Carbon Tax Center

Pricing carbon efficiently and equitably

Remembering May 4

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It would be nice if a time-traveler told us that some day May 4 will be remembered not as the day Obamacare began to be dismantled but the day Congress committed to taking on climate change – and doing it with a carbon tax.

As we know, the House voted today to pass a Republican bill that strips away essential features of the Affordable Care Act. The CBO had no time to score the bill; some Members (all Republicans) who voted for it evidently hadn’t read it.

If the Senate votes the same way, an estimated 24 million people and their families will suffer, some of them grievously, so that multimillionaires can pay less taxes and enforce their ideology that casts need as a moral failing rather than an opportunity (or, at least, obligation).

This tweet speaks for a lot of people:

Yet also today, Thursday, a dozen Members of Congress, six from each party, introduced a climate study bill, one that “would create a commission to look for economically viable solutions to climate change,” as reported by Inside Climate News.

Yes, a measly study bill. But one that would create a bipartisan National Climate Solutions Commission directing the Government Accountability Office to survey and rank emission reduction policies. The eventual report, which would likely ratify a national carbon tax of some sort, could offer GOP denialists a way out of their obstructionism.

An identical bill, also called the Climate Solutions Commission Act, failed to pass in 2016. Nevertheless, Inside Climate News said that today’s bill introduction “reflects how a small but increasingly vocal group of Republicans is embracing the reality of climate change and pressing the issue in Congress.”

It’s hard to gauge whether and how much Republicans will ever come around on climate. Nor can we say just how many members who voted today for the GOP’s health care” bill will be drummed out of Congress next year, as Washington Post political blogger Paul Waldman demanded just hours after the 217-213 vote. What we do know is that millions of us are working on defending and trying to extend social and economic and racial justice, including affordable health care, and also organizing for climate.

The May 4 health care vote may prove to be a right-wing Waterloo. And, just possibly, the re-introduction today of the Climate Solutions Commission Act may start the ball rolling for a carbon tax that helps save the climate.

We’ll leave it there. You may want to read our March 17 post about another, Republican congressional climate resolution, along with our updated Conservatives page.

And this just in from ICN reporter Sabrina Shankman: the 12 bill sponsors are Representatives John Delaney (D-MD) and John J. Faso (R-NY), who introduced it, and Reps. Curbelo (R-FL), Deutch (D-FL), Meehan (R-PA), Fitzpatrick (R-PA), Lowenthal (D-CA), Peters (D-CA), Ros-Lehtinen (R-FL), Schneider (D-IL), Stefanik (R-NY) and Suozzi (D-NY). Representatives Faso, Curbelo, Meehan, and Stefanik also signed the 2017 House G.O.P. Climate Resolution linked to directly above.

What the WSJ Got Wrong About the Shultz-Baker Carbon Tax Proposal

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The carbon tax proposal that the Climate Leadership Council unveiled last month upends orthodoxies on both sides of the political divide. It is revenue-neutral, which goes against the desires of many on the Left to invest carbon tax revenues in a “just transition” to clean energy. It distributes those revenues as “dividends” to U.S. families, an income-progressive outcome that frustrates those on the Right who might accept a carbon tax as a way to pay for reducing the corporate income tax, at least in theory.

Editorial endorsements for the Shultz-Baker carbon tax proposal, as of March 1.

We at CTC heartily endorsed the council’s proposal in a blog post hours after its release. So did a dozen leading newspapers, including the Dallas Morning News, the Houston Chronicle, the Financial Times and Barron’s, some of which were likely impressed that the CLC rollout was led by GOP icons James Baker and George Shultz, both of whom held multiple cabinet posts in earlier Republican administrations. But that wasn’t good enough for the Wall Street Journal, whose editorial page sometimes reads as if written by the Koch Brothers-financed, climate change-denying Americans for Prosperity. Its Feb. 25 editorial attacking the CLC proposal, The Carbon Tax Chimera, didn’t so much rebut the proposal as excoriate it.

Messrs. Shultz and Baker responded in a letter in the Journal last Friday, We Thought We Would Hit Your Sweet Spot. Their letter isn’t aimed at the Journal’s editors, who are tethered to hard-right climate denialism, but to the paper’s remaining readers who recognize that catastrophic climate change poses risks to their bottom line (and themselves) and are looking for a policy response they can support. In the same spirit, we present this point-by-point rejoinder to the Journal’s editorial by Dr. Peter Joseph, group leader of the Marin County, CA chapter of Citizens’ Climate Lobby. Dr. Joseph is an outspoken advocate for the fee-and-dividend approach to carbon taxing which forms the heart of the CLC proposal.

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1. WSJ: The climate may change but one thing that never does is the use of climate change as a political wedge against Republicans.

Dr. Joseph: Following Sen. John McCain’s 2008 campaign acknowledgment of climate change, it was Republicans who turned climate change into a wedge issue by conflating scientific uncertainty — a necessary and ever-present part of scientific inquiry — with the well-established scientific consensus about global warming. The Journal seems not to appreciate that the Shultz-Baker plan, tailored to appeal to fiscal conservatives, can serve as Republicans’ escape ladder from this untenable position once they let go of the “I am not a scientist” trope and decide to join every other major political party – including conservative — in the Western democracies and get serious about this threat.

2. Also never changing is the call from some Republicans to neutralize the issue by handing more economic power to the federal government through a tax on carbon.

Revenue neutrality with 100 percent of the revenues returned to U.S. families as carbon dividends actually deprives the federal government of more economic power by channeling all the money back to citizens and reserving decision-making power to households, companies and markets.

3. The risk is that Donald Trump takes up the idea, which would hurt the economy with little benefit to the environment.

A fully refunded carbon tax will cut emissions with greater efficiency and less economic drag than regulations. It also produces greater environmental benefits and promotes business stability. The Climate Leadership Council estimates that by 2025 its plan will reduce CO2 emissions reductions by 28% below the 2005 baseline, meeting America’s Paris commitment. The Carbon Tax Center, modeling a more robust rise in the tax level after the initial $40/ton, estimates that the council’s plan would, by 2030, reduce our annual CO2 emissions from 2005 levels by 40 percent.

4. Such a tax might be worth considering if traded for radically lower taxes on capital or income, or is [sic] narrowly targeted like a gasoline tax.

Some economists recommend tax swaps, with Republican-leaning economists preferring cuts to the corporate income tax and Democratic-leaning ones favoring cutting the payroll tax. But politics point strongly to the dividend approach. The tax code is so complex, and Treasury Department bookkeeping so labyrinthine, that it’s extremely difficult to pull off a tax swap that’s immune to suspicions that the government is “stealing” the money. Accountability is crucial. Plus, the carbon tax has to rise each year, since it can’t start at the high levels that are required without seeming punitive. This requires the public to trust that the tax revenues will actually come back to them. A dividend like the council’s can win their trust, since the dividend checks rise in concert with the tax level.

