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Revenue-Neutrality Rises from the Dead

November 30, 2018 By Bob Narus

On Wednesday, Rep. Ted Deutch (D-FL) and a small bipartisan group of cosponsors introduced the strongest carbon pricing bill dropped into the Congressional hopper in years. H.R. 7173 closely follows the fee-and-dividend proposal long championed by Citizens’ Climate Lobby, employing not just the dividend template but the robust price trajectory.

The Deutch bill sets an initial tax rate of $15/metric ton, rising by $10/tonne annually thereafter. The increase rate would rise to $15/tonne if annual emissions targets are not met. All of the revenue, net of expenses, would go toward equalized dividends to all American households, based on household size, making the overall proposal revenue-neutral.

H.R. 7173 includes a border adjustment for both imports and exports, to protect the competitiveness of American manufacturing. And it restricts the government’s powers to regulate greenhouse gas emissions, at least for their impact on global warming — a limitation that may be more symbolic than substantive, given the modest emissions impact of President Obama’s signature Clean Power Plan, especially when compared to likely reductions from the new bill’s steep price trajectory.

The Deutch fee-and-dividend bill would surpass the most aggressive recent Democratic carbon tax after five years and would have twice the impact soon after.

The buzz thus far has focused on the bill’s initial cosponsors, two of whom are Republicans: Brian Fitzpatrick (R-PA) and Francis Rooney (R-FL). This is not their first trip to the rodeo. Both also cosponsored a much weaker carbon tax bill introduced in July by Carlos Curbelo, who lost his bid for reelection. A third Republican, Dave Trott (R-MI), has since signed on. The two Democratic cosponsors are Charlie Crist (D-FL) and John Delaney (D-MD).

It’s important not to make too much of the bipartisanship on display here. Fitzpatrick, Rooney, and Trott represent an underwhelming 1.5% of the incoming Republican caucus in the House. More particularly, they constitute a mere one-seventh of the surviving Republican members of the all-too-quiescent Climate Solutions Caucus, which is losing most of its GOP contingent to defeat or retirement. Deutch and Curbelo were the founding chairs of the Caucus.

The larger substantive story here is the long-term impact of the Deutch proposal. His $15/tonne starting tax rate is lower than other bills introduced in this session, which range from $24/tonne (Curbelo) to $49/tonne (two Democratic proposals, S. 1639 and H.R. 4209). But the rates in those bills would generally rise by only 2% above inflation annually. Deutch’s proposal, though it starts from a lower base, would outstrip them in impact after just five years, with the differential only widening over time.

According to the Carbon Tax Center spreadsheet model, Deutch’s bill would reduce U.S. CO2 emissions below 2017 levels by 35% in a decade. The best of the Democratic proposals would see a smaller reduction of 25%.

The chances of any carbon tax bill passing in the next Congressional session are close to nil. It is hard to imagine such a proposal getting a floor vote in a chamber led by Sen. Mitchell McConnell (R-Coal Country, aka Kentucky). Even if it did, the veto pen of Donald Trump awaits. Nevertheless, the next two years will allow a debate within the Democratic Party over what its position will be on climate change in the 2020 campaign and, assuming that election goes well for them, in the 2021-22 Congressional session.

The Deutch bill is clearly a contender in that debate. And the more Republican cosponsors Deutch and CCL can recruit this session, the more likely it can become that a robust carbon tax, with revenues going back to American households, will be at least part of the answer.

The other major contender for a Democratic climate program right now is the as-yet-unspecified Green New Deal with major green infrastructure investments possibly funded by a carbon tax. Interestingly, the carbon tax bill with the most support in the House at present, with 21 cosponsors, would also devote most of the revenue to infrastructure, though not specifically green infrastructure. That’s H.R. 4209, the America Wins Act sponsored by longtime carbon tax champion Rep. John Larson (D-CT).

The important thing for carbon tax advocates to remember is that the best bill is the one that can pass. So may the best bill win.

