A new report by Harvard economist Joe Aldy is getting some play in climate policy circles. Long-Term Carbon Policy: The Great Swap argues that the incoming administration might support a national carbon tax if it were made part of a deal to lower tax rates and jettison carbon regulations.

Aldy explains:

A smart deal to tackle climate change could abet tax and regulatory reform — which most Republicans support — by swapping a market-based carbon tax for sectoral regulatory policies — which most Republicans oppose. Such an approach could make even greater reductions in tax rates politically feasible and demonstrate that Republicans are in favor of smarter environmental policy, not simply opposed to all climate change policies.

To say we’re skeptical is putting it mildly. Why would a President Trump and an emboldened and still-Republican Congress take on a carbon tax to get stuff (gutted CO2 regs, lower taxes) they can almost certainly win straight up? But rather than point yet again to Republican denialism, we’re inviting you — fellow carbon tax proponents — to address Aldy’s carbon tax rate.

Aldy’s carbon tax would start in 2018 at $25 per ton of CO2 and increase by 5% a year above the rate of general inflation. By 2025, he writes, it would reduce total U.S. carbon emissions by 26 percent.

Is that a lot or a little? A 26 percent reduction would be a lot if it were relative to 2016 emissions, or to 2025 emissions without a carbon tax. Unfortunately, the projected reduction is vis-a-vis levels in 2005 (the year used as a baseline in many climate-policy discussions).

Aldy isn’t perfectly clear on that point. He states in his report:

This carbon tax would lower U.S. carbon dioxide emissions 26 percent by 2025 — consistent with our nation’s pledge at the Paris climate summit last year –and more than 30 percent by 2030.

No 2005 baseline there, though we’re sure Aldy intended it. Clarity is critical because carbon emissions have already fallen a great deal. Compared to 2005, U.S. emissions last year were already 12 percent less, which is nearly half the distance to 26 percent. And emissions are set to fall further this year, as reductions from coal’s continued plunge in the electricity sector outweigh the increase in gas-guzzling caused by cheap gasoline.

Moreover, according to CTC’s carbon-tax model, which perfectly matches Aldy’s estimate of the impact of his carbon tax (our model says the reduction from 2005 would be 25.7 percent), U.S. emissions in 2025 without a carbon tax will be nearly 15 percent below the 2005 baseline. The Aldy carbon tax would cut emissions by only another 13 percent.

Is that a lot or a little? I guess it depends. It’s precious little in an Obama or Clinton world, not to mention a Sanders world. It’s not so small, perhaps, in a Trump world. Still, maybe Aldy — or another expert or advocate — could get more aggressive with the tax rate? The same tax increasing at 10% a year (above inflation) rather than 5% would reduce 2025 emissions by 29% (relative to 2005), with reductions accelerating and reaching 40% by 2033. Why not start the conversation there?

We invite readers to download CTC’s carbon tax model to see for themselves how fast Joe Aldy’s tax, or different ones, would drive down U.S. carbon emissions. Dust off your copy of Excel and click here. Our Web page Carbon Tax Effectiveness goes behind the model curtain to reveal what / why / how.

On this last day before the elections, the afternoon light was waning in my Manhattan office and I thought I could be done fending off attacks on I-732, the Washington state carbon tax initiative.

Not so fast. A CTC supporter wrote me, cryptically, “Naomi Klein should know better by now, no?” I checked Klein’s Twitter feed, @NaomiAKlein, and, uh oh, there it was: a piece by Klein in The Nation, The Carbon Tax on the Ballot in Washington State Is Not the Right Way to Deal With Global Warming.

I read her piece. It’s mercifully brief, just ten paragraphs, so I thought I would let it go. But Klein, author most recently of This Changes Everything: Capitalism vs. The Climate, is charismatic, fluent and highly visible in the climate movement. And just about everything she said in her Nation piece is so misinformed or short-sighted that it feels important to respond. So here goes, in point-counterpoint.

Klein Paragraph 1: The imperatives of the climate crisis and the logic of economic austerity are at war—and Washington State is on the front lines.

CTC: Powerful lede, but is Klein actually tagging I-732 with the dreaded “austerity” label? What exactly does she mean? (Spoiler alert: she never says.)

