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Behind British Columbia's Carbon Tax

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We reported last week that British Columbia will implement a carbon tax of $10 per metric ton of carbon on July 1, rising in $5/tonne annual increments to reach $30 in 2012.

In both scope and size, the tax leapfrogs North America’s other, modest carbon taxes, in Quebec and the City of Boulder, Colorado. How did the tax come about? CTC supporter Jurgen Hissen filed this account from Vancouver.

The idea for a carbon tax came from the top ranks of the BC government. It wasn’t foisted upon them. I think they were actively seeking ways to justify it to the citizenry.

BC Liberals — who aren’t connected to Canada’s national Liberal Party — have always been pro small-government. When they came into office in 2001, they cut taxes and government spending extensively. BC Liberals have also historically emphasized personal responsibility and environmental issues, and a carbon tax (a consumption tax) is pretty consistent with that.800px_British_Columbia_legislature_building_roof_close_up.jpg

After meeting last year with California Governor Arnold Schwarzenegger, BC Premier Gordon Campbell resolved to set carbon reduction targets for BC. Suggestions of a carbon tax began circulating, but the real push likely came from Carole Taylor, Campbell’s finance minister.

In late 2007, Taylor assembled a committee, the Select Standing Committee on Finance and Government Services, to collect public input on the budget. The committee issued a questionnaire to every household in the province; how to tackle climate change covered three of the six questions, and two of them were what pollsters would call “leading”:

The Province currently provides tax incentives to encourage the purchase of hybrid vehicles [… etc.]. What tax changes would you make to encourage environmentally responsible choices? and

What tax changes would you make to discourage British Columbians from activities that contribute to greenhouse gas emissions?

Clearly, the government was looking to rationalize carbon taxes. The response was favorable, and crucial, not to mention broad-based. A carbon tax was backed by business leaders, a group of 60 economists from BC universities, and key religious leaders.

Taylor, the finance minister, reported getting 700 letters in support of a carbon tax (about 10 of those were mine, I think), and only about 160 opposed — a fact she cited on the day she announced the tax.

CTC invites readers from British Columbia or elsewhere to write with further details/insights on the development of BC’s carbon tax as well as potential implications for other provinces and the U.S.

Photo: Wikipedia

After the Election

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Rex Nutting’s Market Watch commentary (see "Quote of the Week") properly criticizes the presidential candidates for coming up with Rube Goldberg energy plans instead of having the guts to show leadership by proposing to increase the price of fossil fuels. It’s a fair critique, but it’s the rare candidate who has Senator Dodd’s courage to propose a tax while running for office. 

After the election, when there is less concern about cheap shots distorting policy discussions just before voting, it will be far easier to consider the best approach to reducing greenhouse gas emissions.  After the election it will be possible to explain that a revenue-neutral carbon tax is a tax-shift, not a tax increase, and that will be good for both the environment and the economy. After the election it will be easier to get past the rhetoric and to recognize that both carbon taxes and cap-and-trade increase prices. After the election, when there is an opportunity for a relatively objective analysis,  citizens and elected officials will be able to compare a revenue- neutral carbon tax (which raises prices gradually with an upwards trajectory that gives families and businesses time to adjust by using energy more efficiently and substituting renewable energy for coal and other fossil fuels) to cap-and-trade (which produces volatile energy prices and, under most proposed legislation, huge windfalls for polluters). 

For now, we can wait until after the election.  Or, take a look at the headlines to the right of this page to learn about the more serious discussions taking place in Canada and Europe.  

A Carbon Tax When Oil Approaches $100/Barrel?

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Rising Global Demand for Oil Provoking New Energy Crisis according to today’s New York Times. Yesterday’s front page of the Wall Street Journal headlined As Energy Prices Soar, U.S. Industries Collide.

Why not just rely upon high gasoline prices to bring down demand instead of “adding insult to injury” with a carbon tax?