Other States (besides WA)

This page covers — or at least touches on — carbon-tax campaigning and organizing in states other than Washington.

Click here to read about the 2018 Washington carbon-tax initiative I-1631. Click here to learn about the valiant but doomed effort to pass the 2016 Washington state initiative I-732. For an overview of state carbon taxes, click here.

These bulleted links can help you navigate quickly around this page:

Carbon tax organizing in Oregon

Almost a decade ago, the Beaver State was the locus of the most detailed examination of a carbon tax for any U.S. state, paid for by a $200,000 grant from the Oregon legislature. The 2013 report, Carbon Tax and Shift: How to Make it Work for Oregon’s Economy, by economists at Portland State University’s Northwest Economic Research Center, examined the effects of a state-wide carbon tax patterned after British Columbia’s carbon tax.

Oregon carbon tax supporters at “Salmon at the Redd”

Like BC’s, the carbon tax examined for Oregon was largely revenue-neutral: one scenario applied 70% of the tax revenues to cut corporate taxes, 20% to cut personal income taxes, and 10% to reinvest in industrial energy efficiency programs; the other apportioned 50% of the revenues to cut corporate taxes, 25% to cut personal income taxes, and 25% for industrial and residential energy efficiency and transportation infrastructure.

The Oregon tax would have started at $10/ton of CO2 and risen by $10 per year to $60/ton, or roughly twice the level of BC’s tax. By 2025, according to the report, it would have reduced the state’s greenhouse gas emissions by 12-13% below baseline projections while generating over $2 billion a year in revenue. The proposed policy became the centerpiece of HB 3252, a bill aimed at establishing a state-wide carbon tax. The grassroots movement to advance the tax was led by Oregon Climate, which spread awareness via canvassing, tabling and lobbying. Oregon Climate also sought to bridge art with climate advocacy, culminating in “Salmon at the Redd,” a community project in which residents created tiles for a mosaic illustrating what they loved about their state.

Unfortunately, the carbon tax campaign was sidelined in favor of Senate Bill 1547, which in 2016 established a Renewable Portfolio Standard directing Oregon utilities to ramp up wind and solar facilities to supplement the state’s considerable hydro-electric supplies. Oregon Climate then shifted its focus to a national effort to help other localities advocate for carbon pricing.

Demonstrators protest outside the Oregon State Capitol in Salem, Feb. 6, 2020. (Andrew Selsky/AP, via WaPo)

In 2019 and again in 2020, voting on a statewide carbon cap-and-trade bill was torpedoed when Republican lawmakers walked out of the statehouse, with some going into hiding to prevent the state police from rounding them up — a spectacle that generated national headlines. The walkouts were fanned by rural-based protests amid speculation that some of the “grassroots” opposition was corporate-funded.

In May 2021, a thoughtful piece in the Tacoma (WA) News-Tribune, Can Oregon’s Democrats Learn From B.C.’s Carbon Tax?, contrasted the transparency, simplicity and revenue-neutrality of British Columbia’s politically successful carbon tax with Oregon’s complex and unsuccessful cap-and-trade approach. State senator Jeff Golden, a strong supporter of the legislation, later bemoaned its complexity, which, he said, lent itself to damaging misinformation. “The more details, the more twists and turns and bells and whistles, the more opportunities there are to distort it,” Golden said in the story.

Carbon tax organizing in New York

New York should be a strong venue for pursuing a state carbon tax. In October 2012, Superstorm Sandy made a climate-change believer of Gov. Andrew Cuomo. who declared, “[C]limate change is a reality, extreme weather is a reality, it is a reality that we are vulnerable,” after the tidal surge from the storm inundated coastal communities and brought unprecedented devastation to hundreds of miles of shoreline. Moreover, not just coastal residents but upstate citizens politicized by fracking have rallied around the Jacobson-Delucchi “100% Wind, Water and Sunlight” global scenario for NY State propounded in the authors’ compelling journal article in Energy Policy.