Klein Paragraph 2: So-called “revenue-neutral” carbon pricing — whereby the proceeds are used to fund tax cuts — has long been a cherished hobbyhorse of free-market economists and the odd Republican who favors climate action. It’s also the policy of choice for big polluters like ExxonMobil. And now this right-wing friendly model is being pushed in Washington State, thanks to Initiative 732.

CTC: “Tax cuts.” A percentage point cut in Washington’s state sales tax — the principal means by which I-732 ensures that raising energy prices through a carbon tax won’t injure low- and middle-income families — is dismissed as a mere “tax cut,” a phrase that of course conjures giveaways to the hedge-fund class. What Klein labels right-wing is actually friendly to and designed for the very groups she purports to care about: families below or near the poverty line; undocumented immigrants; over-leveraged folks struggling to stay middle-class.

Klein Paragraph 3, abridged: [If I-732] is approved by voters, it would be a disastrous precedent that could set back the climate justice movement for a decade  — time that we simply can’t afford to lose.

CTC: Klein turns logic on its head. Following a decade of nearly total legislative silence on carbon taxes — a silence imposed not just by Republican denialists but by a myopic U.S. green movement — Klein frets that enacting an actual carbon tax in the USA and blowing open the door to a possible national carbon tax will set back climate action for another ten years?

Klein Paragraph 4: Some have accepted the logic that something is better than nothing, even arguing that a “tax swap” could substitute for a just transition to a low-carbon economy. The evidence proves otherwise. In British Columbia, two-thirds of the tax cuts have ended up in corporate pockets, while carbon emissions have been rising in recent years and the fracking industry has boomed.

CTC: By design, most of the BC carbon tax revenues end up in taxpayers’ pockets through personal income tax cuts as well as a low-income tax credit. A 2015 study by University of Ottawa graduate students found BC’s carbon tax “highly progressive” distributionally. In any case, I-732 is explicitly and intentionally structured differently, to apply 75 percent of carbon tax revenues to cut the Washington sales tax.

Yes, CO2 emissions in British Columbia are up slightly since 2012, but that’s because the BC tax level has stayed fixed. In contrast, the Washington carbon tax would rise 3.5% a year faster than the general inflation rate. And If fracking has boomed in BC, don’t blame the province’s carbon tax for its lack of a keep-it-in-the-ground movement.

Klein Paragraph 5: By some estimates, I-732 would raise gasoline and electricity prices less than 15 percent by 2040 in Washington State—hardly enough to jumpstart an urgent, sweeping phase-out of fossil fuels. Meanwhile, it would offset carbon revenues by cutting taxes for big corporations, including major polluters. (According to the Seattle Times, Boeing could see windfalls of tens of millions annually.)

CTC: Klein’s math is off; by 2040, the tax-caused rise in gasoline prices would be 25 percent. But the bigger point she ignores is that a carbon tax in any one state like Washington (or a lone province like British Columbia) can’t be set high because of interstate competitive pressures — which is also why I-732 sets aside 10-15 percent of its revenues for tax reductions for businesses like Boeing. The whole point of the Washington state initiative is to establish a template for other states or, if control of Congress can be flipped, for a national carbon tax that can rise briskly and deliver massive carbon reductions, as we noted in a blog post last month.

Klein has five more paragraphs, but in the interest of time let’s cut to the chase:

Klein Paragraph 9: A paltry, revenue-neutral carbon tax simply cannot deliver the massive green energy investments and community-driven solutions we all need. Science-based climate action means an unprecedented, rapid, and decisive shift to renewables; a truly equitable carbon tax can play an important role in spurring the transition, but it won’t work unless we make the polluters pay, and put their immoral profits to work repairing the damage they have knowingly created. The way to do that is to mobilize the broadest possible coalition—led by the front-line communities who stand to benefit most from building a cleaner and fairer economy.

CTC: Talk about “making polluters pay” is great rhetoric, but in our society as currently configured that includes all of us who flip on switches, turn on ignitions and buy stuff. And since the society we live in (to echo another post of mine last month) doesn’t appear to favor massive green energy investments and community-driven solutions, we have to rely even more heavily on robust carbon taxes; and these need to be largely revenue-neutral if they’re going to (i) not drive low-income families further into poverty and push middle-income families deeper into debt, and (ii) be politically acceptable.

Klein’s call to put fossil fuel company profits to work repairing damages is more of the same empty rhetoric. The task before us is to shrink, shame and strangle the fossil fuel companies. If Klein can offer a way to do that more quickly and effectively than a briskly rising U.S. carbon tax — one that I-732 can start paving the way for — I’m all ears.

