News Release / For immediate release
Contacts:  Stephen Kent, skent@kentcom.com, 914-589-5988 / Nick Berning, NBerning@foe.org, 703-587-4454

[Washington DC – December 9, 2008] At a Capitol Hill briefing today, NASA’s lead climate scientist, senior economists and environmental leaders urged Congress to move swiftly to enact a national carbon tax to reduce carbon emissions before they push Earth’s climate system past its “tipping point” into accelerating ecological and social collapse.

After the resounding defeat of the Boxer-Lieberman-Warner cap-and-trade bill last spring, the carbon tax has emerged as a viable competitor to a cap-and-trade system. As Congress begins to ponder climate legislation widely expected in 2009, advocates at today’s briefing made the case for taxing carbon as a more effective and economically viable way to curb emissions while stimulating the economy. They argued the considerable revenues carbon taxes would raise should be revenue-neutral, and be returned to taxpayers either through direct distribution or cutting taxes such as payroll taxes.

The public briefing for members of Congress and their staffs was sponsored by the Environmental and Energy Study Institute (EESI), the Carbon Tax Center, the Climate Crisis Coalition, Friends Committee on National Legislation and Friends of the Earth.

“A price on emissions that cause harm is essential,” said Dr. James Hansen, Director, Goddard Institute of Space Studies, National Aeronautics and Space Administration and a leading voice on understanding and redressing climate change. He urged “a carbon tax on coal, oil and gas… applied at the first point of sale or port of entry” to encourage fuel conservation and switching to low-carbon alternatives.

“A Carbon tax with 100 percent dividend [direct revenue distribution to individuals] is needed to wean us off fossil fuel addiction,” Hansen argued.

“Tax and dividend allows the marketplace, not politicians, to make investment decisions. It is also non-regressive. Low- and middle-income people will find ways to limit their carbon tax and come out ahead. Demand for low-carbon high-efficiency products will spur innovation, making our products more competitive on international markets. Carbon emissions will plummet as energy efficiency and renewable energies grow rapidly. Black soot, mercury and other fossil fuel emissions will decline.”

Rep. John Larson (D-CT), recently elected as chair of the House Democratic Caucus and the sponsor of a carbon tax bill introduced into the House last year, hosted the briefing. He said, “Climate change is the great challenge of our time. As we in Congress tackle this challenge it is important that we not just pass legislation, but pass the right legislation. What I have proposed is legislation that would tax bad behavior like polluting and return that money to average Americans through a payroll tax reduction. Any legislation will create winners and losers. In this case, the winners should be the American people.”

Economist Gilbert Metcalf of Tufts University, author of A Green Employment Tax Swap: Using A Carbon Tax to Finance Payroll Tax Relief, recommended a carbon tax just under $17/ton of CO2. This would nearly double the average price of coal, the most carbon-intensive fossil fuel, leading to fuel substitution and process improvements that would reduce coal burning by 32%. Petroleum products would increase in price by nearly 13% and natural gas by just under 7%, he estimates. Metcalf advocates dedicating carbon tax revenues to eliminate the payroll tax on the first $3,660 earned by each worker. He calculates that this would equate to an average 11% reduction in payroll taxes, with greater percentage reductions for lower-paid workers. Payroll tax reduction would stimulate job growth, something the economy now urgently needs.

“In general, taxes on labor supply discourage labor and create economic losses to workers over and above any taxes collected,” Metcalf explaned. “Tax reductions can encourage additional labor supply either on the intensive margin (hours worked) or the extensive margin (the decision to enter the labor force). The Green Employment Tax Swap encourages additional labor supply.”

Robert Shapiro, former Undersecretary of Commerce, now head of SonEcon, a Washington, DC consulting firm, and co-chair of the U.S. Climate Task Force, criticized cap-and-trade proposals as clumsy, complex, volatile and ineffectual ways to tax carbon emissions: “The only reason anyone is talking about cap-and-trade now is because the U.S. (at Al Gore’s urging) insisted on cap-and-trade in Kyoto [in 1997]. Mr. Gore has since abandoned cap-and-trade and is now calling for a carbon tax to replace other taxes. Caps just aren’t working.”

Under the European Union’s carbon cap, CO2 reductions have been “negligible and very costly,” Dr. Shapiro said. Exemptions (e.g., for coal-fired power plants in Germany) “overwhelm the cap.” China and India have strongly rejected cap-and-trade. In contrast, he argued, a U.S. carbon tax would encourage our trading partners to tax carbon themselves to avoid forfeiting revenues on their exports to us (WTO rules would otherwise permit the US to tax imports for carbon).