5. But in the real world the Shultz-Baker tax is likely to be one more levy on the private economy.

Reinjecting billions directly back into the Main Street economy will act as a stimulant, not a drag. When families, particularly at the lower end, receive money regularly, they spend it. Sectors other than the hydrocarbon industry will benefit, and the predictable glide path toward the low-carbon economy will allow industry to adapt.

Former Secretary of State & Treasury James Baker, at the Climate Leadership Conference’s Feb. 8 rollout of its carbon tax proposal at National Press Club.

6. Even if a grand tax swap were politically possible, a future Congress might jack up rates or find ways to reinstate regulations.

The carbon tax signal should escalate predictably, and as long as the public receives the funds they won’t be inclined to revolt, since a clear majority will be made better off. As for wealthier households, many will hardly notice that their dividend checks don’t cover their carbon tax bite. Provided the tax levels are robust rather than token, Congress will have no incentive to “jack up rates” later on. Remember, Washington keeps none of the money.

7. Another problem is the “dividend.” A carbon tax would be regressive, as the poor spend more of their income on gasoline and household energy.

Full dividend return converts a regressive policy into a progressive one. The key is the dividend: since wealthier people have larger-than-average carbon footprints (they buy more stuff, live in bigger houses, fly more, etc.), they’ll pay in, while most middle-income and virtually all low-income families will take out. Models show that close to two-thirds of the population comes out ahead with full revenue return via dividends rebate. Citizens will retain the freedom to lower their consumption and use the spread between their carbon dividend check and carbon footprint costs as an incentive to reduce personal emissions and make some money, if they choose, without being required to do so by the government.

8. The plan purports to solve this in part by promising to return the tax to the American public. But the purpose of taxes is to fund government services, not shuffle money from one payer to another. No doubt politicians would take a cut to funnel into renewable energy or some other vote-buying program.

Taxes fund programs, agencies and services that make America great. But a fully refunded “tax” such as the council’s isn’t really a tax if the government doesn’t keep the money. It’s a fee, not intended to generate operating revenue but to correct a market failure. True, politicians might find it difficult to let huge sums slip through their fingers. As then-ExxonMobil CEO Rex Tillerson quipped in a 2009 speech advocating a revenue-neutral carbon tax, “I know that’s hard for a politician to say.” He suggested the tax be called “a refundable greenhouse gas emissions fee.” The U.S. government will return the funds unmolested as required by law.

9. The rebates would also become a new de facto entitlement with an uncertain funding future.

The dividends will rise initially, then level off and eventually — and predictably — decline as the rising fee does its job of lowering carbon intensity. (That decline is another argument against using the carbon revenue for tax swaps or government programs, as the eventual budget shortfalls would require a future Congress to raise taxes.) At the same time, energy from wind and sunlight, whose fuel is free, combined with efficiencies and innovative processes and products, will stabilize or decrease the costs of goods and services. What matters to citizens is their overall household budgets. There will also be savings in healthcare costs as the air gets cleaner, and presumably military expenditures as we wean off unstable sources of foreign oil.

10. Meanwhile, the energy import fee looks like an appeal to Mr. Trump’s protectionist impulses…The idea is an attempt to export U.S. climate and tax policy with the threat of tariffs, which other countries may resent.

The Journal would do well to look more broadly at the council’s border carbon tariff. It’s an incentive to other countries, a tool to ensure a level playing field for U.S. manufacturers, and an act of leadership by the world’s most vibrant economy. A sustainable climate and a habitable earth require controlling global emissions. Without a global carbon price, too many nations will be unable to fulfill the reduction targets they promised in Paris, which are all voluntary. The global economy is the only enforcement mechanism there is. From a practical political standpoint, without a border carbon tariff no carbon charge will ever get through Congress if it disadvantages U.S. exporters.

11. The tax rate would also be influenced by international climate models that have overestimated the increase in global temperature for nearly two decades.

Must the WSJ editorial page continue to cling to this wearisome canard, in the face of year after year of record-setting temperatures? As for alleged IPCC “overestimates,” presumably referring to the alleged “pause” in surface temperature increases, that spurious claim has been thoroughly debunked. The excess retained heat energy has been going into the oceans, where it’s accelerating the disintegration of the polar ice shelves — dams restraining the great land ice sheets —threatening much higher sea level rise than previously predicted and threatening to inundate vast stretches of our nation’s and the world’s coastal areas.

12. A carbon tax is always pitched as “insurance” against climate change, but no one thinks it will change the trajectory of temperatures.

That might apply to an anemic price signal. It hardly applies to a carbon tax that starts at $40 per ton of CO2 and rises from there. The data indicate that most known fossil fuel reserves must remain in the ground to prevent catastrophic warming. Only a robust price signal can enable markets to resist the disastrous allure of trillions of dollars worth of carbon products. A rising fee on carbon emissions is the most powerful lever we have to phase out fossil fuels as fast as practicable.

13. A 2016 paper from the Cato Institute makes the point that insurance policies hedge risks that are well-known, unlike climate change, whose risks are highly uncertain.

The Cato Institute, known for its climate denial, is hardly a source of sound advice. The scientific consensus tells us that the chances that climate change will wreak catastrophic damage on property, let alone ecosystems and civil society, are far greater than the probability that, say, one’s home will be destroyed by fire. Yet every homeowner has fire insurance.

14. Fossil fuels make up about 80% of U.S. energy; solar, wind and hydropower are more expensive and lack the scale to be a viable substitute.

Fossil fuels rose to dominance through political arrangements that externalized the true costs of dumping their combustion products into the atmosphere and oceans. One can argue that these costs were unknown until now. Today to not know is to deny reality. The carbon tax internalizes those costs, rectifying a massive market failure. Yet even without that tax, solar and wind are rapidly gaining market share and grid parity, and there are no limits to the eventual scope of their deployment. A carbon tax will accelerate this transition.

Harvard economics professor Greg Mankiw at the Feb. 8 CLC press conference.

15. Congress has never shown the self-restraint to collect an estimated $1 trillion in taxes and return it to the public. Any Republican who supported a carbon tax can expect no help from Democrats, who won’t restrain the Environmental Protection Agency.

As Secretary Tillerson observed, it is tough for a politician to utter the words “revenue neutral.” The public will have to demand it, and the business community, understanding that climate disasters are terrible for business, must lobby for it. Elected officials will then follow. The Shultz-Baker plan calls for suspending most EPA authority over CO2, an olive branch to anti-regulation interests. Evidence that Democrats and their environmental allies might be willing to relinquish control over the carbon tax revenue stream can be found in the resolution that California’s Democratic-controlled legislature passed last August calling on Congress to enact a revenue-neutral carbon fee and dividend proposal similar to the Shultz-Baker plan.