Until then, could she please turn down the volume?

Addendum: CTC contributor Dan Lazare presciently dissected Klein’s limited comprehension of the power of carbon taxing almost two years ago, in this space, with Why Is Naomi Klein So Cool on a Carbon Tax? It’s a great read.

A charitable way to view Food and Water Watch’s intemperate and misguided attacks this week on carbon taxing is that these energetic activists are so consumed with fighting fracking, pipelines and mines that they haven’t had time to absorb how carbon taxes can help dry up the “need” for new fossil fuel infrastructure.

An alternative take on their screeds in Yes Magazine and AlterNet is that FWW inhabits an ideological blind corner that sees carbon taxing as a neoliberal plot to undermine the climate movement rather than as a policy tool that can play a decisive part in keeping fossil fuels in the ground, forever.

Whichever, FWW’s case is toxic, simplistic and wrong. Toxic because its emergence in the home stretch of the carbon tax campaign in Washington state threatens to move critical Yes votes into the No camp on Nov. 8. Simplistic because the arguments suggest that FWW hasn’t grasped the ABC’s of carbon taxes. And wrong because the group’s criticisms of the British Columbia carbon tax — the Washington referendum’s political and policy template just across the border — are rife with errors.

Just look at the headlines of FWW’s op-eds.

“Here’s Why a Carbon Tax Helps Fossil Fuel Companies, Not the Environment” (FWW’s op-ed in AlterNet)

A carbon tax helps fossil fuel companies? Sure, like cigarette taxes help tobacco companies and sugary drink taxes help soda companies. Or taxes on bullets would help the makers of assault rifles. In real life, carbon taxes are a mortal threat to fossil fuel companies because they destroy demand for fossil fuels — both by shrinking end-user demand (as people drive less, businesses adopt energy-efficiency measures, etc.) and by helping renewables out-compete them.

“Why Exxon Loves the Carbon Tax—and Voters Should Not” (FWW’s op-ed in Yes! magazine)

Yes, from time to time Exxon CEO Rex Tillerson utters a positive word about carbon taxes — token ones that make for good p.r. but are 5-10 times smaller than those for which CTC and other carbon tax advocates campaign. Indeed, we’ve wondered if Exxon’s reputed support is a maneuver to turn naïve climate advocates against carbon taxing — “if Exxon wants it, it must be bad.” Fact is, Exxon doesn’t want robust carbon taxing; and even if it did, a policy should be judged on its merits, not by one of its putative supporters.

Left-leaning economists like Robert Reich, Joseph Stiglitz and Robert Frank support carbon taxes. So does Ralph Nader. So did Bernie Sanders, in his outspoken, unvarnished, way, throughout the Democratic Party primaries. How much is Exxon paying them?

Both FWW op-eds draw from the group’s new report, The British Columbia Carbon Tax: A Failed Experiment in Market-Based Solutions to Climate Change. The report is wrong from the title, down. (Hint: a carbon tax isn’t a market-based policy; see below.)

FWW tips its hand in its thumbnail for the report on its home page (you’ll need to page down 5-6 times). The “tag” for the report is “Pollution Trading.” FWW could have written “Potato Chip” and been more on point. Carbon taxes are direct charges on fossil fuels according to their carbon pollution content, period. They’re simple and transparent. Nothing is traded, which means no market.

Pollution trading, or cap-and-trade, “puts a price on carbon” via the back door — hiding the price, if you will, in carbon “permits” that are traded on pollution “markets.” CTC and other carbon tax advocates spent countless hours in 2007-2010 explaining why pollution trading was ill-suited for internalizing climate costs into the prices of fossil fuels, and exhorting big green groups like NRDC and EDF to back straight-up carbon taxes instead. (Our Web page delineating cap-and-trade’s drawbacks actually has “dead ends” in its URL.)

We’re well acquainted with emissions progress in British Columbia, from our December 2015 report, British Columbia’s Carbon Tax: By The Numbers. Sadly, the analytical criticisms of the British Columbia carbon tax in Food & Water Watch’s report don’t hold up any better than the rhetorical ones. Here’s a sampling.

Claim: “Taxed greenhouse gas emissions rose by a total of 4.3 percent between 2009 (the first full year that the tax was in place) and 2014. (FWW report, p. 4).”

