WSJ Smiles on Carbon Tax ‘Hoax’ (Environmental Capital blog)
Another editorial voice for carbon tax (Denver Post editorial)
CTC rep James Handley’s comment on columnist Eric Pooley’s recent piece “Exxon Works Up New Recipe for Frying the Planet” (Bloomberg) sparked this illuminating, constructive exchange.
Dear Mr. Pooley,
Thanks for your article. Climate crisis deniers are indeed doing great harm. Are they really changing tactics from bogus science to bogus economics or just using both? I was with you until I read this:
“A tax wouldn’t guarantee any carbon reductions, let alone bring about the steep cuts needed to stave off the worst climate changes.”
If you’re suggesting that a cap would “guarantee” emissions reductions in some way that a tax would not, I must disagree.
Consider economist Alan Viard’s Aug. 4 testimony to the Senate Finance Committee:
If the market price of allowances under cap and trade is $20 per ton, every firm has an incentive to take any step that can reduce emissions at a cost of less than $20 per ton, but no incentive to take any step that reduces emissions at greater cost… precisely the incentive that each firm would face if it were subject to a carbon tax of $20 per ton or if it were subject to a cap-and-trade program (with the same $20 allowance price) in which all allowances were auctioned.
… The difference, of course, is that the carbon tax or the auction would raise government revenue equal to the aggregate value of the allowances. If the allowances are freely allocated, then that value instead accrues to firms. Cap and trade with free allocation is equivalent to a carbon tax with transfer payments to firms.” [Emphasis added.]
I work with the Carbon Tax Center because, along with most economists who’ve considered the question, I’m convinced that a clear, transparent, gradually-increasing price on carbon pollution is essential to spur energy conservation as well as development and implementation of alternatives to fossil fuels. A carbon tax, with revenue recycled directly to households to build political support and mitigate the economic impacts of what portends to be a decades-long trek to a low carbon economy, offers a real “game changer” to move broadly enough to substantially mitigate climate catastrophe.
British Columbia has shown that a revenue-neutral carbon tax can be implemented in a few months and gain public support. And it’s far more effective than trading in carbon allowances, especially with offsets. Price volatility has prevented the EU’s cap-and-trade from spurring investment in alternative energy and conservation. See e.g., EU Cap-and-Trade System Provides Cautionary Tale (Roll Call).
The enemy of my enemy isn’t necessarily my friend. Climate crisis deniers’ opposition to cap-and-trade doesn’t make it a good idea. And the “endorsement” of a carbon tax by (former?) deniers can obscure the fact that a growing environmental and social justice coalition is advocating a carbon tax with revenue-recycled to households. Please don’t help the “deniers” poison the water for the most effective, transparent climate policy.
– James Handley, Carbon Tax Center
Thank you for your very thoughtful note. A full treatment of the cap v. tax debate was beyond the scope of the column, but I didn’t mean to suggest that a well -designed tax would be unworkable, rather that any tax Exxon would support is likely to be ineffective.
My basic concern here is political rather than economic– that the carbon tax will siphon enough support to derail cap and trade, but not enough to pass, and we will be left with nothing. I tend to agree with Al Gore when he points out that the nations that have been most effective in reducing emissions have both a cap-and-trade program and a carbon tax in place; ultimately we are likely to need both as well, but that’s a ways off. In the meantime, as Gore has said, “a cap-and-trade system is also essential and actually offers a better prospect for a global agreement, in part because it is difficult to imagine a harmonized global CO2 tax.” The fact is, cap and trade is the only climate program that has a chance of passing now. There’s a big game going on inside the stadium, but the carbon tax proponents are outside in the parking lot, dreaming about next year.
I don’t think cap and trade is (as many tax proponents have argued) a faintly disreputable cousin to the tax which no one would welcome if the tax itself were passable now. I think the cap has real advantages, which I’ll get to. I understand the longing for a simpler approach to the problem but have my suspicions about the simplicity argument; a tax bill would have to respond to the same legitimate regional and sector cost issues that complicated Waxman-Markey, so a bill that could pass would not be simple. How for instance would the straight per capita tax rebate or payroll offset I often see proposed deal with the higher cost burden in coal-dependent states? Staffers on the Hill tell me that adjusting the tax every few years would require a new Act of Congress every few years — it’s hard enough to get this done once.