Two Carbon Tax Center officers — director Charles Komanoff and board chair Alex Matthiessen — outlined the rationale for and distributional impacts of a potential $20/ton (of CO2) NY State carbon tax in a 2013 op-ed for the Huffington Post (cross-posted here). Our brief envisioned applying the lion’s share of carbon tax revenues to reduce the statewide sales tax rate by a full percentage point — anticipating the proposed sales tax-cut centerpiece of Carbon Washington’s Measure I-732, discussed above. “Leftover” revenues could help fortify the state’s infrastructure to withstand future storms and/or expedite and incentivize homeowners’ and business owners’ installation of photovoltaic electricity generating capacity.

The bill languished but circa 2019 was revived as part of an omnibus Climate and Community Investment Act proposed by a statewide climate coalition called NY Renews that includes influential groups like building service workers union 32BJ SEIU and Environmental Advocates of NY. In 2019 the coalition succeeded in pushing through an ambitious though mostly target-setting and task-force-establishing bill, the Climate Leadership and Community Protection Act. Prospects for the new bill including the carbon tax appeared uncertain at best in the spring of 2021 when this page was last updated.

New York League of Conservation Voters Member Andrew Ratzkin outlined the case for a NY State carbon tax in a compelling op-ed in Crain’s New York Business, in July, 2015. In mid-2016 Ratzkin published a lengthy article in the Columbia Journal of Environmental Law, You Say You Want a REV Solution, critiquing the state’s “Reforming the Energy Vision” blueprint as inferior policy to a statewide carbon tax.

Carbon tax organizing in Massachusetts

The bay state’s Global Warming Solution Act of 2008 mandated a 25% reduction of CO2 emissions below 1990 levels by 2020 and an 80% reduction by 2050. Befitting its “promising” status in CTC’s report, Opportunities for Carbon Taxing at the State Level, Massachusetts is a hotbed of advocacy for a statewide comprehensive carbon tax to meet and surpass those targets.

The most politically popular bill appears to be S.1821, An Act combating climate change, sponsored by State Senator Mike Barrett (D-Lexington). Barrett’s nearly identical 2016 bill S.1747 had 47 co-sponsors, and this year he has 64, nearly one-third of the legislature,

The Barrett bill specifies an initial carbon fee of $10/ton of CO2, increasing in $5/ton annual increments to $40/ton, after which the legislature will consider increases or decreases. The bill establishes a fee-and-rebate system, with 100 percent of carbon revenues collected from fossil fuel providers returned pro rata to state residents and to employers based on the number of employees.

S.1821 will direct additional rebates to households in car-dependent areas and to energy-intensive businesses. As with the similar Citizen Climate Lobby fee-and-dividend proposals at the federal level, the rebate system is intended to be income-progressive (with low- and moderate-income households being net beneficiaries while wealthier households would be net payees) while preserving all households’ incentives to reduce fossil fuel use in order to pay less in fees.

Supporters of Barrett’s prior bill, S.1747, cited broad support from businesses including financial services, healthcare, hospitality, food services, transportation, design and technology companies touting its potential to incentivize innovation and preserve competitiveness. At an Oct. 2015 legislative hearing, Business Leaders for Climate Action released an endorsement letter backing the Barrett bill, signed by over one hundred state businesses and business leaders.

Reports by the Massachusetts Department of Energy Resources and Regional Economic Model Inc concluded that S.1747 would slash emissions while boosting employment and overall economic activity.

Projected Emissions After Imposition of $5/ton Carbon Fee, rising $5/yr to $40 (Prepared for Massachusetts Department of Energy Resources)

On the House side, State Representative Jennifer Benson (D-37th Middlesex) is sponsoring H.1726, “An Act to promote green infrastructure, reduce greenhouse gas emissions, and create jobs.” The Benson bill adheres to the Barrett bill’s carbon-fee-and-rebate model but dedicates 20 percent of revenues to fund green infrastructure directly, such as public transportation, renewable energy, energy efficiency, and protection against the expected impacts of climate change. With 80 percent of revenues applied to rebates rather than 100 percent, the Benson bill would likely have a somewhat less income-progressive outcome than the Barrett bill, though the difference would be attenuated by the green investments.