Fact: A proper comparison must start in 2007, the last pre-tax year, or 2008, when the carbon tax took effect, on July 1. Using 2009 as a baseline is nonsensical since the tax had already gone into effect; it’s also biased on account of the 2009 recession (which FWW mistakenly located in 2008, see p. 2). For the record, BC 2014 emissions from fossil fuel combustion of 43,940 kilotonnes of CO2 were 1 percent less than emissions of 44,363 kT in 2007 and 44,244 kT in 2008. (See methodological note at end.)

British Columbia’s GDP has grown considerably from 2008, creating the emissions pull that tends to accompany economic activity. Normalized per unit of GDP, 2014 emissions were down by 12% from 2008 and by 11% from 2009. While that’s not enough, it’s around what one would expect from a “starter” carbon tax such as BC’s.

Claim: “British Columbia’s carbon tax failed to reach the reduction targets necessary to ensure a sustainable climate, demonstrating that carbon taxes are not a viable policy solution to climate change.” (FWW report, p. 2)

Fact: Straw-man alert! It’s true that BC’s carbon tax is too low by an order of magnitude to get “80 by 50” or similar deep cuts. Its value, and that of the similarly designed (though more aggressive) Washington state carbon tax proposal, is to establish the template of carbon taxes, particularly revenue-neutral ones, so that not just provinces or states but entire nations can put robust, briskly rising carbon taxes in place. Indeed, earlier this month PM Trudeau announced that all of Canada will take precisely that step, starting in 2018.

Claim: “A carbon tax is theoretically designed to raise the cost of greenhouse gas emissions, but if those costs are refunded it almost defeats the purpose. The price of climate change is only included at the point of emissions, but since it ultimately is returned to the companies and individuals, over time it may create little disincentive to pollute.” (FWW report, p. 3)

Fact: No, the revenues from the British Columbia carbon tax aren’t “refunded” or “returned,” they’re recycled on an economy-wide basis via tax cuts that are distributed to companies and individuals without regard to the amount of carbon tax they may have paid. This separation of revenue distributions (benefits) from carbon tax incidence (payments or costs) is fundamental to any “revenue-neutral” carbon tax, whether it’s one that primarily uses tax swaps such as BC’s or Washington’s proposed tax, or the “fee-and-dividend” model advocated by Citizens Climate Lobby. FWW’s miscomprehension on this basic point speaks volumes.

Fact: “Individuals ultimately shoulder the majority of the costs of the British Columbia carbon tax, and lower-income individuals . . . bear a disproportionate burden.” (FWW report, p. 8)

Comment: We labeled this point a fact because the first part is true. Individuals, as final consumers of virtually everything our economies produce, do bear the costs of carbon taxes. That’s unavoidable, and it’s also the point, as we’ve written countless times. That’s why it’s important that carbon taxes such as BC’s and Washington’s be revenue-neutral; it ensures that low-income families receive disproportionate shares of the tax reductions or dividend distributions and thus are kept whole despite higher energy prices.

Claim: “Despite significant volatility in U.S. gasoline prices in recent years, the total number of vehicle miles traveled and household car travel demand changed very little in response to price fluctuations. Without sufficient alternative transportation options, people will continue to drive their cars regardless of significant changes in gasoline prices.” (FWW report, p. 6)

Fact: The supposed price-inelasticity of energy demand has become an article of faith for many on the political left — though whether it preceded or post-rationalized a distaste for energy taxes is hard to say. I’ve studied the price sensitivity of energy demand for decades and written about it extensively, most recently here. I can report that while gasoline is the least price-elastic of fuels, it’s far from inelastic (in my linked post I report a U.S. gasoline price-elasticity of around -0.35). This shouldn’t be surprising, insofar as most automobile use in both the U.S. and Canada is for non-work trips, which on average have a high discretionary component.

There’s more, but you get the point. Lest my criticisms appear harsh, I note that I sought to engage FWW director Wenonah Hauter in a dialogue on carbon taxes last winter, after she published a letter in the New York Times disparaging the tax in British Columbia.

After one back-and-forth, I wrote again and closed as follows:

Wenonah, like you, I’ve been in the trenches fighting fossil fuels for a long time. We may have different ideas about how to get to the same goal, but I hope we can both pursue that goal without running at cross-purposes.