The free allowance formula devised by EEI and incorporated in Waxman-Markey, by taking into account carbon intensity, isn’t perfect but does a good job of responding to the regional disparity issue. And since the bill requires LDCs [local (electric) distribution companies] to pass on the value of all allowances to their ratepayers, it would prevent the LDCs from enjoying windfalls. Alan Viard’s testimony ignores this requirement when it claims that the value of free allowances accrues to firms. That’s not how the bill works—it’s one of many misconceptions about Waxman-Markey. Overall I’m impressed with the way Waxman et al. learned from the mistakes in the EU ETS. Over-allocation and lack of baseline data were the biggest drivers of volatility there, and this program would avoid those. Nor would utilities be able to charge opportunity costs to their ratepayers, as EU generators did. Giving the transitional allowances to LDCs instead of generators solves other problems as well. It sends a clean price signal to the generators while cushioning ratepayers.
As for the ‘guarantee,’ of course there is no magic wand. But the cap is more than a price signal. We do have the technology to monitor and verify reductions, and I want to see that framework put in place as soon as possible. Finally, no one seems to talk about the penalties for busting the cap, which under Waxman-Markey amount to 2x the allowance price plus a replacement allowance, or three times to compliance incentive — under your $20/ton comparison, the compliance incentive for the cap is actually $60 per allowance, vs. $20 for the tax, plus the strong market signal driven by the knowledge that the cap is ratcheting down over time. The aggressive 2030 reduction target in Waxman-Markey — 42% below 2005 levels —has not received the attention it deserves. It would transform the energy investment decisions of American businesses.
Thanks again for your email and for your work at the Carbon Tax Center. I really would welcome either a tax or a cap. But at the risk of turning your words against you, let me suggest, as someone who has been watching this debate unfold, that it is the carbon tax advocates who have at times been poisoning the water against the cap. Probably both sides have been guilty of this, but it’s too bad that the climate action community is divided at the very moment unity is so badly needed.
– Eric Pooley
Thanks for your reply. I think we’re in strong agreement on most points. I want to respond to three:
1) You wrote: “My basic concern here is political rather than economic– that the carbon tax will siphon enough support to derail cap and trade, but not enough to pass, and we will be left with nothing…”
Fortunately, it’s not ACESA or nothing. Although, given that ACESA’s attempted domestic emissions reductions are so modest, and that its cap-and-trade system would entrench Wall Street traders and purveyors of offsets and set the stage for another financial crisis, I’d probably opt for nothing.
If ACESA fails to pass, EPA can continue to develop a regulatory system under the Clean Air Act, which the Center for Biological Diversity has concluded could be quite comprehensive (and might include a cap-and-trade system). This is likely to be better than ACESA in several key ways. For instance, I gleaned from EPA’s Advance Notice of Proposed Rulemaking last year that its rule would not include offsets. (Can you imagine EPA trying to justify the up to 1.5 billion tons of international offsets — essentially, transfer payments — that make a mockery of the notion of a “hard cap” in ACESA?) Furthermore, ACESA as passed by the full House would eviscerate EPA’s proposal to account for indirect impacts of biofuels (e.g., forest clearing to grow corn for ethanol).
Because the Clean Air Act covers stationary sources, mobile sources and the content of fuels, the scope of an EPA GHG reduction program can be very broad. President Obama’s representatives could go to Copenhagen with an EPA draft rule in hand, pointing out that the U.S. is in the process of regulating (or “capping”) more of its GHG sources than any other industrialized nation. That’s far from the most effective policy (a revenue-neutral carbon tax) but it’s also a long way from “nothing.”
2) You quote Al Gore “…a cap-and-trade system is also essential and actually offers a better prospect for a global agreement, in part because it is difficult to imagine a harmonized global CO2 tax.”
Gore’s got it backwards. As the Congressional Budget’s report, “Policy Options for Reduction of CO2 Emissions,” explains, if nations choose different carbon tax rates (or fail to enact them) WTO authorizes border adjustments to equalize tax rates on imported products to the same levels applied to similar domestically-produced products. In effect, the U.S. would collect the carbon tax on imports from any country that didn’t enact its own, providing a powerful incentive for our trading partners to follow our lead.