Two other energy-related bills also include carbon pricing provisions:

Senator Marc Pacheco (D-Taunton)’s S.479, An Act relative to 2030 and 2040 emissions benchmarks, would authorize the state to “create, expand, or join market-based compliance mechanisms, including but not limited to greenhouse gas emissions trading and carbon pricing programs,” in order to achieve the greenhouse gas emissions reductions required by the Massachusetts Global Warming Solutions Act.
Solomon Goldstein-Rose (3^rd Hampshire)’s HD.1948, An Act relative to creating energy jobs, would establish a carbon-fee-and-rebate system similar to those in the Barrett and Benson bills as part of a larger initiative to make Massachusetts “the Silicon Valley of the new energy economy.”

Analysis by the Massachusetts Department of Energy Resources suggests that carbon pricing would deliver the greatest CO2 reductions of any policy while enhancing state and local employment. Advocates are using those findings, along with the potential to cut health care costs through reduced air pollution, to convince Governor Charley Baker to support carbon pricing legislation.

In Jan. 2017, Dave Anderson of the Massachusetts-based Energy & Policy Institute posted a provocative, well-documented piece, Under Rex Tillerson, ExxonMobil Lobbied Against Carbon Tax Bills. In his article Anderson revealed 2016 lobbying disclosures filed with the Secretary of the Commonwealth of Massachusetts indicating that a lobbyist paid by ExxonMobil opposed the revenue-neutral carbon tax bill S.1747, as well as other climate-related bills.

For more information on carbon pricing in Massachusetts, view this short video on carbon pricing by Business Leaders for Climate Action, or contact info@blcama.org.

Carbon tax organizing in Rhode Island

With its coastline-defined topography, the Ocean State is directly exposed to climate change impacts of rising sea levels, flooding and storms. Rhode Island is also home to U.S. Senator Sheldon Whitehouse, whose 100 weekly “Time to Wake Up” speeches on the Senate floor in 2013-2015 established him as Capitol Hill’s most forceful voice for climate action. The Senator’s American Opportunity Carbon Fee Act of 2014 would establish a national carbon tax.

Detail from REMI study of a Rhode Island carbon tax.

With federal carbon pricing blocked by the GOP, a coalition of RI environmental, faith and business groups formed Energize Rhode Island in 2015 to advocate for state carbon pricing legislation. In January 2016 State Rep. Aaron Regunberg (D-Providence) introduced House Bill 7325, along with 40 co-sponsors. H7325 specifies an initial carbon fee of $15/ton of CO2, increasing in $5/ton annual increments. Seventy percent of the revenue would be refunded via per capita and per employee rebates to Rhode Island families and businesses, with 25% invested in renewable energy and efficiency programs.

The Energize Rhode Island Coalition touts a REMI study finding that H7325 will create over a thousand new jobs in the first year alone — a major economic boost for a state whose 2014 population was just 1.055 million — while emission reductions quickly reach double digits. Job growth will continue apace in subsequent years, according to the study, as Rhode Islanders save much of the nearly $4 billion a year they now spend on fossil fuel energy, all of it imported from outside the state.

Carbon tax organizing in Vermont

The conversation among policymakers in Vermont has begun to shift from whether the state should price carbon pollution to how, reports Tom Hughes of VPIRG, in Feb 2016.

The carbon-pricing campaign is led by Energy Independent Vermont, a coalition comprising the state’s top environmental organizations, the renewable-energy leaders who have made Vermont a solar powerhouse, iconic Vermont businesses like Ben & Jerry’s and Seventh Generation, the state’s low-income weatherization agencies, interfaith religious leaders, and academics at U-Vermont’s Gund Center for Ecological Economics. Non-member allies of Energy Independent Vermont include the Vermont Council on Rural Development and a CERES-supported group of industry leaders including Sugarbush Resort, Burton and King Arthur Flour.