One reason is that high gasoline prices alone are not enough to reduce consumption of gasoline and the resulting carbon dioxide emissions. Consumers, whether businesses or households, need a clear price signal that future prices are going to remain high before they are motivated to make the investment decisions necessary to reduce consumption. The volatile gas prices of the last few years just don’t provide that kind of signal. The rising global demand for oil headlined in the Times story is faster in developing countries, but as the Times correctly noted, “Americans’ appetite for big cars and large houses has pushed up oil demand steadily in this country, too.” The problem is that while it may be a rational economic decision to invest in a more efficient car, house, truck or airplane if gas prices are expected to remain at or above current levels, the economic decision-making is very different if consumers believe prices may plummet in two months. Europe has had considerably higher gasoline prices for many years and, not coincidentally, Europeans generally drive much smaller and more efficient vehicles.

While volatile prices do not encourage investment in efficiency, a clear and certain trajectory of increasing carbon taxes would do so. The revenue-neutral carbon tax proposed by the Carbon Tax Center provides that clear price signal. And, the gradual trajectory of increased prices that we propose gives consumers time to adjust to the higher prices by both investing in efficiency and making behavioral changes that will further reduce energy use. For more on how consumer demand for gasoline responds to price, see our issue paper by clicking here.

Another important reason why a carbon tax continues to be essential even with high oil prices is that the goal of a carbon tax is to reduce carbon dioxide emissions, not just to reduce consumption of gasoline. Generation of electricity accounts for approximately 40% of carbon dioxide emissions , compared to about 21% from gasoline and 4% from aviation. Two-thirds of the emissions reductions from a carbon tax are expected to come from the electricity sector, 11% from gasoline and only 1% from aviation. Coal use is increasing and will continue to increase without a price signal that reflects the harm caused by carbon dioxide emissions from coal-fired electric generating plants.

In addition, high oil prices encourage the development of new sources of energy with huge carbon dioxide emissions such as the Alberta oil sands projects. Tar sands development is the single largest contributor to the increase in climate change in Canada according to Greenpeace Canada. Even worse, according to a study by the Sage Centre and World Wildlife Fund-Canada, "voracious water consumption by Alberta’s oilsands threatens the quality and quantity of water available to Saskatchewan and the Northwest Territories through the Mackenzie River system." In fact, today’s New York Times cites a new study finding that "[h]igh levels of carcinogens have been found in fish, water and sediment downstream from Alberta’s huge oil sands projects." A carbon tax would reduce the economic incentive for such projects by holding down the price of oil. A carbon tax actually applied to such projects would destroy their economics.

Finally, right now the high oil prices are enriching oil producing countries and oil companies and causing severe damage to the United States economy. A revenue-neutral carbon tax will reduce demand and lead to reduced prices for the oil itself. The results? Reduced carbon dioxide emissions, less money going overseas and to big oil companies, carbon tax revenues returned to all Americans and strengthening our economy, and increased national security as we reduce our dependence on foreign oil. Win-win-win-win!

[To see a summary of recent Carbon Tax Center activities, see A Convenient Tax – Issue #3 immediately below.]

China Moving Toward Price on Carbon?

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A major new report commissioned by the governments of China and Brazil has called for a carbon tax — or a carbon cap-and-trade system that would also impose a carbon price.

Lighting the Way: Toward a Sustainable Energy Future, authored by leading scientists and
energy experts from 13 countries including Russia, India, Canada,
Kenya, Egypt, Japan, and the U.S., along with Brazil and China, calls for "a wide variety of policy instruments [including] market incentives such as a price or cap on carbon emissions (which can be especially effective in influencing long-term capital investment decisions)." Beijing_cyclists.jpg(The quote is from Section 4, The Role of Government and the Contribution of Science and Technology. Our Quote of the Week is drawn from the final "Conclusion" section, Lighting the Way.)

How high a price? Here’s what the report authors, who were assembled by the InterAcademy Council, a group representing the world’s 150 scientific and engineering academies, and were chaired by Nobel Laureate Stephen Chu, Director, Lawrence Berkeley National Laboratory, and José Goldemberg, Professor, University of São Paulo, Brazil, had to say:

Opinions vary as to the level of price signals that are warranted, but many experts believe that a price on the order of US$100–150 per ton of carbon equivalent emissions (in other widely used units, US$27–41 per ton of carbon dioxide equivalent emissions) may be necessary to overcome current cost differentials for many low- and non-carbon technologies and to stimulate the large-scale changes that will be required to eventually stabilize atmospheric concentrations of greenhouse gases.