In contrast, under cap-and-trade, harmonization would require determining the implicit carbon price in a system where carbon prices are hidden and fluctuating. The CBO observed, “Linking cap-and-trade programs would… entail additional challenges beyond those associated with harmonizing a tax on CO2.” The report noted, for example, that linked cap-and-trade programs tend to create perverse incentives for countries to choose less stringent caps so they could become net suppliers of low-cost allowances.
Moreover, as Elaine Kamarck of Harvard’s Kennedy School has pointed out, almost every nation has a tax collection mechanism that could be used to administer a carbon tax, but few (if any) have the means to enact and enforce a complex cap-and-trade system. If we’re going for a global carbon reduction system, it’s a carbon tax.
3) You wrote: “…a tax bill would have to respond to the same legitimate regional and sector cost issues that complicated Waxman-Markey, so a bill that could pass would not be simple… adjusting the tax every few years would require a new Act of Congress every few years — it’s hard enough to get this done once.”
The complexity (and length) of Waxman-Markey seems to have much more to do with preserving (and even expanding) the coal industry than with addressing regional disparities in household income caused by carbon pricing, which, in fact, are relatively small. (See our summary: Regional Disparities.)
Economist Dallas Burtraw (Resources for the Future) studied the regional “incidence” of carbon pricing and concluded that regional differences are dwarfed by very large disparities across the income spectrum. CTC’s proposed carbon tax shift would more than compensate for the inherent regressivity of a carbon tax by distributing revenue progressively either through a payroll tax cut (as proposed in legislation introduced by Rep. John Larson) or a direct, equal distribution. Waxman-Markey only attempts to compensate the lowest income group, leaving middle income households to shoulder the burden of carbon pricing. (Burtraw and others have also shown that ACESA’s free allowances to LDCs would mostly benefit commercial, not residential electricity users.)
We recognize that some regional adjustment might also be needed; but that’s a relatively simple proposition under a carbon tax and could be done administratively, without the need for legislation. Rep. Larson’s bill provides for automatic increases in the carbon tax level to ensure that the trajectory of emissions reductions is in line with the scientific consensus.
I think you’re kidding yourself about the EPA’s ability to impose cap-and-trade under CAA. Someone who knows a lot more about politics than either of us, former White House Chief of Staff John Podesta, has said it would be difficult for EPA to do so without Congressional assistance. Protracted litigation would see to it that years went by before such a system came into force. And there is no chance that an administration promise of such rulemaking – which any subsequent administration could undo – could form the basis of a treaty.
Dallas Burtraw is a fine economist, but the many Senators and members of Congress I have been talking to all summer simply do not agree with him. Regional and sectoral disparities are the single biggest obstacle to climate action, and lawmakers do not believe that the “simple carbon tax” solves them. That’s why Rep. Mike Doyle of Pennsylvania backed Waxman-Markey instead of John Larson’s carbon tax. It’s one of the reasons Waxman-Markey passed the House and Larson’s bill didn’t make it to markup. If the politics were reversed and a carbon tax had a shot at passing, I would expect cap-and-traders to get behind the carbon tax and push hard. But right now, it is the cap that has a real chance of passage, and it could be years before the next opportunity presents itself. Please don’t let your strong shoulders go to waste.
Regional and income disparities arise under either a carbon tax or cap-and-trade (in fact, Burtraw considered it the same problem), but it’s easier to mitigate these regional and income disparities under a transparent carbon tax by directly distributing the revenues to households.
Rep. Larson and the other members of the Ways and Means Committee, which held a series of very illuminating hearings last spring about the very serious volatility and gaming with cap-and-trade, didn’t get a shot at climate legislation because the House leadership didn’t permit amendments – they didn’t want any discussion of alternatives to cap-and-trade.