16. You won’t read this elsewhere, but what’s driven the recent reduction in U.S. carbon emissions is fracking for natural gas, which might never have happened had a carbon tax been in place.

While it’s undeniable that fracked gas contributed to overall reductions bydisplacing dirtier coal, a recent report by the Carbon Tax Center established that since 2005 the combination of electricity savings from efficiencies and increased wind and solar have played a greater part in reducing carbon emissions tha the replacement of coal by gas. Moreover, efficiency, wind and sunlight — unlike fracking — generate zero emissions of methane, which is also a potent greenhouse gas.

17. Human ingenuity and prosperity are the best insurance against climate change.

Perhaps. But even human ingenuity is hard pressed to overcome broken markets that fail to price carbon emissions’ damages. As Harvard economics professor Gregory Mankiw pointed out in the CLC press conference rolling out the carbon dividend plan (@32 min), a carbon tax is as close to a silver bullet as there is, precisely because it engages the enormous power of money and markets, with minimal risk, in a nonpartisan way. The WSJ should support it.

Dr. Joseph may be reached at pjmd1@me.com. He asked us to note that the views expressed here are Dr. Joseph’s and not necessarily those of Citizens’ Climate Lobby or Citizens’ Climate Education. — editor.

January 21: The New Resistance

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Did you march on Saturday? Well over 3 million people did in 500 cities across the U.S., according to the meticulous list compiled by Professors Jeremy Pressman ( U-Conn.) and Erica Chenoweth (University of Denver). A quarter of a million in Chicago. Two hundred thousand in Denver. Twenty thousand in Houston. As many as 750,000 in Los Angeles. Fifteen to twenty thousand in Nashville, and an equal amount in tiny Montpelier, VT. Four hundred thousand in my New York City. Plus another quarter of a million in dozens of countries from Morocco to Mexico.

Map by Vox from figures compiled by Jeremy Pressman and Erica Chenoweth.

Map by Vox from figures compiled by Jeremy Pressman and Erica Chenoweth.

The resistance to what one observer has labeled “a thin-skinned authoritarian whose only real constituent is himself, and whose intentions, to the extent we can discern them, are to destroy a lot of the things that make this country (truly) great,” has begun with what may have been the largest nationwide explosion of protest in American history.

And, to borrow from our 16th president, “it is altogether fitting and proper” that this new wave of protest was conceived, organized and stamped by women. At the risk of over-generalizing, women incline more than men toward co-operation, mutuality, and inclusivity — attributes that are central to society and survival but are anathema to No. 45.

To quote from the Women’s March Web site:

We stand together in solidarity with our partners and children for the protection of our rights, our safety, our health, and our families – recognizing that our vibrant and diverse communities are the strength of our country… This march is the first step towards unifying our communities, grounded in new relationships, to create change from the grassroots level up… We work peacefully while recognizing there is no true peace without justice and equity for all.

Like most protests, the Women’s Marches had three purposes: for the country and world, including the media, to send a message; for the marchers, to fortify commitment; and for the marchers as well, to instill the belief that we are not alone and that together we can make a difference. From what I saw and felt in New York, and likewise my wife and son in DC and our other son in St. Paul, MN, the women’s marches succeeded brilliantly on all counts.

New York City march, 5th Ave & 42nd St.

New York City march, 5th Ave & 42nd St.

For once, the multiplicity of causes distilled in tens of thousands of homemade signs didn’t dilute the point — it was the point. Tolerance, diversity and difference — the essence of society and nature alike — are now under attack in America as perhaps never before. And of course science, fact and truth. While it was good to see the occasional “Time to Price Carbon” sign, it was appropriate that climate was just one of hundreds of concerns expressed at the rallies.

(And of course the People’s Climate Mobilization — what 350.org is calling “the launch pad for a larger, nationwide movement to fight fossil fuels at the local level” — is just 14 weeks away, on April 29. Click here to participate and organize.)

If the marchers’ joy and solidarity were stirring counterpoint to the brutalism of the swearing-in of the new regime, I experienced a similarly stark contrast on Inauguration Day. My wife engineered the near-miracle of procuring three tickets to the Smithsonian’s new National Museum of African-American History and Culture, and with our son we spent the afternoon there, sheltered from the events unfolding around us in real time.

A tiny fraction of the trans-Altantic slave trade, summarized at the National Museum of African-American History and Culture.

A tiny fraction of the trans-Altantic slave trade, summarized at the National Museum of African-American History and Culture.

We spent most of our time in two of the history galleries: Slavery and Freedom 1400-1877, and Defending Freedom, Defining Freedom: The Era of Segregation 1876-1968. This isn’t the venue, nor am I the vehicle, for a full account of the richness of the experience. (For that, I suggest Holland Cotter’s review, The Smithsonian African American Museum Is Here At Last: And It Uplifts and Upsets, and Wesley Morris’s essay, Visiting the African-American Museum: Waiting, Reading, Thinking, Connecting, Feeling, both in the New York Times.)

What I can report is how my immersion at the “Blacksonian” on Friday deepened my understanding of the mercantile nature of slavery. Panels reporting the ship names, flag, voyage dates, and number of slaves who were boarded in Africa and survived the Middle Passage to the Americas drove home with brutal force not just slavery’s vast scope but the web of contractual and monetary arrangements that undergirded it. “Money money money money money” I whispered to my wife as we gazed at these impassive testaments to greed and suffering. Slavery made white America rich.

As we made our way through the Freedom floor, we saw the promises of emancipation yanked away by the KKK, lynchings and Jim Crow. But the exhibits also told of W.E.B. Du Bois, A. Philip Randolph, and of course the Civil Rights Movement. The story of freedom in America is the story of struggle.

Campaigners for justice have always battled tall odds. I wrote on Nov. 10 that “fighting for a livable planet and a humane society is what I’ve done my whole life. I’m not stopping now, and I know neither are you.” The massive rejection of Trump and the calls for resistance that sounded through the land on Saturday demonstrate without doubt that we’re a movement of millions.

Photographs by the author.

Electricity Savings Have Surpassed Indian Point in Providing Carbon-Free Power to New York

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Supporters of nuclear power wasted little time pointing out how much carbon-free electricity production will vanish from closing the Indian Point reactors 25 miles north of New York City.

As the New York Times reported last Friday, NY Gov. Andrew Cuomo and Entergy Corp. have reached an agreement to shut the twin reactors permanently in 2020 and 2021, respectively. Both units are in their fifth decade of operation. Though their electricity output has finally attained consistently high levels, their checkered record and proximity to New York City have made them an abiding source of concern of safe-energy activists as well as the state’s governor and attorney general.

Replacing Indian Point with carbon-free energy will be a tall order, according to one researcher.