It is important … to emphasize … that establishing in every market that there eventually will be an emissions price—in the range of US$100–150 per avoided metric ton of carbon equivalent (US$27–41 per ton of carbon dioxide equivalent)—is more important than establishing exactly the number of years in which such a transition will occur. For many countries, pragmatic considerations are likely to argue for a phased and multi-pronged approach, wherein an initial carbon price signal is gradually increased over time and complemented by other policies to address remaining market barriers and accelerate the commercialization of more efficient,
lower-carbon technologies.

(from Section 4.3 The importance of market signals)

Without indicating a preference, the report states clearly that the carbon price must come about from either a carbon tax or a cap-and-trade system, which it compares clearly and fairly here.

In putting its imprimatur on the report, the Chinese government has taken a major step in dismantling what The New York Times earlier this year called "an alliance of denial [in which] China and the United States are using each other’s inaction as an excuse to do nothing" about the global climate crisis.

Co-chairs of the InterAcademcy Council are Bruce Alberts, Past President, U.S. National Academy of Sciences, and Lu Yongxiang, President, Chinese Academy of Sciences.

Photo: nataliebehring.com / Flickr

A Convenient Tax — Issue #2

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Welcome to the second issue of A Convenient Tax, the Carbon Tax Center’s newsletter, summarizing our progress in April and May. (For Issue #1, click here.)

The big carbon-tax developments this spring have been (i) the first overt expressions of Congressional support for a carbon tax, (ii) a torrent of criticism of the competing “cap-and-trade” approach by editorial writers and other opinion leaders, and (iii) a significant increase in CTC’s visibility on the national stage.

Congressional Support for a Carbon Tax

Two milestones were reached in the national political arena in April.

First, California Democrat Fortney “Pete” Stark, the second-most senior member of the House Ways & Means Committee, introduced the first carbon-tax bill in Congress in a generation. The Save Our Climate Act, filed on April 26 and co-sponsored by Rep. Jim McDermott (D-Wash.), would impose a $10 per ton (of carbon) charge on coal, petroleum and natural gas when the fuel is either extracted or imported. The charge would increase by $10 every year until U.S. carbon dioxide emissions have dropped 80 percent from 1990.

Prior to introducing the Save Our Climate Act, Rep. Stark’s staff reached out to CTC for guidance on carbon tax administrative and technical issues, as well as the optimal tax level, While the tax rate in the bill is several times less than what CTC is urging, we support it as an essential first step in the long legislative process, especially since the ramped-up tax in future years would tip millions of future carbon-critical decisions in land use, manufacturing and household purchasing toward carbon-conserving alternatives.

How quickly the Stark bill receives a hearing will depend on both the national political climate and the interest shown by other Ways & Means members. CTC has met with staff for other Committee members, as well as for Reps. McDermott and Stark, to review fine points and to convey the message that support for carbon taxing is growing in the grass roots.

In the other political milestone, Sen. Chris Dodd has built a strong carbon tax plank into his presidential election platform. Sen. Dodd, a Democrat who has represented Connecticut in the Senate since 1980, is making a Corporate Carbon Tax the centerpiece of his plan to eliminate 80% of U.S. greenhouse gas emissions by 2050.

“I don’t know how we can possibly talk about honestly getting to the [carbon] number we need to get to if you’re going to just dance around [the tax],” Dodd said as he campaigned in New Hampshire in April. “Price is the last real barrier.” Sen. Dodd has forthrightly put a carbon tax on the home page of his campaign Web site. In fact, on May 31 Sen. Dodd released a new television ad to run in Iowa and New Hampshire that promotes what he refers to as “a courageous corporate carbon tax to transform American industry.” CTC regards the senator’s corporate carbon tax as a lead-in to a universal carbon tax that can propagate incentives for carbon reductions throughout our economy.