I agree with economist Robert Shapiro (Clinton undersecretary of Commerce and U.S. Climate Task Force co-chair) who said at our July 13 Senate briefing that ACESA deserves to be defeated. He fears that, as in the E.U., cap-and-trade would fail to reduce emissions and would delay needed reductions by a decade or more. I cannot support a hidden, volatile and regressive carbon tax (set and collected by Wall Street) whose main advantages seem to be that it hides the price and is called “cap-and-trade”. I believe an explicit, predictable and progressive carbon tax with revenue recycled to households is essential. British Columbia’s experience shows that a revenue-neutral carbon tax is politically feasible. But, to return to my original point, first we need to get beyond magical thinking about “caps”.
photo: Flickr / random dude
Portrait of a Smog-Credit Swindler (Pasadena Weekly)
Thomas L. Friedman’s column in today’s New York Times, Show Us the Ball, should be must reading in the White House and on Capital Hill. Following up on a series of excellent columns urging passage of a revenue-neutral carbon tax, Friedman once again incisively states the case for a carbon tax. We quote some of the high points below, but the column should be read in its entirety and then forwarded widely.
Friedman begins by asking the right questions about cap-and-trade
Can cap-and-trade pass? Will it really work? And is it the best strategy, with all the bureaucracy it will require to monitor, auction emissions permits and manage the trading?
He then accurately characterizes cap-and-trade proponents as arguing “that it is preferable to a simple carbon tax because it fixes a national cap on carbon emissions and it ‘hides the ball’ — it doesn’t use the word ‘tax’ — even though it amounts to one,” and then makes it clear that game just isn’t going to work:
In the past two weeks, you could hear a chorus of Republicans, coal-state Democrats, right-wing think tanks and enviro-skeptics all singing the same tune: “Cap-and-trade is a tax. Obama is going to raise your taxes and sacrifice U.S. jobs to combat this global-warming charade, which many scientists think is nonsense. Worse, cap-and-trade will be managed by Wall Street. If you liked credit-default swaps, you’re going to love carbon-offset swaps.”
Friedman’s strategy is right on target, “Since the opponents of cap-and-trade are going to pillory it as a tax anyway, why not go for the real thing — a simple, transparent, economy-wide carbon tax?” Friedman then describes America’s Energy Security Trust Fund Act of 2009, proposed by Congressman John Larson, and describes why it’s the way to go:
People get that — and simplicity matters. Americans will be willing to pay a tax for their children to be less threatened, breathe cleaner air and live in a more sustainable world with a stronger America. They are much less likely to support a firm in London trading offsets from an electric bill in Boston with a derivatives firm in New York in order to help fund an aluminum smelter in Beijing, which is what cap-and-trade is all about. People won’t support what they can’t explain.
Obama Urgent on Warming, Public Cool (NY Times Dot Earth blog)
The Carbon Tax Center’s Capitol Hill briefing is just two days away (Dec. 9), and we couldn’t have choreographed a more turbocharged buildup than the one provided over the past few days by The New York Times and The Wall Street Journal.
Thomas Friedman’s column in today’s Times, The Real Generation X, is his most full-throated call ever
for a carbon tax. It’s a welcome return to his earlier editorializing in favor of carbon taxing from his recent slight tilt toward cap-and-trade (emphases added):
It makes no sense to spend money on green infrastructure — or a bailout of Detroit aimed at stimulating production of more fuel-efficient cars — if it is not combined with a tax on carbon that would actually change consumer buying behavior.
Many people will tell Mr. Obama that taxing carbon or gasoline now is a
“nonstarter.” Wrong. It is the only starter. It is the game-changer. If you want to know where postponing it has gotten us, visit Detroit. No carbon tax or increased gasoline tax meant that every time the price of gasoline went down to $1 or $2 a gallon, consumers went back to buying gas guzzlers. And Detroit just fed their addictions — so it never committed to a real energy-efficiency retooling of its fleet. R.I.P.
If Mr. Obama is going to oversee a successful infrastructure stimulus, then it has to include not only a tax on carbon — make it revenue-neutral and rebate it all by reducing payroll taxes — but also new standards that gradually require utilities and home builders in states that receive money to build dramatically more energy-efficient power plants, commercial buildings and homes. This, too, would create whole new industries.
Demonstrating the bipartisan support for carbon taxes from across the political spectrum, the Friedman op-ed followed two powerful Wall Street Journal columns this week. A Dec. 3 op-ed by Ralph Nader and Toby Heaps, We Need a Global Carbon Tax, subtitled, "The cap-and-trade approach won’t stop global warming." makes a compelling case for pricing carbon emissions via a tax rather than a trading scheme:
A global carbon tax levied on a relatively small number of large sources can be monitored by satellite and checked against the annual surveillance of fiscal and economic polices already carried out by IMF staff. Thus, the accounting involved is much more precise and much less subject to the vagaries of corruption and conflict over which industries and companies get their free handouts of carbon credits — carbon pork — than in a cap-and-trade system.