The campaign engaged Regional Economic Models, Inc. (REMI) to conduct an analysis of a pollution tax set at $100 per metric ton of CO2, with 90% of revenues recycled as cuts to the state income tax, corporate taxes and a reduction in the sales tax, and the remaining 10% reserved for low-income weatherization and other energy-saving investments. As modeled, the tax would exempt electric generation, since that is already covered with a carbon pricing regime through RGGI, the Regional Greenhouse Gas Initiative. The REMI study concluded that over the first decade this measure would cut carbon emissions from heating and transportation by 31% while generating 2,400 new jobs, raising gross state domestic product by $100 million, and adding more than $150 million a year to real disposable personal income.

Two bills with similar tax rates and revenue treatment were introduced in the Vermont General Assembly in early 2015, according to Hughes. Energy Independent Vermont delivered 25,000 petitions in favor of carbon pricing to Vermont legislators in November 2015, he reports. In January 2016 Gov. Peter Shumlin’s administration called for the state to “investigate and pursue options for market-based greenhouse gas emission policies.” A May 26 piece by Energy Independent Vermont activist Luc Reid in the Williston (VT) Observer, The unsuspected upsides of a carbon pollution tax, did a nice job of laying out the “income progressivity” of EIV’s carbon tax proposal.

The November election win of Republican Lieutenant Governor Phil Scott to the governor’s office will set back efforts to enact a Vermont carbon tax, Seven Days political columnist Terri Hallenbeck reported in early December.

Boulder (Colorado)

2015 Revenue distribution from Boulder’s carbon tax

The municipality implemented the United States’ first tax on carbon emissions from electricity, on April 1, 2007, at a level of approximately $7 per ton of carbon dioxide. According to the City of Boulder, the tax was costing the average household about $1.30 per month, with households that use renewable energy receiving an offsetting discount. The city expected the tax to generate about $1 million annually until its expiration in 2012, with the revenues used to fund Boulder’s climate action plan to further reduce energy use. In June 2009, the City Council voted unanimously to raise the tax level. Although the new rate was not originally specified, the expected increase in revenues, some $810,000 annually, suggests that the increase is on the order of 80%, or perhaps $5-$6 per ton of CO2 (on top of the original $7/ton). In 2012, residents voted to continue the tax at the 2009 rate for another five years.

Other States?

Please send us (info@carbontax.org) your reports, or even just ideas, on state-level carbon taxes, so we can post them here.

(coming soon: Utah, drawing on this link and that link)

States _ New

No U.S. state has a carbon tax. An attempt to break through with a tax on carbon emissions in the state of Washington was defeated at the ballot in Nov. 2016, as we recount below. Nevertheless, Washington and 7 other states (including Washington DC, which for linguistic simplicity we are calling a state) are considered “promising” arenas for enacting state carbon taxes, in a comprehensive 2017 report by the Carbon Tax Center.

This page is sprawling, reflecting the intensity and breadth of state carbon tax organizing. These links can help you navigate:

Also of interest: Minnesota state auditor Rebecca Otto has promised that her ambitious proposal for a revenue-neutral carbon fee will be a big issue in the 2018 campaign to succeed Mark Dayton as governor in 2018. Read our post, Minnesota state auditor stakes campaign for governor on carbon dividend.

CTC Report Ranks the States on Carbon Tax Potential

The report was written by Yoram Bauman, who spearheaded the Washington state carbon tax effort, and Carbon Tax Center director Charles Komanoff. It classifies the 51 states into five categories of carbon tax readiness ranging from “promising” to “very challenging.” (See map.)

Cover page of CTC’s new report rating the states’ carbon tax potential.