Like most economists, Shapiro said he strongly prefers price-based policies such as carbon taxes, to quantity-based carbon caps, because the taxes are simple and predictable as well as difficult to evade. A cap on quantity necessarily makes energy prices more volatile, and the resulting price spikes are economically disruptive, harming productivity and undermining support for the system. For example, Shapiro noted that Southern California’s “RECLAIM” cap-and-trade system for smog emissions crashed due to price spikes during the state’s electricity crisis.

James Hoggan, a public policy specialist from British Columbia who chairs Canada’s Suzuki Foundation, outlined the steps leading to British Columbia’s successful implementation of its carbon tax in July, and explained the national dimensions of the carbon tax in Canada. “The Canadian experience with carbon taxes is politically daunting: a federal party that proposed such a tax just lost a fall election, and a provincial party that introduced a carbon levy last summer faces potential defeat next May. But close analysis shows these politicians got in trouble not for what they did, but for how they did it.”

From Canada’s experience, Hoggan drew the lesson that emphasizing “revenue recycling” or the revenue-neutral configuration of the carbon tax helps distinguish it from conventional taxes and garners more public support. He cited polling data suggesting that a majority of Canadians support a transparent revenue-neutral carbon tax as evidence that carbon taxation could be popular with voters.

The Carbon Tax Center was launched in January 2007 to give voice to Americans who believe that taxing emissions of carbon dioxide — the primary greenhouse gas — is imperative to reduce global warming.

The Environmental and Energy Study Institute is a non-profit organization established in 1984 by a bipartisan, bicameral group of members of Congress to provide timely information and develop innovative policy solutions that set us on a cleaner, more secure and sustainable energy path.

The Climate Crisis Coalition was founded in 2004 to create awareness and convey a sense of urgency about the climate crisis and broaden the constituency of the climate action movement. Its approach to climate change links issues of environmental, social and economic equity.

The Friends Committee on National Legislation is the largest peace lobby in Washington, DC. Founded in 1943 by members of the Religious Society of Friends (Quakers), FCNL staff and volunteers work with a nationwide network of tens of thousands of people from many different races, religions, and cultures to advocate social and economic justice, peace, and good government. FCNL is nonpartisan.

Friends of the Earth is the U.S. voice of the world’s largest grassroots environmental network, with member groups in 77 countries. Since 1969, Friends of the Earth has fought to create a more healthy, just world.

NOTE TO EDITORS AND PRODUCERS: Experts quoted in this press release are also available for phone or in-person interviews. Interviews may be requested by contacting Stephen Kent, skent@kentcom.com (914) 589-5988.

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Bloomberg to Seek NYC Plastic Bag Fee (NY Times)

Financial Crisis Dims Chances for U.S. Climate Legislation (Yale Environment 360)

Return of SF Carbon Tax Proposal? (SF Gate)

Campbell offers cities, schools carbon-tax rebate (Toronto Globe & Mail)

7 Western States, 4 Canadian Provinces Ink Cap-and-Trade Pact (NY Times)

Reported for the Carbon Tax Center by James F. Handley.

The "fierce urgency" of the climate crisis compels action, said Rep. John Larson (D-CT) at Thursday’s House Ways and Means Committee’s packed hearing on climate change revenue measures. Hurricane Ike’s devastation of coastal Texas imparted deeper meaning to Martin Luther King’s phrase. Witnesses pointed to storm-related damage as one of many ways in which failure to reduce the greenhouse gas emissions that drive global warming will destroy ecosystems and economies alike.

Citing the effectiveness and simplicity of a carbon tax, New York City Mayor Michael Bloomberg urged Congress to tax fossil fuel producers upstream, and distribute revenue downstream to consumers by reducing payroll taxes. A carbon tax would impose a cost proportional to carbon emissions, but because revenue distribution would not be linked to consumption, the system would “use capitalism” to create broad incentives for energy conservation and alternative energy, Bloomberg said.

While reiterating that he favors a “straightforward carbon tax,” Bloomberg said carbon cap-and-auction would also work if revenues were distributed downstream, an idea elaborated later by Peter Barnes of Cap and Dividend. Bloomberg urged the U.S. to avoid competing to become the world’s cheapest producer — a strategy that has thrust China into an environmental nightmare and a downward wage spiral. Bloomberg and Dr. Frank Ackerman of the Stockholm Environment Institute and Tufts University cited Germany’s standing as a world leader in manufacturing high-value products despite high wages and energy prices.