Nader and Heaps go on to provide "three reasons why countries, such as China and India, that have traditionally resisted any notion of a common responsibility to make current polluters pay would do well to enlist in this effort (emphases added)."
First, while there is
no limit on the downside for missing a hard cap, with a carbon tax you
just pay as you go. If a fast-growing
country like China accepted an emissions cap and then overshot it, they
would have to purchase carbon credits on the international market. If
they missed their target by a lot, carbon credits would be scarce, and
purchasing them would suck dry their foreign exchange reserves in one
slurp. That’s why a carbon tax is much easier to swallow and, anyway,
through the power of the price signal, it would produce the same
desired result as a hard cap.
administering billions of dollars of carbon credits in a cap-and-trade
system in an already chaotic regulatory environment would invite a civil war between interest groups seeking billions in carbon credit handouts and the regulator holding the kitty.
By contrast, a uniform tax on CO2 emissions levied at a small number of
large sites would be relatively clear-cut. During the Montreal Protocol
talks in the 1980s, India smartly balked at a suggestion to phase out
CFCs in certain products and not in others because of the chaos that
would result from the ambiguity.
Third, key people in China read
our newspapers. They see the ominous clouds of protectionism under the
guise of environmentalism in bills like Lieberman-Warner and they don’t
want to be harmed; neither should we, given the trillions of dollars of
Treasury bills they hold. Showing compliance with a harmonized
carbon tax at a small number of large bottleneck points would be
child’s play compared to the chaos of cap-and-trade.
That was Wednesday. On Friday, the Journal raised its own profile with an editorial, Some Carbon Candor: A climate guru rebukes his mates on cap and trade.
The "climate guru," of course, is Dr. James Hansen, director of NASA’s Goddard Institute of Space Studies, and headliner of our Hill briefing this Tuesday.
The Journal noted that "Mr. Hansen endorses a straight carbon tax as
the only ‘honest, clear
and effective’ way to reduce emissions, with the revenues rebated in
their entirety to consumers on a per-capita basis. ‘Not one dime should
go to Washington for politicians to pick winners,’ he writes."
The Journal editorial continues with a clear statement of its preference for a carbon tax over cap-and-trade (emphases added):
risks of fossil fuels remain speculative, but if they really are the
apocalypse of Mr. Hansen’s prophecies, then the cleanest remedy is a
tax. That would raise energy and all other prices as the incentive for
new technologies and investments. But a tax would be neutral,
eliminating the market distortions caused by subsidies and regulation,
and the proceeds could be used to offset other taxes. The
transition to a world in which growth is not tied to carbon would still
be long and extremely expensive, but a tax would be the least painful
way to get there.
"A tax should be called a tax," Mr. Hansen writes. "The public can understand this and will accept a tax if it is clearly explained and if 100 percent of the money is returned." Clearly the man is not standing for elective office.
sachems prefer posturing that disguises the cost of rising energy
prices, such as cap and trade. This "subterfuge," as Mr. Hansen terms
it, shifts the direct burden onto businesses, which then pass it along
to consumers. Congress may flatter itself that it is saving mankind,
but what the Members really want is a cap-and-trade windfall that they
can redistribute in the green pork of Mr. Obama’s "new energy
economy," whatever that means.
To be fair, carbon tax revenues could also end up as green pork. But
the transparency of a carbon tax — from the candor in its name to its frank acknowledgment of its impact on energy prices — militates in
favor of a revenue-neutral outcome in which the revenues are
distributed or tax-shifted to American families rather than skimmed off
by political and corporate rentiers.
Why the carbon tax trifecta this week? While
we can’t know precisely what led Mr. Friedman to go all out today for a carbon tax (rather than cap-and-trade), perhaps the financial meltdown has played a big
part by opening up political space for bold action and discrediting the notion of creating another trillion-dollar market in
arcane securities. As for The Journal, while it might prefer to to
stifle any move toward carbon emission pricing, its
straightforward arguments for the relative efficacy of carbon taxing
over a cap-and-trade scheme are welcome.