She never replied.

Addendum (Jan. 5, 2017): Several CTC supporters have drawn our attention to the assertion in FWW’s Failed Experiment report that from 2005 to 2013 emissions fell further in Ontario, which didn’t have a carbon-pricing system, than in British Columbia, which did. According to FWW, this shows that “mandatory replacement of fossil fuel energy plants with renewable, carbon-free forms of energy can rapidly and permanently reverse emissions trends.” Not quite. Ontario had low-hanging fruit that BC lacked: coal-fired electricity generation. And what allowed Ontario to eliminate coal-fired generation and put up impressive carbon-reduction numbers was increased output from its nuclear power plants: from 2003 to 2013, coal-fired electricity generation fell by 38 billion kWh while nuclear output rose by 30 billion as the nukes were expensively “refurbished.” Carbon-free, yes, but not the “renewable” energy FWW would like to credit.

Methodological note: our calculations here, which add 2014 to the data in our year-ago report, exclude emissions from Public Electricity and Heat Production. This category — essentially electricity generation from burning fossil fuels — accounts for just 2 percent of BC emissions from fuel combustion but for nearly 20 percent in the rest of Canada. More importantly, that sector constitutes most of the “low-hanging fruit” for reducing carbon emissions, since electricity generation affords more opportunities for quickly and easily substituting low-carbon supply than any other major sector. Eliminating this category enabled us to compare changes in emissions over time — the heart of our analysis — on an equal basis between BC and the rest of Canada.

A tax on sugary soft drinks in Berkeley, CA is cutting soda consumption, according to a new study. Should climate advocates care?

Absolutely. The study offers powerful real-world support for the economic principles underlying the idea that carbon taxes can and will cut use of carbon-based fossil fuels.

The soda study was conducted by five health specialists at the University of California’s Berkeley campus and a biostatistician-epidemiologist at U-C San Francisco. The study team distilled their findings in an article in the American Journal of Public Health this month, and last week the New York Times’ “Upshot” column reported on it under the headline, “More Evidence That Soda Taxes Cut Soda Drinking.”

Here’s the Times’ lede:

It may seem obvious that taxing sugary drinks causes people to drink less of them. But that’s actually controversial. Now a new study out of Berkeley, Calif., adds to the evidence that our intuition is right.

Berkeley’s fee on sugary soft drinks, the first in the U.S., was approved in a November 2014 referendum and took effect in March 2015. It charges distributors a penny per ounce of drink on so-called sugar-sweetened beverages (SSBs). Thus, a 12-oz. soda can or bottle is taxed 12 cents, though not all of the fee is passed along in the retail price. In earlier research the study team estimated that for sodas, 69% of the penny-an-ounce tax is passed through as higher retail prices, on average; whereas for all SSBs, including energy, sports, and fruit-flavored drinks along with sweetened water, coffee and tea, as well as soda, the pass-through average is 47%.

The U-C study measured changes in beverage consumption in low-income neighborhoods as of July 2015, eight months after the vote and four months after implementation. Similar districts in nearby Oakland and San Francisco were used as a control group. Data were drawn from in-person interviews with 990 people before the tax and 1,689 after.

Based on those surveys, the authors reported that consumption of SSBs decreased 21% in Berkeley and increased 4% in the comparison cities. Water consumption increased far more in Berkeley (+63%) than in the comparison cities (+19%). Both comparisons were statistically significant, signifying that the observed differences in beverage purchases between soda-taxing Berkeley and non-soda-taxing Oakland and SF are genuine and not a product of random chance.

As the Times’ Upshot piece suggests, the main takeaway is what some of us have known all along: raising the price of a good or activity leads people to demand and consume less of it. That’s the premise behind taxing carbon emissions. But the Berkeley study offers other lessons too:

• Just 2 percent of Berkeley residents said they bought sodas outside of the city to avoid the tax. Though a higher tax would likely raise the percentage, the propensity thus far to curb consumption rather than game the system is encouraging.
• Part of the reason for the steep (21%) drop in consumption of SSBs may be that “people became more aware of the health issue [from soda consumption] during the debate around the tax’s passage and the city’s efforts to discourage sugary drink consumption around the same time,” as the Times wrote. This demonstration of “tax salience” previously reported for British Columbia’s carbon tax confirms the merits of seeking a carbon price via a transparent fee or tax rather than by “hiding the price” through an opaque and convoluted cap-and-trade system.
• Berkeley residents didn’t need subsidies to raise their consumption of bottled water; the “price push” of costlier SSBs was sufficient. This finding lends support to making carbon taxes revenue-neutral (via tax swaps or dividends) rather than applying the funds to subsidize clean-energy measures like weatherization or solar installations.