Editorial Writers Back Tax, Take Whacks at Cap-and-Trade

When we two (Charles & Dan) resolved last fall to form the Carbon Tax Center, we looked forward to tangling with anti-tax ideologues on the Right and advocates of state intervention on the Left, not to mention Flat-Earthers who deny climate change altogether. We never anticipated that we would be debating with our friends and allies in the environmental community, but that became inevitable when, just before we launched announced the CTC, four large environmental organizations teamed up with major corporations to back carbon cap-and-trade regimes through the U.S. Climate Action Partnership.

CTC has no quarrel with the notion of tradeable emission allowances. In fact we credit the sulfur dioxide permit program enacted as part of the 1990 Clean Air Act Amendments with helping drive down acid rain emissions from power generation. But the scale and complexity of the carbon problem positively dwarf those of sulfur. (Block That Metaphor Department? We have likened the disparity to the difference between a French mud hut and the Palace of Versailles, in an article in Gristmill; and to the difference between a Mozart sonata and a Wagnerian opera, in an invited
post on the on-line Portfolio magazine.) Our fear is that with so many billions at stake, any carbon cap-and-trade program will necessarily be beset by crippling delays, inside-dealing and favoritism run wild. The result will be to disgust and disillusion the American public so that it turns against putting a price on carbon emissions altogether.

On this score, CTC finds itself in fine company. In just the past two months, outspoken criticisms of carbon cap-and-trade proposals have been published in Reason magazine, the Financial Times (U.K.), the Los Angeles Times, and the New York Times Science Section “TierneyLab” blog, to name just a handful. Of critical importance, each piece has been effusive in its support of a carbon tax. As we were posting this newsletter, the right-of-center American Enterprise Institute weighed in with an extraordinarily cogent report comparing a carbon tax with cap-and-trade that unambiguously backs carbon taxing as “the superior policy option.”

These testimonials are collected on our Supporters and Tax vs. Cap pages. The L.A. Times editorial is especially noteworthy. The sole editorial in the May 28 (Sunday) edition, the 1,600-word Time To Tax Carbon made as resounding a case for a carbon tax – both in preference to cap-and-trade and for its capacity to stimulate carbon-reducing investment and innovation – as we’ve seen. Here’s one passage:

A carbon tax simply imposes a tax for polluting based on the amount emitted, thus encouraging polluters to clean up and entrepreneurs to come up with alternatives. The tax is constant and predictable. It doesn’t require the creation of a new energy trading market, and it can be collected by existing state and federal agencies. It’s straightforward and much harder to manipulate by special interests than the politicized process of allocating carbon credits.

Reading manifestos like this, it’s hard to resist the feeling that a shift is underway from cap-and-trade to a carbon tax. Indeed, a few days after the L.A. Times ran its editorial, an editor at a popular environmental blog wrote to say:

It’s been a slow process of education for me. What brought me around to my pro-tax position is, ironically, my libertarian streak. The essential libertarian insight is that complexity and bureaucracy are invitations to corruption. Big business will try their best to game the system. We know that. Politicians will be subject to lobbying and financial support. We know that. So the best route is the one that minimizes complexity and bureaucracy.

Since the biggest rap against a carbon tax has been its lack of popular support, “conversions” to the carbon tax camp such as that above could have a snowball effect, as each new adherent makes success more plausible. Part of our job at the Carbon Tax Center is to help the world see how rapidly the snowball is growing. We hope to have more to report in future newsletters.

CTC’s Visibility Continues to Grow

  • CTC co-director Dan Rosenblum appeared on the Newshour with Jim Lehrer – a substantive interview enabling Dan to make the case for a carbon tax to an aware nationwide audience. Click here to see the interview.
  • Articles by CTC co-director Charles Komanoff in Gristmill,
    Common Dreams, and Conde Nast’s Portfolio.com,
    along with quotes in the New York Times and the Detroit Free Press.
  • We surpassed Wikipedia to become the leading site on Google for those searching “carbon tax.” CTC’s Web site, www.carbontax.org continues to
    receive almost 1,000 visits each week from across the USA as well as Canada, Europe, Asia and Australia.