Climate policy, said Dr. Peter Orszag of the Congressional Budget Office, poses the thorny problem of imposing short-term costs to achieve long-term benefits. The Lieberman-Warner cap-and-trade bill would have created $100 billion in carbon emission allowances. Orszag stressed that giving away permits to energy producers, as the bill proposed, would enrich fuel producers rather than protect energy consumers. To avert the extreme volatility experienced under EPA’s sulfur dioxide cap and maximize economic efficiency, Orszag urged that a carbon cap be designed flexibly with banking of permits.

Dr. Dallas Burtaw of Resources for the Future agreed with Orszag that giving away permits to energy producers wouldn’t reduce price increases felt by consumers. A tax with a direct dividend would function as a transparent system, Burtaw said, that would signal to the public that we are addressing climate change as a national initiative that is “not engineered to squirrel away special privileges.”

Tim Regan of Corning Incorporated warned the Committee over the competitive disadvantage to energy-intensive industries such as his own under either cap-and-trade or a carbon tax. But Robert Lighthizer, an attorney with Skadden, Arps’ international trade department, assured the panel that the WTO allows the U.S. to impose tariffs equivalent to domestic carbon prices on imported products to put domestic products on a level playing field. Gary Hufbaur of the Peterson Institute cautioned that the WTO has not ruled on these matters but argued that this need not delay U.S. action to create incentives for our trading partners to join in combating global warming.

The Committee questioned panelists extensively. Rep. Paul Ryan (R-WI) cited the conclusion of the February CBO study that a carbon tax would be five times as effective as a simple cap-and-trade system. Several panelists noted that setting tariffs to harmonize the burden on imported goods would be much simpler under a carbon tax because the exact price of carbon would be fixed while under cap-and-trade the price would fluctuate.

After a recess for floor votes, the Committee began its second panel with Frank Ackerman of the Global Development and Environment Institute of Tufts University. “The debate has shifted at last” Dr. Ackerman declared. “Climate science is no longer debatable and now the serious economic discussion is underway.” He insisted that costs of inaction would be staggering — far more severe storm damage, sea-level rise inundating coastal-area homes, farms and businesses, particularly in Florida and the Caribbean, and endemic water shortages. Ackerman testified that the costs of well-designed policies to cut carbon would be small by comparison, probably only 1% of output.

Daniel Abassi of the emissions trading and investment firm MissionPoint Capital called on Congress to price carbon through a cap-and-trade system, with 25% of allowances given to industry and 75% auctioned, with revenue used to reduce distortionary taxes, for tax incentives, efficiency upgrades and low-carbon energy R&D.

The climate crisis is “a major threat to national security,” declared Jerome Ringo of the Apollo Alliance Having just been in Louisiana and Texas, Ringo said average people aren’t talking about the Wall Street meltdown, they’re asking “why they’ve been hit with so many category 5 storms; climate change comes up in almost every conversation.” Ringo called for Congress to push the U.S. to a green jobs economy by funding public transportation and infrastructure. He warned that emissions trading could mean “rich companies get richer” and asked that carbon revenues be dedicated to training and investment in alternative energy.

Peter Barnes urged Congress to put cap-and-trade auction revenue where it will do the most good both politically and economically — into a direct monthly dividend to each U.S. resident along the lines of the Alaska Permanent Fund. A dividend would offset economic effects on consumers and also build the broad political support needed to support climate legislation, Barnes said.

Expanding on the Apollo Alliance’s call for funding public transportation, Bill Millar of the American Public Transportation Association cited DOE studies showing that transport generates a third of U.S. carbon emissions. [Ed. note: autos and light trucks generate 21-22% of U.S. CO2; air travel and freight add another 10%, approximately.] “If a typical two-car, two-adult household chooses to eliminate one car and take public transportation, walk or ride a bicycle for most of its trips, [its] CO2 emissions can be reduced 30% which is more than if that household went without electricity,” Millar testified. Millar said that spending $1 billion on public transportation would create at least 35,000 jobs. He also called transit a direct way to offset the effects of higher fuel prices on consumers.