As the Times notes, the Berkeley findings are consistent with research indicating that Mexico’s nationwide soda tax cut sales of sugary drinks among poor households by 17 percent after the first year. Next up, in January, is Philadelphia’s 1.5 cents per ounce soda tax, which passed the city council several months ago.

The parallels to carbon taxing aren’t perfect, of course. The benefits of reduced soda use — less obesity, diabetes and tooth decay — are considerably closer and more personal than the benefits of clean energy. That, along with the soda tax campaign’s intentionally combative framing of “Berkeley vs. Big Soda,” may account for the extremely strong price-elasticity — a value of (minus) 2 or more — indicated by the 21% drop in SSB consumption among the surveyed residents. In CTC’s carbon-tax model, we employ far lesser price-elasticities for electricity, gasoline and other fuels: between (minus) 0.35 and 0.70, reflecting the fact that energy and fuels are more deeply wired into our economy and our behavior than are soft drinks.

Rather than extrapolate directly from the Berkeley soda tax study results, it’s best to regard them as further confirmation of the precept that taxing “bads” is a direct and effective way to make them less prevalent.

The AJPH article, “Impact of the Berkeley Excise Tax on Sugar-Sweetened Beverage Consumption,” was published on August 23, 2016. Click here for the abstract. For those interested, we calculated the soda price-elasticity by applying an approximate price increase of 0.7 cents per ounce (based on the 69% average pass-through) to an estimated average base soda retail price of 5 cents per ounce. For a 14 percent price rise (0.7 divided by 5) to effect a 21% contraction in usage, the price-elasticity must be (minus) 1.8. [Let us know via comments if you’d like to see the math for that.] Higher elasticities would result from using the 25 percent consumption drop relative to the control cities, or from applying the lesser pass-through rates for non-soda SSB’s.

Addendum, March 7, 2017 (contributed by CTC intern Michael Kendall)

New data are in from Mexico and Philadelphia, with both jurisdictions affirming that taxing sodas and other sugary drinks reduces consumption. In 2015, Mexico’s second year with the tax, purchases of sweetened beverages continued to fall. A study published in Health Affairs in Feb. 2017 provided a widely reported update on the effect of Mexico’s sugar-sweetened beverage tax on beverage purchases between 2012 and 2015. In 2014 sales fell by 5.5 percent from 2013; the reduction from 2013 grew to 9.7 percent in 2015. The decreases were greatest among the poorest households.

Philadelphia’s tax on sugary drinks went into effect on Jan. 1, and evidence from the initial month points towards significant reductions in sales. Philadelphia supermarkets and beverage sellers are reporting 30-50 percent drops in January sales, though the media narrative is focusing on threatened reductions in workforces rather than reductions in purchases. (Google “Philly soda tax” to get a taste of these headlines.) What’s not yet clear is whether soda purchases have risen significantly outside city limits. We’re looking forward to February data from Philadelphia and we’ll be keeping an eye on similar soda taxes going into effect in San Francisco, Oakland, Boulder, and Albany.

Addendum, Jan. 14, 2017

A front-page New York Times story yesterday about heavy purchases of sodas and other sugary drinks by recipients of food stamps included this passage, near the end: 

In 2014, a group of Stanford researchers studied 19,000 SNAP [Supplemental Nutrition Assistance Program] participants and compared whether banning sugary drinks or incentivizing fruits and vegetables would affect obesity rates. The researchers found that the incentive program would not. But banning sugary drinks from SNAP, they said, “would be expected to significantly reduce obesity prevalence and Type 2 diabetes incidence, particularly among ages 18 to 65 and some racial and ethnic minorities.”

In other words, raising the price of sugary drinks (the effective result of making those drinks ineligible for SNAP purchases) would be more effective in curbing use than subsidizing alternatives. That’s the carbon tax paradigm, in so many words: Making the “bad” (fossil fuel use) more costly through carbon taxes is more effective than lowering the price of alternatives to fossil fuels through subsidies.

