaching an irreversible tipping point.