Other CTC Highlights from April and May:

We are continuing to provide technical and logistical support to advocates organizing for state-level carbon taxes in Colorado, Washington State, New York State and California. We have greatly improved our state-level spreadsheet model for estimating the CO2 reductions and revenue generation from different levels of carbon taxes. The model now allows for time lags in demand response, and it reflects supply-side incentives (toward lower-carbon fuels and power generation) as well as demand-side conservation. We hope to “grow” the model to the national level and post it on our Web site soon.

Going Forward

The next two years
will be the crucial period during which competing policies to reduce carbon emissions will be examined for their effectiveness, cost and political viability. CTC’s strategic goals focus on shaping that debate and properly framing the issues by:

  • Working with environmental organizations and other allies to solidify support for the concept of “putting a price on carbon.”
  • Educating opinion leaders, grassroots organizations and decision-makers that while cap-and-trade is also a vehicle to put a price on carbon, carbon taxes are far superior because they provide a more predictable and less volatile price and are transparent, immediate, universal and equitable.

We anticipate engaging in these activities during 2007-2008:

  • Continuing to develop intellectual ammunition on key issues including revenue recycling, tax equity, “co-benefits” of a carbon tax (e.g., for national security), and the potential “bang” for each carbon tax “buck.”
  • Providing technical assistance to opinion leaders, grassroots organizations and decision-makers, including
    responding to requests for technical information from political campaigns.
  • Assisting local and state-level carbon tax initiatives.
  • Spearheading a sign-on statement by economists and other experts calling a tax on carbon emissions more effective, transparent and equitable than a carbon cap-and-trade regime.
  • Working with a broad coalition of interest groups (labor, environmental, economic justice, national security, etc.) to support carbon taxes through a national sign-on statement and other actions.

It’s clear that CTC is proving its effectiveness every day. But we can’t continue to play our essential role without your financial help. We heartily thank those of you who have already donated to CTC. We ask carbon tax supporters who are not yet
CTC contributors to become so today.

You can contribute to CTC in three ways, of which two are tax-deductible:

  • Tax-deductible:
    Write a check or money order to ELPC (Environmental Law & Policy Center), writing Carbon Tax Center in the memo line; mail it to ELPC at 35 East Wacker Drive, Suite 1300, Chicago, IL 60601. ELPC is CTC’s fiscal sponsor.
  • Tax-deductible :
    Make an on-line contribution via Groundspring by clicking on the DONATE NOW box on our website, www.carbontax.org.
  • Not deductible:
    Write a check or money order to Carbon Tax Center and send it to our New York City mailing address: CTC,
    636 Broadway, Room 602, New York, NY 10012.

Just as a carbon tax now will send climate-appropriate price signals to businesses and individuals and help lock in low-carbon investment for the long haul, your financial support today will enable CTC to build on our current successes and
chart a growth trajectory. Please be as generous as you can, and please donate today. Thank you.

Sincerely,

Charles Komanoff
Daniel W. Rosenblum

A Convenient Tax – Issue #1

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(Note: We’ve changed the newsletter’s name. While the “truth” about global climate change may have been inconvenient, the carbon tax for combating it is straightforward, transparent and simple to administer — in a word, convenient! — CK & DR)

Welcome to the first issue of A Convenient Tax, the Carbon Tax Center’s newsletter. It’s been a very successful initial two months. Here are highlights.

Our Successful Launch

In just two short months the Carbon Tax Center (“CTC”) has established a strong presence in Washington DC, New York City, within the environmental community and throughout the Blogosphere. Here’s a quick snapshot of what CTC has accomplished since our Jan. 22 start.

  • Created the first Web site (www.carbontax.org ) devoted to taxing carbon emissions.
  • Formed a working partnership with veteran Washington (DC) environmental advocates who are committed to advancing a carbon tax in the current (110th) Congress and enacting one as soon as possible.
  • Provided technical assistance to legislative staff of a senior House Ways & Means Committee member (and gained a higher tax level in his anticipated carbon tax bill).
  • Raised probing questions about the “cap-and-trade” approach advocated by some large environmental groups and corporations, while maintaining a united front on the necessity of putting a price on carbon emissions,
  • Presented the case for “Carbon Taxes First” to an overflow Capitol Hill briefing organized by the Environmental and Energy Study Institute (EESI), and at other meetings in New York, Washington and Westchester County (NY).
  • Developed a preliminary analysis suggesting that CTC’s proposed 10-year phased-in $370/ton carbon tax (ramped up by $37/ton, the equivalent of a 10c/gallon addition to petroleum prices, each year) could reduce U.S. emissions of carbon dioxide by at least one-third.
  • Shared information and strategy with carbon tax advocates in several dozen states, including developers of carbon tax proposals for Colorado, New York and Washington, DC.