Replacing Indian Point with 100% carbon-free energy will be a tall order, according to one researcher. See graph below for a different take.

Like most operating nuclear power facilities, Indian Point produces a good deal of nearly carbon-free electricity. Charges by some antinuke activists that reactors have sizable carbon footprints are overblown. Most rely on outdated assumptions (e.g., that uranium “enrichment” still takes place in power-guzzling Cold War-era plants) or questionable accounting (charging today’s reactors for putative energy costs of far-future waste storage).

That production gave rise yesterday to the tweet shown at left from Jesse Jenkins, an electricity researcher with the Breakthrough Institute, purporting to “put the Indian Point plant closure into perspective” by showing that its electricity generation dwarfs that of other New York state sources of carbon-free energy.

Jenkins’ figures are probably right (I haven’t checked them, but he’s good with numbers). But they’re incomplete. They omit New York’s share of the largest U.S. source of carbon-free electricity in recent years: the electricity savings embodied in the divergence of total electricity usage from total economic activity.

We quantified that divergence in a new report last month, The Good News (blog summary version here). The bottom line, in numerical terms, is that in 2016 the U.S. was able to avoid generating a little over 500 TWh of electricity — almost one-eighth of the electricity it did produce — because electricity usage barely grew compared to 2005 consumption. (A TWh, one billion kWh, is a convenient metric.)

For reasons we spelled out in the report — structural shifts from energy-intensive heavy manufacturing to service industries; ratepayer-funded efficiency programs in tandem with government codes and standards for buildings, appliances and other end-use equipment; rapid penetration of digital technologies in energy management, product design and manufacturing, to name several — U.S. electricity generation in 2016 will likely be a mere 20 TWh above the 2005 level of 4,056 TWh, rather than in the 4,500-4,600 TWh range it would have reached if nationwide demand for power had grown after 2005 at the same relative rate to GDP that held during 1975-2005.

Estimated NY electricity savings are surpassing Indian Point's carbon-free output.

Estimated NY electricity savings are surpassing Indian Point’s carbon-free output.

Almost by definition, those electricity savings are widely distributed and have taken place in every state. New York’s share may have been greater than the national rate, given its concentration of large office buildings and multifamily housing that are particularly ripe for money-saving energy-efficiency retrofits. For conservatism, we assign 3.8 percent of the 507 TWh of national avoided generation in 2016 to New York, based on its share of U.S. electricity usage in 2014, the most recent year with state data.

That works out to 19.1 TWh of electricity generation avoided statewide last year — all of it carbon-free — because the economy here, in tandem with the country as a whole, reduced its electricity-intensiveness between 2005 and 2016. (We use 2005 as a baseline because it’s both the benchmark year for many climate policy targets and the year in which U.S. electricity use began to markedly detach from economic output.) That figure surpasses by a wide margin the 16.4 TWh of annual electricity production that Jenkins ascribes to Indian Point, as our expanded chart shows.

It is true that electricity savings and nuclear power generation aren’t necessarily in conflict. Shutting Indian Point will require New York State policy, investment and consumers to push harder — much harder — on wind and solar as well as energy efficiency to achieve the carbon reductions that Indian Point now provides and would keep providing if the plant were re-licensed and continually refurbished to permit it to operate indefinitely.

But it is also true that Indian Point isn’t fully complementary with efficiency and renewables. The reactors’ inability to easily vary their output makes it harder for the state electric grid to integrate naturally variable wind turbines and solar power. Indian Point’s presence on the grid also depresses the prices offered for renewable electricity and energy savings alike. Conversely, the prospect of terminating both reactors several years from now will expand the horizons for carbon-free electric energy in New York state on both the supply and demand sides.

We hope this post adds useful context to Indian Point’s now-pending closing. It has been a major source of carbon-free electricity for New York state, but as of 2016 it’s no longer the pre-eminent one. Recognizing the contributions of energy efficiency in reducing greenhouse gas emissions will make it easier to fashion policies and organizing strategies that protect our climate, with or without nuclear power.

No Free Ride for New Climate Outlaw

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Jan. 24, 2017 update: French presidential candidate (and former prime minister) Manuel Valls yesterday renewed Nicolas Sarkozy’s Nov. 2016 call for a carbon border tax on imports from the United States, saying “When Donald Trump declares some kind of economic war on Europe, we must be ready.” More in this Fox News (!) story. 

This post is by Chris Hope, a prominent U.K. climate change policy researcher who served as a lead author and review editor for the Third and Fourth Assessment Reports of the Intergovernmental Panel on Climate Change. It is lifted more or less intact from Chris’s Nov. 15 post, A proportionate response to Trump’s climate plans. We have edited slightly for grammar and added several notes. — CTC.

During the U.S. election campaign, Donald Trump said he would dismantle the country’s domestic climate change policies and withdraw the U.S. from international climate agreements, most notably the Paris agreement which came into force earlier this month. In the week since he became President-Elect, he has given every indication that he is serious in his intentions.

A British climate economist has a policy response to the world's #1 climate denier.

A British economist has a policy response to the world’s #1 climate denier.

So how should the rest of the world respond? It is tempting to indulge in wailing and gnashing of teeth, but in the real world of a Trump Presidency, this is unlikely to be effective. What is needed is a proportionate response. In France, former president (2007-2012) Nicolas Sarkozy has proposed what may well be the most efficient and effective measure, a climate change tax levied upon all US goods imported into Europe.

[CTC: Chris is referring to “border tax adjustments” — import fees levied by carbon-taxing countries on goods manufactured in non-carbon-taxing countries. World Trade Organization rules permit countries with carbon taxes to adopt “non-discriminatory harmonizing tariffs” to protect energy-intensive trade-exposed industries by eliminating the competitive advantage enjoyed by exports from countries that don’t tax carbon emissions. These tariffs also create incentives for non-carbon taxing countries to adopt carbon taxes, since harmonizing tariffs represent revenue that the exporting country could garner by imposing its own carbon tax. Our Border Adjustments Web page has more information.]

How large should such a tax be? If it is to be proportionate, it should cover the harm caused to the Earth from the production of the goods, a harm that will not be reflected in their price if the U.S. presses ahead with the unfettered use of fossil fuels. Let’s consider some ballpark numbers. The Gross Domestic Product of the US in 2015 was about $18 trillion. U.S. emissions of greenhouse gases in the same year were about 7 billion tonnes of CO2 equivalent. Dividing one quantity by the other, we find that every thousand dollars of U.S. production involves the emission of about 0.4 tonnes of CO2 equivalent.

[CTC: Chris’s 7 billion tonne CO2-equivalent figure is sourced to definitive USEPA data and comprises somewhat more than 5 billion tonnes of CO2, one billion tonnes of CO2-equivalent from methane, and perhaps 0.6 billion tonnes of CO2 equivalent from nitrous oxides, hydrofluorocarbons (HFC’s) and other heat-trapping gases.]