In any event, the setting couldn’t
be more propitious for our carbon tax briefing this Tuesday, which the
Carbon Tax Center has organized along with the Climate Crisis
Coalition, the Environmental and Energy Study Institute, Friends of the
Earth, and the Friends Committee on National Legislation. As a side-benefit, the media buzz might help convince C-Span to provide live
video. The briefing,
featuring not only Dr. Hansen but other climate-policy experts Gilbert
Metcalf, Robert Shapiro and James Hoggan, hosted by Rep. John Larson
(D-Conn.), who was just elected chair of the House Democratic Caucus,
and moderated by FoE president Brent Blackwelder, is in Rayburn House
Office Building B318 and runs from 9:00 a.m. to 11:30 a.m. Tuesday. We
hope to see you.
Photo: Flickr / kakariki.
The Real Generation X: Tom Friedman Demands a Carbon Tax (NY Times)
For months we’ve been touting the British Columbia carbon tax, and for good reason. Not only is BC’s carbon tax the highest by far in North America ($10 per metric ton of CO2 this year, rising stepwise to $30 in 2012), but the rollout of the tax has seemed to be handled with great intelligence. The Liberal Party provincial administration took pains to make the tax revenue-neutral (mostly via reductions in personal and business tax rates), a feature it underscored by sending B.C. residents $100 carbon tax dividend checks as a down payment in the week before the tax went into effect on July 1.
So we were dismayed to read in mid-July of a poll showing a clear majority of B.C.’ers opposed to the tax. Even the $100 dividends came off badly in the poll, with at least one respondent complaining that her check only served to remind her of the loathsome tax.
Columnist Bill Tieleman, who posted the story on the Vancouver Web outlet 24 hours, drives home the point in a later story, Carbon tax has no supporters around here. Tieleman seems to fancy himself as a populist voice against B.C. premier Gordon Campbell in general and the tax in particular.
Over the weekend we discussed the poll with social entrepreneur Peter Barnes, progenitor of the intriguing Cap-and-Dividend approach to revenue-neutral carbon pricing, as follows:
- Much is made of Americans’ supposed sensitivity to gasoline prices, and the same may be applying in B.C., exacerbated of course by the "market-based" rise in pump prices which has been an order of magnitude greater than the (9 cent a gallon) carbon tax. Mathematically, each of those $100 checks covers the carbon tax on 1,111 gallons, though the true coverage is less considering that gasoline accounts for only ~35% of the carbon tax bite in BC (21-22% in the U.S.). Needless to say, most BC’ers don’t consume 1,100 gallons of gas a year.
- Most likely the BC government could have done more and better p.r. Yet overall they’ve been savvy … consider if the $100 checks had lagged rather than preceded the rollout of the tax!
- The poll question wasn’t straight-up, since it suggested that the $100 check was all that BC’ers would get, when it’s actually just the down payment. Here’s that Q: "The provincial government has sent every British Columbian a cheque for $100 as a one-time ‘Climate Action Dividend.’ The total cost of ‘Climate Action Dividend’ is $440 million. This expenditure will
be paid for by B.C.’s new carbon tax of 2.4 cents per litre of gasoline and other fuel. Do you agree or disagree with this expenditure?"
- One always wants to know how the poll respondents were selected. (Recall the notorious Literary Digest poll picking Landon over FDR in ’36!) Still, this isn’t to deny that even the dividend concept which you’ve been so prolific and persuasive in disseminating is an uphill fight.
- One problem (from a PR standpoint) might be that the BC tax cuts are divided between individuals and businesses. So even if there is overall revenue neutrality, most voters will only get back about half of what they pay in higher prices.
- The way in which tax cuts rise along with carbon prices is not transparent or seemingly automatic. The carbon tax revenue is not placed in a separate trust fund (so far as I can tell) but is blended with general revenue. It is then up to future legislatures to adjust the tax rates. This could reasonably make people skeptical.
- A one-time dividend is an obvious gimmick. Recurring (and rising) dividends are likely to create more credibility.
- This goes to the heart of the question of whether to return carbon revenue via tax credits or dividends, which is something Obama will have to decide.