CTC Media Highlights

  • CTC’s comprehensive, accessible web site attracts 100-150 visits a day from across the USA as well as Canada, Europe, Asia and Australia, making www.carbontax.org the #2-ranked site on Google for those searching “carbon tax,” surpassed only by Wikipedia. Note: On April 12 we leapfrogged Wikipedia, making us #1 on Google.
  • Prominent and complimentary coverage of CTC’s launch in the online version of the New York Times in late January, in Times columnist John Tierney’s Science Blog.
  • Time Magazine‘s use of CTC’s estimate of the carbon-reduction impact of a carbon tax in its Global Warming Survival Guide (under solution #5: Pay The Carbon Tax ).
  • Strong presence in online discussions of carbon taxes and cap-and-trade, including repeated mentions of CTC in Gristmill and Slate.
  • Attack on carbon taxing and CTC by climate deniers at Accuracy In Media.

Going Forward

The climate debate “has shifted incredibly quickly,” wrote New York Times economics columnist David Leonhardt this week, and “the political debate now revolves around what … action should be [taken].” The next two years are the crucial period during which competing policies to reduce carbon emissions will be examined for their effectiveness, cost and political viability. CTC’s strategic goals focus on shaping that debate and properly framing the issues by:

  • Working with environmental organizations and other allies to solidify support for the concept of “putting a price on carbon.”
  • Gradually educating opinion leaders, grassroots organizations and decision-makers that while cap-and-trade is also a vehicle to put a price on carbon, carbon taxes are far superior because they provide a more predictable and less volatile price and are transparent, immediate, universal and equitable.

While CTC’s action plan will necessarily remain flexible, we anticipate engaging in the following activities during the next one to two years:

  • Continuing to develop intellectual ammunition on key issues including revenue recycling, tax equity, “co-benefits” of a carbon tax (e.g., for national security), and the potential “bang” for each carbon tax “buck.”
  • Providing technical assistance to opinion leaders, grassroots organizations and decision-makers, including responding to requests for technical information from political campaigns.
  • Assisting local and state-level carbon tax initiatives seeking to build on Boulder’s partial carbon tax adopted last November.
  • Spearheading a sign-on statement by economists and other experts calling a tax on carbon emissions more effective, transparent and equitable than a carbon cap-and-trade regime.
  • Working with a broad coalition of interest groups (labor, environmental, economic justice, national security, etc.) to support carbon taxes through a national sign-on statement and other actions.

That’s how things look at this juncture (April 1, 2007). It’s clear to us that CTC is proving its effectiveness every day. But we can’t continue to play our essential role without your financial help. We heartily thank all of you who have already donated to CTC. We ask carbon tax supporters who are not yet CTC contributors to become so today.

You can contribute to CTC in three ways, of which two are tax-deductible:

  • Tax-deductible: Write a check or money order to ELPC (Environmental Law & Policy Center), writing Carbon Tax Center in the memo line; mail it to ELPC at 35 East Wacker Drive, Suite 1300, Chicago, IL 60601. ELPC is CTC’s fiscal sponsor.
  • Tax-deductible : Make an on-line contribution via Groundspring by clicking on the DONATE NOW box on our website, www.carbontax.org.
  • Not deductible: Write a check or money order to Carbon Tax Center and send it to our New York City mailing address: CTC, 636 Broadway, Room 602, New York, NY 10012.

Just as a carbon tax now will send climate-appropriate price signals to businesses and individuals and help lock in low-carbon investment for the long haul, your financial support today will enable CTC to build on our current successes and chart a growth trajectory. Please be as generous as you can, and please donate today. Thank you.

Sincerely,

Charles Komanoff
Daniel W. Rosenblum