The best estimate we have of the global harm caused by these emissions comes from integrated assessment models, like my PAGE09 model which gives a mean value of about $150 per tonne of CO2 if valued by an average citizen in Europe, or $250 per tonne of CO2 if valued by an average U.S. citizen (U.S. citizens are on average about 50% richer than European ones, so they should value an equivalent physical harm more highly).

Applying these mean values as an ad valorem tax on imports of USA goods to Europe results in a tax of about 6%, if the European valuation of harm is used, or 10% with the U.S. valuation. These are higher, but not dramatically so, than Sarkozy’s proposal of a 1–3% tax on US imports.

How much might such a climate tax on U.S. imports raise? The EU presently imports about 400 billion Euros of US goods and services per year. So a 6% tax rate would raise about 25 billion Euros per year, and a 10% rate would raise about 40 billion Euros. If imports of U.S. goods and services have a price elasticity of -1, these revenues would be about 6% or 10% lower respectively.

[CTC: The implied revenue reduction of 25-40 billion euros, or $27-$43 billion in U.S. currency, represents potential U.S. trade losses. They equate to around $100 per capita, or roughly $400 per U.S. family of four.]

If adopted, this idea could be refined further by levying higher rates on U.S. goods that released a great deal of greenhouse gases during their production, and lower rates on others. And of course, in order not to be hypocrites, we in Europe would introduce a strong, comprehensive climate change of about $150 per tonne of CO2 equivalent on our own activities too. But that is only common sense.

To The Left-Green Opponents of I-732: How Does It Feel?

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The Friday-afternoon tweet from Greenwire nailed it: @Koch_Industries & @VanJones68 united in $$ battling Wash. state #carbontax measure.*

Though they could also have tweeted: Fossil-Fuel Right & Doctrinaire Left team up to battle Wash. state #carbontax measure.

Screenshot from Nov 4 tweet by E&ENews. Digitally available via @EENewsUpdates.

“Green jobs” champion Van Jones is flanked by fellow I-732 opponents Charles & David Koch in this Nov 4 tweet. Digitally available via @EENewsUpdates.

The occasion was the news that Koch Industries just poured $50,000 into the coffers of the No On 732 forces. As everyone knows who wasn’t slumbering through the past two decades, the Hard Right takeover of Congress and dozens of statehouses and legislatures owes much to Koch Industries’ prolific bankrolling of reactionary candidates and lobby groups. Brothers Charles and David Koch are billionaires many times over, thanks to Koch Industries’ empire of pipelines, refineries, mines and wells that for generations have spewed carbon pollution into the atmosphere for free.

The Koch brothers are no dummies. They know what fellow fossil fuel exec Robert E. Murray told Kirk Johnson and Coral Davenport of The New York Times the other day: Passing I-732 to enact a carbon tax in Washington state could ignite a trend that “would eliminate the use of all fossil fuels.”

We at the Carbon Tax Center know it too. Which is why we’ve pulled out all the stops to educate Americans from Washington and beyond on the merits of that state’s carbon tax referendum and its potential to kick open the doors to national carbon taxing.

What’s been hard to fathom is the drumbeat from so-called left greens like visionary climate hawk and political activist Van Jones in opposition to the Nov. 8 ballot measure.

In the past two weeks we’ve had to contend with bizarro posts like “Here’s Why a Carbon Tax Helps Fossil Fuel Companies, Not the Environment” (an op-ed in AlterNet by Food & Water Watch) and “Why Exxon Loves the Carbon Tax—and Voters Should Not” (the same group’s op-ed in the ironically named Yes! magazine).

It was just a matter of time before the Koch Bros. cut a check to stop I-732. Meanwhile, the Yes forces have no Exxon money; nor would they take any.

It was just a matter of time before the Koch Bros. cut a check to stop I-732. Meanwhile, the Yes forces have no Exxon money; nor would they take any.

We responded to both last week — before today’s filing by No On 732 revealed that the Koch brothers are helping finance the opposition. Needless to say, only an ideologue could believe that Exxon’s once-a-year opining for hypothetical carbon taxes counts for more than $50,000 in Koch Brothers money against an actual one. (Click here to see the Koch contribution in the No On 732 list.) And sure enough, there was a lot more ideology than reason on display in a press event yesterday in which leading left greens inveighed against I-732.

We were allowed to listen in, but not to speak or ask a question. No transcript or audio has been made available, but here’s a sample of what we jotted down from speakers’ remarks. (Remember, they were addressing a carbon tax that has been meticulously designed to make Washington state taxes less regressive, primarily by dedicating the lion’s share of revenues to slice a full percentage point off the WA sales tax.)

You’re doing climate policy on the backs of the poor. — Van Jones, CEO of Green for All

A “neutral” 732 is perpetuating a one-sided economy of wealth and privilege. This is not a time for more tax cuts for corporations. — Heather McGhee, President, Demos

We stand united to defeat 732. We agree that climate policy cannot be promoted on the backs of the poor. — Mary Kay Henry, president, Service Employees International Union

We’re working on an alternative proposal. There are difficult legal questions. We’re beefing up the struggle after the election. — Rich Stolz, Director, One America

The last quote was in response to a reporter’s question about the alternative to I-732 that the left greens in Washington have talked about for years but never actually written. (Spoiler alert: writing the kind of ballot measure the left greens purport to want is devilishly difficult, in large part because the various groups have competing as well as overlapping interests, which are hard to reconcile. A revenue-neutral measure like I-732 didn’t face that problem.)

The untethering of those quoted statements from the reality of I-732 — a measure meticulously designed around a sales tax cut so low- and middle-income families aren’t harmed — is distressing to me personally. I’m a long-time admirer of every one of the organizations whose leaders I’ve just quoted. As I’ve said many times in this space, I’m a green and I’m on the left. I want to be partnering with Van and Heather and Mary Kay and Rich, not fighting them.

But a carbon tax is too central to climate, and climate is too central to all of our common struggles, for me to sit by and let ideology get in the way of sensible, pragmatic advocacy.

If “friends don’t let friends drive drunk,” it should also be true that activists don’t let activists drive policy from rhetoric.

To Van Jones et al., how does it feel to be on the same side as Charles and David Koch? That’s the corner you’ve painted yourselves into.

*Author’s Note: E&E News tweet lightly edited for clarity.

 

 

 

Washington State’s I-732: A Climate Measure for the Society We Have

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Paul Goodman, a mid-century American apostle of transformational change, entitled a collection of his letters, “The society I live in is mine.” With apologies to Paul, whose unsparing but inspiring critiques of U.S. corporate government helped shape my generation of radical activists, I’m here to say that the Washington state carbon tax initiative, I-732, is the perfect climate measure for the society we have.