David Kreutzer of the Heritage Foundation testified that a U.S. policy capping emissions or a carbon tax would do little to reduce global greenhouse emissions and would not be worth the cost. Ackerman strongly disagreed, “If the U.S. leads, the world will follow, but if we don’t, the worst consequences” can be expected.

Photo: Flickr / HispanicCaucus.

Negative Signal on (NY) State Carbon Pact (NY Times)

Note: On Oct. 15, the Alaska Permanent Fund Corporation wrote CTC with helpful details that clarify and correct some of the representations in our Aug. 29 post. The APFC graciously granted permission for us to print their e-mail in full, which we have done at the foot of this post. — C.K.

John McCain’s pick for vice-president isn’t shaping up as a win for Teddy Roosevelt-style conservation. A list of Alaska Gov. Sarah Palin’s positions on key environmental issues posted by the folks at Grist includes these anti-green stances:

• Opposed a statewide ballot initiative to prohibit or restrict new mining operations that could affect salmon in the state’s streams and rivers.
• Has pushed to build a natural-gas pipeline from Alaska’s North Slope
• Sued the Interior Department over its decision to list the polar bear as a threatened species
• Has proposed eliminating Alaska’s gas tax
• Has pushed to open Arctic National Wildlife Refuge to drilling

But the Grist list also includes this:

• Got the state legislature to pass a bill to provide each Alaskan $1,200 to help with energy costs

Which naturally brings to mind the Alaska Permanent Fund, the 49th State’s long-established program that annually sends every Alaska resident an identical check drawn from the state’s North Slope oil royalties.

The $1,200 per capita “resource rebate,” was proposed by Palin in July and enacted by the legislature on Aug. 7 “as a way for the state to share some of its multibillion-dollar oil revenue surplus with Alaska residents,” according to the Anchorage Daily News, effectively making it a hybrid of the Alaska Permanent Fund and the federal economic stimulus package that distributed checks to U.S. families earlier this year.

As we have long pointed out, the Alaska Permanent Fund offers a proven, straightforward model for distributing federal (or state) carbon tax revenues in revenue-neutral and progressive fashion: returning those revenues equally to all U.S. residents.

With carbon tax revenues distributed through pro rata dividends, the vast majority of poorer households, and a majority of middle-income families as well, would get back more in the dividends than they would pay in the tax. (For a federal carbon tax, the dividend checks should be provided at least quarterly and perhaps even monthly to keep households ahead of the budget treadmill.) This would cushion the impact of higher prices from carbon pricing while retaining the incentives for businesses, institutions and individuals to transist rapidly to a low-carbon economy.

This Labor Day weekend and beyond, the media will doubtless focus on Gov. Palin’s impact on McCain’s election chances. Let’s hope that a few enterprising reporters will use the selection of a candidate from the Last Frontier State as an occasion to focus on the “Alaska Dividend” as an equitable and politically palatable way of packaging a revenue-neutral national carbon tax.

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Oct. 15, 2008

Mr. Komanoff –

I saw your post today that you wrote in August mentioning the Alaska Permanent Fund.  I thought you might want to know that the Fund does not send out checks from oil taxes or royalties. The Fund invests 25% of the oil royalties that the State receives (no portion of any oil taxes come to the Permanent Fund) and then sends dividends from the income on investments. This includes rent on commercial real estate, stock dividends and bond interest.

Since 1977 the Fund has received $13.2 billion in oil deposits, which has grown through investments to a current value of $30 billion while paying out $16.7 billion in dividends since 1982.

This year was a little confusing because the dividend was $2,069 per person.  On top of that Governor Palin and the Legislature added an additional $1200 that came straight out of oil revenues (royalties and taxes) in the State’s general fund.

Since you are proposing our model as something that could have a broader US application, I thought you might want to know that it isn’t a straight redistribution of oil revenues. Please let me know if you have any questions.

Laura Achee, Director of Communications, Alaska Permanent Fund Corporation, www.apfc.org

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Photo: Flickr / vincentd_indy.

We launched the Carbon Tax Center seventeen months ago to inform and engage the public about the need for and benefits of revenue-neutral carbon taxation. Coincidentally, that same week the United States Climate Action Partnership, a coalition of mainstream environmental organizations, major electricity generators and giant industrial corporations, announced its formation and legislative agenda: a federal carbon cap-and-trade system. To state the obvious, USCAP has a lot more money and political clout than we do. Not surprisingly, USCAP managed to buy a tremendous amount of press and political support for its cap-and-trade program.