Peter concludes: "The British Columbia experience suggests that segregating carbon revenue in a trust fund and returning all of it to individuals through automatic monthly dividends (as James Hansen and others have proposed) is the best way to sustain political support." We at CTC heartily agree.
Photo: Flickr / bbboon
Guest Post by James Handley
When brand-new Clean Skies TV invited me to advocate a carbon tax at its Webcast roundtable, I worried that I might be cast as a fringe type. Instead, the taping (on-line soon, use link above) went off like a grad school seminar, yet livelier.
My co-panelists were heavy hitters: economists Robert Shapiro (Commerce Undersecretary under Pres. Clinton) and Eric Toder (formerly of IRS and Treasury), and Barack Obama’s energy and environment advisor, Bob Sussman (former Deputy EPA Administrator).
Moderator Susan McGinnis set the stage with a clip from Al Gore’s latest slide show:
Here’s the solution. We need a CO2 tax, revenue-neutral, to replace taxation on employment, which was invented by Bismarck — and some things have changed since the 19th Century.
I explained that a gradually-increasing carbon fee imposed upstream on fossil fuel energy sources would create price expectations to encourage energy conservation and renewables. A carbon fee would also disproportionately tax those who fly more, drive bigger vehicles longer distances and choose oversized, sprawled-out houses, thus embodying the "polluter pays" principal.
Moreover, a carbon tax wouldn’t divert funds for government spending so long as it was revenue-neutral. The Carbon Tax Center suggests recycling carbon fee revenue through the economy via equal distributions or “dividends” to every household. Each household’s "carbon dividend" would increase annually as the carbon tax rises. Gore suggests using carbon tax
revenue to replace regressive payroll taxes. Either revenue-neutral approach would reward low-carbon-users without penalizing the poor or increasing the total tax burden.
Shapiro was trenchant:
The only reason anyone is talking about cap-and-trade now is because the U.S. (at Gore’s urging) insisted on cap-and-trade in Kyoto. Gore has since abandoned cap-and-trade and is now calling for a carbon tax to replace other taxes. Caps just aren’t working.
CO2 reductions under the EU’s cap have been "negligible and very costly," Shapiro said. Exemptions (e.g., for coal power plants in Germany) "overwhelm the cap."
Shapiro also noted out that China and India have rejected cap-and-trade. In contrast, he argued, a U.S. carbon tax would encourage our trading partners to tax carbon to avoid forfeiting revenues on their exports to us.
Shapiro further noted that controlling quantity, as a cap does, adds volatility to energy prices, leading to disruptive price spikes, harming the economy and undermining support for the system.
McGinnis noted that Southern California’s cap-and-trade system for smog emissions was crashed by price spikes during their electricity crisis.
Toder contended that either a carbon tax or cap-and-trade could work, depending on the specifics. He conceded that a under a cap, a "safety valve" (setting a maximum permit price) is needed to prevent destabilizing price spikes, a problem that doesn’t arise under a tax.
The panelists were unanimous that economy-wide incentives are essential to spur carbon-cutting technology. Either a cap or a carbon tax would drive innovation and alternatives, favoring wind power over coal, for example, But only Sussman advocated mandatory cap-and-trade, citing greater certainty of meeting climate goals. Noting that "there’s never a perfect time to start a climate policy" and that excuses like economic recessions or high gas prices will always be available, Sussman insisted that we can’t afford to wait any longer.
McGinnis asked why candidates avoid carbon taxes. Shapiro replied that candidates use the term "cap-and-trade” as a "placeholder” to indicate that they’re serious about climate policy, not that they’ve embraced that particular system. He’s hopeful that a detailed discussion of more effective options including revenue-neutral carbon taxes can begin after the election.
Sussman countered that the public supports cap-and-trade and expressed hope that the Lieberman-Warner bill would be enacted without further climate-damaging delay.
McGinnis asked: What would success in ten years look like? Toder expressed our consensus: If greenhouse gas emissions are dropping, we’ll have turned a crucial corner.
Gore is calling on Americans to "fix our democracy" so we can set policies to avert climate disaster. By hosting a thoughtful discussion of carbon pricing, Cleanskies.TV has taken a solid step toward informed public prticipation in our democracy.