Clifford Krauss and Diane Cardwell have a front-page story in today’s New York Times about the challenge that cheap oil poses to the Paris climate agreement. The way that governments respond could make or break the agreement, they say, with huge ramifications for the global fight to stop climate change:

For the climate accord to work, governments must resist the lure of cheap fossil fuels in favor of policies that encourage and, in many cases, require the use of zero-carbon energy sources. But those policies can be expensive and politically unpopular, especially as traditional fuels become ever more affordable.

“This will be a litmus test for the governments — whether or not they are serious about what they have done in Paris,” said Fatih Birol, executive director of the International Energy Agency.

The Carbon Tax Center has repeatedly highlighted this challenge over the past twelve months, particularly in economic terms. Cheap oil has meant cheap gas, which has encouraged more driving and a reversion to gas guzzlers. We calculated last month that increased gasoline consumption in the U.S. alone in 2015 produced carbon emissions equivalent to a year’s worth of emissions from nine coal-fired power plants. That’s equivalent to the entire annual emissions from burning all fossil fuels for all purposes in Denmark or Ireland.

We concluded that cheap oil risks making a “mockery of just about every scenario to move the U.S. and other countries decisively off carbon fuels.” But that’s not the end of the story. Cheap oil paradoxically presents an historic opportunity to pivot away from oil — and all fossil fuels — for good.

As we wrote last January, cheap oil brings a host of positives, like more jobs in most economic sectors, and negatives, like increased fuel use. The trick is how to safeguard the positives while neutralizing the downside. From a policy perspective, this actually isn’t hard to do, and oil’s low price makes it that much easier (as well as more imperative). The real question is whether we have the political will to do so.

The policy solution is a revenue-neutral carbon tax, beginning with a refundable tax on oil. The government would collect the tax at ports and wellheads and distribute the revenues equally to households each month, just like in Alaska. Because tax dollars stay in circulation, the amount of money families have to spend doesn’t fall and the economy benefits. Most families of limited means will come out ahead because on average they spend fewer dollars on oil than they will receive in their monthly revenue check.

By simulating higher fuel prices, we can preserve incentives to get more fuel-efficient. As a result, motorists will buy higher-mileage cars and drive them somewhat less, manufacturers will build more-efficient vehicles and aircraft, and cities and counties will be less inclined to  dial back public transit. The same goes for freight movement — goods produced nearby will be advantaged, boosting local agriculture and domestic jobs. You can read more about our proposed oil tax here.

As we and others, including former Treasury Secretary Lawrence Summers, have argued over the past year, the current cheap oil environment is ideally suited for the implementation of a carbon tax. The question remains: do we seize the moment to lock in the good while neutralizing the bad? Or do we instead continue fighting climate change with one arm tied behind our backs?

Editor’s note: Yesterday the world’s most influential newspaper finally did what CTC and other carbon tax proponents have sought for years: publish a ringing endorsement of a U.S. carbon tax. With its editorial, The Case for a Carbon Tax, the New York Times joins the growing community of opinion leaders, policy experts and, yes, elected officials who not only recognize the power of carbon taxes to quickly and equitably reduce emissions but also sense the emergence of a political critical mass that can enact fees into law. This heartening development signals that it’s not too soon to focus on the design of a U.S. carbon tax, especially its magnitude and rate of increase, as CTC senior policy analyst James Handley does in this post.

Which is the more effective way to set a tax on carbon pollution?

A. Start aggressively, then raise the rate slowly (“sprint”).

B. Start modestly, then raise the rate briskly and predictably (“marathon”).

You probably guessed that if the goal is to instill incentives that will bring about big emission reductions fast enough to avoid runaway global warming, the answer is B, the marathon. Yet a leading U.S. Senate advocate of legislative action on climate seems to be starting off like a sprinter, perhaps because his legislation is pegged to estimates of the Social Cost of Carbon that don’t account for the possibility that climate change will turn out to be catastrophically costly.

More on that senator in a moment — after this tutorial:

The Social Cost of Carbon (SCC) is a construct to quantify in monetary terms the damage caused by each additional ton of CO2 added to the atmosphere. While the SCC may sound arcane or academic, estimating its magnitude has real world implications: governments are pegging climate-related regulatory decisions to SCC estimates. A low SCC can make all but the lowest-cost clean-energy policies pencil out as expensive; higher estimates justify more rapid and aggressive measures, since moving too slowly to reduce emissions shows up as a mistake whose costs accumulate at a frightening pace.