Calling out the old guard's "deafening silence" on the Washington state carbon tax.

Calling out the old guard’s “deafening silence” (or worse) on the Washington state carbon tax.

I thought of Goodman today as I read the remarkable “Open Letter from the Millennial Leaders of Carbon Washington and the Yes-on-732 Campaign” to the green establishment leaders who are silent or oppositional on the initiative. Paul was an unabashed champion of youth and an instinctive foe of the old guard, most notably in his best-known book, Growing Up Absurd.

I believe Goodman, renowned for speaking directly, would have relished the millennials’ plain-spoken courage in calling out their heroes’ “deafening silence” on I-732. Devoted to participatory democracy, he would have applauded the millennials’ insistence that the climate crisis “belongs to more than just a handful of non-profit gatekeepers to decide what should be politically realistic and what isn’t.”

I also think that Goodman, a champion of rigor, would have pounced on the insubstantial arguments made by I-732’s “green” opponents, corrected their errors, and alerted them to the absurdity of climate advocates opposing a carbon tax that has advanced to an actual ballot proposition.

Here’s one of those arguments. It’s the first of three bullet points in the message by Washington Conservation Voters telling their members and supporters to vote No:

[I-732] relies solely on economic signals to drive down emissions, which allows all polluters to pay to continue to pollute instead of reducing emissions. Without a carbon cap, we can’t ensure that we will achieve the pollution reductions that are required in state law, but are currently unenforced.

Everything in that paragraph is correct. And all of it is utterly beside the point.

Yes, Initiative 732 relies solely on economic signals to drive down emissions of carbon dioxide. That’s by design. Those signals — higher market prices of fossil fuels — are essential to solve or at least massively shrink the climate crisis. Without them, any climate policy, including the “investment” approach favored by WCV and other green groups opposing or abstaining on I-732, will fall woefully short.

Make no mistake, Carbon Washington, the upstart group that drafted Initiative 732 last year and obtained hundreds of thousands of qualifying signatures to put it on the Nov. 8 ballot, dearly wants society to invest in massive weatherization and solarization of buildings, remediation of polluted communities, better urban and suburban transit, and the like.

So do I. In fact, my other “day job,” aside from running the Carbon Tax Center, is mostly fighting for those very investments and policies in New York City, where I live and work.

Either Carbon Washington or I could have written the first part of WCV’s second bullet:

To reduce carbon emissions quickly, we must not only decrease our use of fossil fuels, we must also rapidly increase our use of clean energy, including solar and wind power and the electrification of transportation. This is the only way for us to transition to a low-carbon economy and significantly decrease our use of fossil fuels.

Well, that transition is precisely what carbon taxes can spark. Raising the prices that businesses and households alike face for coal, oil and gas and for the goods and services manufactured from them will accelerate the society-wide switch to clean energy. Conversely, without those higher fossil fuel prices, solar and wind and electric vehicles and transit will forever be competing with one hand tied behind their backs. Sure, they’ll advance, but not nearly fast and widely enough to push out fossil fuels on the scale our climate requires.

I readily admit — and I’ll wager that Carbon WA will admit as well — that by itself the I-732 carbon tax won’t effectuate that transition either. The tax level specified in the initiative, essentially $25/ton of CO2 after two years, then rising 3.5% a year above general inflation, is too low for that. But that too is by design: the USA’s first statewide carbon tax can’t be super-steep, else industry and agriculture could be hampered vis-à-vis neighboring states, a prospect that would forestall approval by either voters or the legislature.

Rather, the Washington carbon tax is intended as proof of concept. Once a carbon tax has been established in one state, it can be adopted by others, creating a critical mass of political acceptance, demonstrating success in driving down emissions, and disarming the negative arguments on effectiveness, equity and overall feasibility that have stood in the way of a national tax on carbon emissions.

Moreover, as I argued recently, the emerging possibility of a “wave” election transforming the power dynamics in Congress creates a surprise bonus opportunity, in which winning a carbon tax next month in just one state could give tremendous momentum to carbon tax proposals at the federal level.

Even without a Democratic takeover of one or both houses of Congress, the national and global perspective completely moots the insular one inherent in WCV’s complaint that I-732 “can’t ensure that we will achieve the pollution reductions that are required in state law.” Whether or not the particular carbon tax on the Nov. 8 state ballot lets Washington meet those targets is dwarfed by the potential of the carbon tax template to go viral nationally and internationally.

But perhaps the most telltale confusion in that first WCV bullet point is the charge that I-732 “allows all polluters to pay to continue to pollute instead of reducing emissions.” As the saying goes, that’s a feature of carbon-taxing, or indeed any carbon pricing system, not a bug.

Here’s the thing, or two things: first, in our society, polluters get to choose to pollute; what I-732 does is to finally make polluters pay to do so; second, polluters’ choices — and whether we like it or not, “polluters” means all of us who press a gas pedal or turn on a switch as well as the corporate bosses atop the system that limits our agency to choose — are affected by prices.

Every day, in Washington state alone, millions of decisions are made, some almost microscopic (how fast to accelerate up that hill; whether to drive to the nearby mall or the distant one) and some momentous (Boeing’s design and material selections for future aircraft; how it powers its factories) that together determine energy demand and fuel choice and, thus, carbon emissions.

As much as we might wish otherwise, we as a society can’t take away the freedom to make those choices. We can constrain some choices through regulations such as CAFÉ and appliance standards and building codes and the like. We can expand choice through judicious planning. But regulations and planning by their nature can only address one facet of the many-sided carbon equation. A carbon tax, in contrast, operates on every side. (For more on this point, please download and read our 2014 comments to the Senate Finance Committee on energy subsidies vs. taxes.)

We could conjure Adam Smith’s “invisible hand” if the right wing hadn’t co-opted it to prop up its laissez-faire ideology. Let’s say instead that the tax on carbon pollution embodied by I-732 is neither an upending of our market system nor the “clever tinkering with market forces” alleged by an environmental-justice opponent, but an overdue and essential correction — a way to enable markets to finally tell the truth about what fossil-fuel burning is doing to our climate.

The final point to address here is Washington Conservation Voters’ objection to I-732’s allocation of the carbon tax revenues:

Unfortunately, [I-]732 devotes the revenue created by the initiative on tax cuts, instead of strategically reinvesting in clean energy to accelerate our transition away from fossil fuels and fund an equitable transition for workers and disadvantaged communities.

True again, but just a sliver of the whole truth. “Tax cuts” conjures giveaways to the wealthy, but I-732 is the opposite. It applies most of the carbon tax revenues to cutting the state sales tax, a regressive tax like no other that for decades has slammed Washington’s poorest households and communities. The percentage point cut in that tax, to 5.5% from the current 6.5%, allows the carbon tax to yield a net financial gain for most families in the bottom half.