Our strategy at CTC has been simple. We provide an objective source of carbon tax and cap-and-trade related facts, economic arguments and news. We let the public know about the broad support for a carbon tax from economists and opinion leaders across the political spectrum. We were confident the public and Congress would eventually recognize that a revenue-neutral carbon tax is far superior to cap-and-trade for a variety of efficiency and equity reasons that we set forth in an issue paper on our Web site and in a variety of debates and other forums. We expected that Americans would see that the cap-and-trade scheme proposed in bills such as Lieberman-Warner is essentially a tax, with the revenue doled out to special interests. We were betting that once cap-and-trade was revealed as a hidden tax proposal, its putative political advantage over a straightforward carbon tax would vanish.

Events are proving us right. Cap-and-trade’s aura of inevitability evaporated in the U.S. Senate this month. Why? Because, just as we predicted, Senators balked at the cap-and-trade bill’s complexity, its windfall profits for carbon polluters and the feeding frenzy to distribute the revenues in classic pork-barrel fashion.

We don’t buy the notion that in rejecting cap-and-trade, the Senate is defying the public outcry for an effective response to global warming. As John Tierney wrote in his New York Times science blog, “Maybe a better deal — and a better policy — will emerge from this failure.” Tierney emphasized that James Hansen, the NASA climate scientist who has been so outspoken on the imminence of global warming, now backs a “tax-and-dividend approach” with carbon revenues “divided equally, so that people who use less energy than average — like lower-income people — would get back more than they spend.” As Tierney pointed out, “Refunding money directly removes the temptation for Congress to treat … carbon-reduction revenues as a chance to dispense trillions of dollars worth of favors — as proposed in last week’s bill, which was aptly dubbed ‘pork-and-trade.’”

Sound familiar? It should. Hansen’s proposal is the same revenue-neutral carbon tax the Carbon Tax Center has been urging all along. In fact, if you’ve been keeping up with our posts you may have noticed that CTC adopted the tax-and-dividend terminology several weeks ago, a switch we picked up from Peter Barnes’ excellent work on cap-and-dividend.

Meanwhile, as readers of our posts and our “Latest News” headlines surely know, the real action on revenue-neutral carbon pricing is in Canada. Liberal Party Leader Stéphane Dion has transformed the climate debate in Canada with his proposal for a $15.4 billion, 4-year “Green Shift.” Read our post on the subject for a quick summary, the Green Shift Handbook for the details and our “Latest News” for reaction to the Green Shift in Canada and around the world. And on Tuesday (July 1), British Columbia inaugurates the Western Hemisphere’s first substantial and comprehensive carbon tax — a day after it distributes dividend checks from the revenue-neutral tax to households and businesses.

A tremendous opportunity awaits. The failure of the Lieberman-Warner cap-and-trade scheme has created a huge opening for a better and more workable method for putting a price on carbon. Splits within USCAP have re-emerged. In a powerful speech on June 25, Lewis Hays, III, Chairman and CEO of FPL Group (a member of USCAP), reiterated his support for a carbon fee stating, “[T]he simplest and most effective way to price carbon is with a continuously escalating fee – or a ‘tax’ as the big carbon emitters like to call it. Under a carbon fee that starts modestly and rises steadily over time, companies will find it more and more expensive to use dirty fuels.”

To take advantage of the opportunity and to capitalize on the post-election window in which new policy ideas can command serious attention, the Carbon Tax Center is organizing a conference in Washington, D.C. this November. Our goals are to:

• increase public awareness of the environmental and economic advantages of a carbon tax over other policies to reduce greenhouse gas emissions;

• place carbon taxes higher on the U.S. Congressional agenda;

• enable carbon tax advocates to forge connections with one another:

• address obstacles (political, economic, and scientific) to enacting a U.S. carbon tax, and to discuss the ideal form of such a tax;

• recognize leaders who have publicly advocated a U.S. carbon tax; and

• discuss lessons learned from the Green Shift proposal in Canada.

We are assembling a terrific roster of speakers and participants. James Hansen has already agreed to speak, and we anticipate many more leading voices on climate change and carbon pricing.

We need your financial help to make our conference happen and to continue our essential work. Please click here to find out how to contribute to CTC. [Note: the foregoing link replaces the original instructions for contributing in this post, which no longer apply.]

Please be as generous as you can, and please donate today. Thank you.

Sincerely,

Charles Komanoff
Dan Rosenblum