Calculating the damage from a ton of CO2 turns on a host of assumptions that span wide ranges. Not surprisingly, estimates of the SCC reported in the peer-reviewed economics literature range from as little as $10 per ton of CO2 to over $400. A profoundly important modeling choice is how heavily to weigh the risks of climate-induced catastrophes. High-risk climate scenarios with nearly infinite costs, such as rapid release of methane from arctic permafrost or sudden sliding of vast ice masses into the ocean, “misbehave” in the equations used for conventional cost-benefit analysis, leading some modelers to omit them altogether.

One widely-used model assumes that economic growth rates will not be affected by climate change, thereby predicting that half of the world’s economic activity would continue after a whopping 18 degrees C of global warming. Other models dilute the high-risk scenarios by assigning them arbitrarily low probabilities that suppress their impact when their costs are averaged in with low-risk scenarios. A further problem in estimating the SCC is the bias toward high “discount rates” that telescope future impacts down to seemingly manageable proportions.

Amidst fraught debate and widely-divergent estimates, the Interagency Working Group has settled on $42 per ton of CO2 as the “official” U.S. government social cost of carbon. While that’s an improvement over past practice that omitted climate costs entirely — tacitly, an SCC equal to zero — the $42 figure grossly understates the large-scale global risks that dominate concern over global warming and climate change. [Read more…]

In 1970 I was teaching math in a New York City suburb. On Earth Day I stood at a highway off-ramp with members of the high school ecology club. One of their signs read, “The Earth is a Closed Garage.” Another said, “Make Polluters Pay.”

There’s been some progress since then. Breathing New York’s air, once equated to smoking two packs of cigarettes a day, is many times safer. Wind turbines now provide five percent of the nation’s power, and electricity produced with solar cells rose ten-fold in the past three years. Driving has flatlined nationwide over the past decade, partly because Americans are strapped but also because the intoxication with cars is wearing off.

That’s great news for the environment, but it’s not nearly enough for climate. CO2 levels are still rising inexorably. Ditto global temperatures, polar ice melting and extreme weather. Emissions need to be cut radically even as seven-and-a-half billion people strive for prosperity.

For that to happen, prices of fossil fuels have to reflect the climate costs of carbon pollution. The way to do this, of course, is with carbon taxes:

To demystify carbon taxes and showcase their appeal, we’re rolling out the Carbon Tax Center’s first video. It explains how a carbon tax will transform investment, re-shape consumption and sharply reduce carbon emissions. As the video shows, no other policy can match its reach or simplicity. No other policy can be replicated globally, from China to Chile to Chad.

A carbon tax is no mere “technical fix.” It’s both a symbol and a means for us to respect nature and each other.

The central messages on Earth Day 1970 were to abide by nature’s limits and make polluters pay. On this Earth Day, let’s spread the word about a carbon tax. Let’s educate and organize so that the U.S. and other nations make taxing carbon the central policy to combat catastrophic climate change and sustain the Earth we love.

Free dumping of CO2 pollution into the atmosphere is nothing less than “theft” from future generations who stand to suffer from unabated global warming, declared University of Chicago economist Steve Cicala at a symposium last week in honor of the conservative icon Milton Friedman. “It is theft,” said Cicala. “That’s a loaded term, but if someone else has a better term for taking something from someone without their consent and without compensating them, I’d be happy to hear it.”

E&E News reports that Cicala and former Obama White House adviser Michael Greenstone, who holds the Friedman chair at the U. of Chicago and directs its Energy Policy Institute, asserted that “if the late free-market economist Milton Friedman were alive today, he’d probably support pricing carbon.”

Free-Market Economist Milton Friedman

According to E&E, Cicala and Greenstone argued that,

Friedman… would have viewed climate change as a negative externality associated with burning fossil fuels and would have believed that society was entitled to recover its losses from those who emit carbon to advance their economic interests… While there is a market for the products that are associated with greenhouse gas emissions — like electricity, fuel and steel — there is no market for the pollution inflicted by their manufacturers on the public. [Read more…]

EPA Rule Embraces Cap & Trade On Weak Evidence (FiveThirtyEightScience)

Tax Vox Editor: Want to Do Something About Greenhouse Gas? Try A Carbon Tax (Forbes)