Do the trustees of Washington Conservation Voters fully grasp the game-changing potential of I-732?

Do the trustees of Washington Conservation Voters fully grasp the game-changing potential of I-732?

Imagine if WCV had written the revenue-treatment provisions of I-732 to “reinvest [the carbon tax dollars] in clean energy” and “fund an equitable transition for workers and disadvantaged communities.” Without a doubt, the fossil fuel interests would have blasted the initiative for compounding the financial strains already faced by Washington low- and middle-income families . . . and they would have been right. Branded, correctly, as income-regressive, the carbon tax would have been consigned to a resounding defeat.

Making the carbon tax income-progressive, and not the shibboleth of “appealing to Republicans,” is the main reason Carbon Washington designed Initiative 732 to be revenue-neutral. But that decision has laid bare real fault lines in the environmental community, particularly on energy prices.

Green opponents of I-732 appear to believe that we — Washington, the United States, the world — can craft policies to quickly abandon carbon fuels without rapidly raising their market prices; or that the right energy-investment programs will offset the impacts of those price rises on vulnerable households and communities (a category that since the onset of the financial crisis has grown to encompass perhaps two-thirds of U.S. families).

Proponents believe, as I do, that rapidly raising the market prices of fossil fuels is essential, and that the only sure way to protect households and communities financially is to return the revenues in some progressive fashion. Nationally, that could be via the “dividend” approach propounded by Citizens Climate Lobby. That is probably not practicable for individual state carbon taxes, however, and I believe Carbon WA made the right call to swap out the revenue by cutting the sales tax.

In either case, the carbon reductions sacrificed by returning instead of investing revenue can be recouped by raising the carbon tax rate briskly year after year — a policy that can be enacted if and only if a clear majority of households are made better off or at least kept whole through revenue return.

In closing, let me affirm that I’m a man of the Left. Like Paul Goodman, whom I cited at the top, I’m suspicious of all powerful organizations, private or public. Nevertheless I firmly believe in the capacity of government to do good. If enough other citizens felt the same way, I might well be calling for the investment program that LCV says it wants. Heck, if a majority believed as I do, our country wouldn’t have one of the industrialized world’s most unequal distributions of income and wealth. Instead we would have a social system to support families that stood to lose more from rising fuel prices than they would gain from energy savings.

But we don’t live in that kind of society. We can fight for it, as I and many others in the climate movement do. But we can’t design climate policy for a society we don’t yet have. To turn away from the most potent climate policy instrument we have — one that is now, almost miraculously, being put before the voters of an entire state — would be sheer folly.

Click here for more on I-732, including links to the best and most recent press coverage.

The Political Meltdown That Could Save The Climate

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Anyone with a lit screen knows by now that shell-shocked Republicans are abandoning the Trump ship in droves. As the exodus threatens to become a stampede, with a longtime GOP operative declaring that “The Republican Party is caught in a theater fire; people are just running to different exits as fast as they can,” talk of election “win probabilities” is pivoting from the presidential race to Congress.

A Trump collapse could give Democrats back the House,” reported Vox this weekend, citing analysis that a mere six-point Clinton plurality could swing the 31 needed seats in its wake. While that’s probably over-optimistic, a more decisive margin over Trump might do the trick.

The ramifications for climate could be huge: Democratic control of both the White House and Congress clears a path for a federal carbon tax without having to somehow vault over GOP denialists. Which could make next month’s ballot referendum in Washington state, Initiative 732, even more momentous. Enacting the country’s first carbon tax wouldn’t just produce a template for other states; it could spark national legislation establishing a U.S. tax on carbon emissions, perhaps as early as 2017.

Infographic from Yeson732.org. The revenue-neutral carbon tax design has alienated some Washington-state climate advocates.

Infographic from Yeson732.org. The revenue-neutral carbon tax design has turned off some Washington-state climate advocates.

Let’s be clear: a U.S. carbon tax isn’t just helpful climate policy. It’s the core of any program for shrinking carbon emissions massively, relentlessly and globally. Only a briskly rising carbon tax rewards and thus bends every investment, decision and behavior toward less use of fossil fuels. Only a carbon tax can be replicated so the world’s nations can meet the commitments they made in Paris a year ago and ratified last month. And only a carbon tax produces revenues that can protect low- and middle-income families as fossil fuel prices rise — as they must to blow open the gates to the renewables-and-efficiency revolution at full scale.

The holistic power of carbon taxing is what motivated the grassroots organizers at an upstart group called Carbon Washington to crisscross the state last year and collect the 350,000 signatures that placed “I-732” on the Nov. 8 ballot. It’s also what makes it vexing that many green groups in the state have refrained from supporting I-732. Some are actively opposing it.

The schism has been covered widely (and insightfully) in recent weeks, most recently by Natasha Geiling in Think Progress. “Opposition to Washington’s historic carbon tax initiative is coming from the unlikeliest of sources,” reads her headline, which then asks, “It’s the only carbon tax on the ballot in the country. So why are some environmental groups fighting it?”

The answers are many. Carbon WA drew up I-732 without consulting fully with the entire spectrum of climate advocates. The design of its carbon tax is more attuned to the market than to government, with the carbon revenues “returned” to households (see graphic) rather than invested directly in clean energy and community remediation. And perhaps the in-state green groups are guided more by local and state concerns while Carbon WA set its sights nationally and globally.

Those points can be parsed endlessly. But the central fact for climate, which the Republican implosion is making more salient daily, is that the fissure in Washington state threatens to sink the initiative and botch our chance to put a carbon tax on the national legislative agenda starting months from now. Polling on I-732 suggests that a deficit in August may have flipped into a slight plus, but a fifth of voters are still undecided, and disunity among climate advocates makes it tougher to seal the deal.

There’s no second chance at this in the Evergreen State. Washington’s legislature has shown no appetite for a carbon tax, and a new referendum can’t get on the ballot until 2018. Organizing in other states has fallen short as well. Whether we like it or not – and the economist in me makes me a big fan – I-732 is the only game going.

The U.S. elections will doubtless take further twists in the final four weeks, but the possibility of debating and actually winning a national carbon tax is suddenly, miraculously upon us. The referendum in Washington state is going to function as the first big test. Whatever its imperfections, the climate movement’s greatest imperative must be to come together and pass I-732.

A Way to Expand the Carbon Dividend Tent

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Should undocumented immigrants be entitled to the same regular payments that legal U.S. residents would receive under the fee-and-dividend form of a carbon tax? How would the payments be administered to people with little or no official status?

These are no small questions, given that as many as 12 million undocumented immigrants live within our borders, with the vast majority facing huge economic and social challenges. That’s why we at the Carbon Tax Center are intrigued by a new development in California, home to an estimated 2 million undocumented immigrants and a perennial incubator of innovative social and environmental policies.

Providing access to healthcare exchanges for all could help open the door to universal fee-and-dividend.

Opening state healthcare exchanges to all could help make a path to universal fee-and-dividend.

The New York Times reported last week that California officials have petitioned the Obama administration to let undocumented immigrants purchase health insurance on the state’s public exchange. A bill signed into law in June by Gov. Jerry Brown directed the officials to seek a “state innovation waiver” under Section 1332 of the Affordable Care Act that lets local governments adopt alternative coverage strategies that don’t undermine the ACA’s cost-containment goals, according to The Hill newspaper.

With Republicans ready to pounce on any linkage of “Obamacare” with “illegal,” the White House may well turn a deaf ear to the request this fall. But a post-election Democratic administration should have no such qualms. Granting the waiver could be a transitional step that helps legitimize the status of undocumented immigrants and brings them closer to the federal apparatus that would issue the carbon dividends.

Winning access to California’s healthcare exchange wouldn’t mark the first admission of undocumented immigrants into government-administered systems. A dozen states and the District of Columbia already allow people residing here without papers to apply for and obtain driver’s licenses, according to the Website ProCon. But opening up a second front via the Affordable Care Act could help normalize the status of undocumented immigrants and eventually help fulfill pledges from advocates that a fee-and-dividend carbon tax will lift up rather than burden the most vulnerable among us.

In a post last week on Yale Environment 360, renowned climate advocate Bill McKibben coupled praise for fee-and-dividend with this warning:

[The dividends] shouldn’t overlook the estimated nearly 12 million undocumented Americans who contribute to the economy — and cause far less than their proportional share of emissions. Environmental justice would mean a truly “fair” system [that] compensated them for that history; it would also require policies to make sure that carbon pricing doesn’t perpetuate toxic “hot spots” in poor communities as companies look for least-cost ways to deal with the new reality.

We responded to Bill’s “hot spots” concern last week in our post, Carbon Tax Can Be a Remedy for Toxic Hot Spots. His fears that undocumented immigrants could be declared ineligible for the carbon dividends are harder to dispel, especially at a time much of the citizenry seems consumed with xenophobic rage.

That is why we’ll be watching what happens with California’s petition closely. Any policy action with even a chance of widening the dividend tent to include everyone living in the U.S. should be applauded. In an encouraging sign, the New York Times endorsed the petition in an editorial over the weekend.

If California’s petition to open its healthcare exchange to all proves successful, it could become an important instance in which social and economic fairness aligned with climate justice. And it would pave the path for a more equitable and inclusive fee-and-dividend carbon tax.

Brookings report on state carbon taxes is a winner

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The Brookings Institution is out with a handsome new report, State-Level Carbon Taxes: Options And Opportunities For Policymakers. We’re still digesting it, but it looks like one of the most lucid and useful publications on carbon taxes to appear in a long time. At a minimum, it’s essential reading for at least two (overlapping) groups: people seeking to advance carbon taxes at the state level, and people who want to steep themselves in the nuts and bolts of implementing actual carbon taxes.

The authors are three heavy hitters in carbon tax policy and advocacy: Adele Morris of Brookings, Yoram Bauman of Carbon Washington, and David Bookbinder of the Niskanen Center. Together they bring to bear key disciplines (economics, law, political organizing), extensive knowledge, and keen interest. It’s no surprise their report is a winner.

Here’s the start:

Much has been written about the design of a federal-level carbon tax. This paper adapts these findings to the state level, motivated by pending federal regulations (which place implementation obligations on states), policy discussions in states with commitments to ambitious long-term emissions targets, and state budget shortfalls that could necessitate new revenue. Notwithstanding the myriad political impediments to a carbon tax, this paper explains how state policymakers can design one to fit their fiscal, economic, distributional, and environmental goals.

They find that “a $20 per ton tax on energy-related CO2 emissions could raise up to 2-3 percent of state GDP in the most emissions-intensive states.” That is significant, they say, because current state revenue instruments — sales, property, income, and business taxes — typically collect only about 5% of GDP. Moreover, contrary to the usual view that a carbon tax might be an unreliable revenue generator, if only because the revenue base of carbon emissions would shrink over time, the report concludes that carbon fees could prove less volatile than other state revenue sources.

Bar chart w top 15 states (c tax revenue as share of GDP) _ 4 Aug 2016

Graphic is from Brookings issue brief (see link at end).

While carbon fees of $20/ton are almost certainly far lower than the levels needed to fully drive the transition of the U.S. economy to a low-carbon base, it’s a reasonable level for considering state taxes, given issues of leakage, interstate competition, and poorly diversified state economies. In any event, the report’s insights into state carbon tax implementation don’t depend on any particular tax level.

For all 50 states plus the District of Columbia, annual revenues from applying $20/ton state-level carbon taxes to all fossil fuel combustion would total $106 billion, based on 2013 emissions and assuming, for simplicity, zero price-responsiveness. That’s around two-thirds of one percent of combined state GDP. But the range is enormous, from a low of around 0.3 percent (for California, Connecticut, and Massachusetts; here we exclude DC, for which the tax revenue would equate to just 0.05% of GDP), to more than 2 percent for North Dakota and West Virginia and more than 3 percent for Wyoming. (See graphic; Wyoming was inadvertently omitted.)

Tellingly, of the 15 states with the highest shares of potential carbon tax revenues relative to GDP, 14 are “red” on the political map. Only New Mexico voted for a Democrat, President Obama, in 2012 (and 2008). The correlation of carbon-dependence with electoral conservatism underscores (and reflects) the political polarization over climate belief and carbon-reduction policy. And while organizing for state carbon taxing has been exclusively focused on low-carbon blue states such as Washington and Massachusetts, the sheer fiscal potential of carbon taxes in the states shown in the graphic suggests vast untapped potential to transform state economies from fossil-fuel extraction to a broader and more sustainable base.

The Brookings report is far richer than mere figures and graphs. It dives deeply but clearly into thorny questions like interstate transport of fuels and electricity, and harmonizing of state carbon fees with EPA Clean Power Plan requirements, that haven’t arisen at the federal tax level. Issues of federal pre-emption (e.g., for aviation fuels), compliance with the “dormant” Commerce Clause of the U.S. Constitution, and revenue usage are treated as well. The report is also richly referenced and annotated.

Whether or not the path to a U.S. carbon tax will need to wind from one or a few early-adopting states to Congress can’t be predicted. Regardless, the Brookings report is both a masterful summation of state carbon tax issues and a vital read for anyone pursuing carbon pricing in the United States.

Link to the full 32-page Brookings report: State-Level Carbon Taxes: Options And Opportunities For Policymakers

Link to the Brookings issue brief (contains graph shown above): What to consider when designing a state-level carbon tax