As the map shows, the eight most promising states are Connecticut, Hawaii, Illinois, Maryland, Massachusetts, New York, Washington and the District of Columbia. (Follow these links for historical perspective and other information on Massachusetts, New York, and Washington that isn’t in our new report.) We rate another 17 states as having “potential” for enacting state carbon taxes, with some having relatively clear paths while others appear to face legal or ideological constraints. (Follow these links for additional information on Oregon, Rhode Island, Vermont, and—as a bonus—the city of Boulder, Colorado.)

The other 26 states are a lot less promising. Our report explains why.

The rankings are just one aspect of the report. Each state gets an overview, a brief analysis of CO2 emissions, summaries of local climate impacts and current climate policies, a sketch of carbon pricing activism, a brief look at climate ideology and politics, recent polling results, and, where applicable, a summary of ballot measures and proposed legislation.

The report is comprehensive in its coverage but concise in each state’s analysis and ranking. It clocks in at 120 pages, making it huge (a 14 MB pdf), but it’s well worth perusing for info on your state and how it stacks up with others. Click here to download. (A reduced-size pdf under 2 MB is available for those with slower connections, click here.)

Further below is extensive coverage of the Washington state I-732 campaign and its aftermath, along with info on carbon tax organizing in five other states as well as Boulder, CO’s carbon tax on electricity generation. Click on those links and read our introduction for context.

Also see our August 2016 post reporting on the new Brookings Institution report, State-Level Carbon Taxes: Options And Opportunities For Policymakers. It’s essential reading for people seeking to advance carbon taxes at the state level and anyone who wants to understand the nuts and bolts of designing and implementing actual carbon taxes.

State Carbon Taxes: An Introduction

“It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” — Justice Louis D. Brandeis (New State Ice Co. v. Liebmann, dissenting opinion, 1932)

This page covers organizing campaigns for U.S. carbon taxing at the state level, with sections on Washington State, Oregon, New York, Massachusetts, Rhode Island and Vermont.

With a national carbon tax blocked by the denialist Republican majority in Congress and a carbon-besotted White House, a growing number of climate advocates are heeding Justice Brandeis’s advice and are organizing at the state level. “Retail” politics, it is thought, might assuage concerns over outside-the-box ideas like carbon taxing, perhaps as occurred in the successful push for marriage equality (the right to same-sex marriage) which began and spread as state-level campaigns.

Moreover, progressive and popular options for distributing carbon tax revenues can be made more tangible at the state level than the federal. This point was underscored by a Jan. 2015 study by the Institute for Taxation and Economic Policy ranking the 50 states on their tax incidence that established that states are more regressive taxers than the federal government. In particular, sales taxes could be swapped out for carbon taxes, as advocates in Washington State proposed in their I-732 ballot initiative in 2016 (full discussion further below).

Not all states are riven by ideological resistance. While America’s geographical diversity can impede national unity, it has left some states less beholden to fossil fuel interests. Naturally, advocates are focusing on those states. (In March 2016, Resources for the Future posted two superb summaries of proposals in six states to adopt carbon taxes; the first focused on the tax rates (see graphic below), while the second addressed revenue treatment and household “incidence.”)

Graph courtesy of RFF. See link in adjoining paragraph.

States have also pushed the envelope on issues like minimum wage and fuel-efficiency standards, moving the national discussion as they did so. In a 2016 op-ed in the New York Times, Georgetown University law professor David Cole ascribed the National Rifle Association’s success at strangling national gun-control regulations to a decades-long campaign that changed state constitutions and laws to protect the right to possess and carry guns. Less far afield is the fact that gasoline taxes first took root in a handful of Western states to fund road construction, before spreading to the rest of the country. State carbon taxes could, it is hoped, create a similar template leading eventually to federal enactment.

The EPA Clean Power Plan may have provided an opening for state carbon taxes through a provision allowing states to submit projected emission reductions from carbon taxes applied to power generation (unfortunately, reductions from carbon-taxing non-electric sectors such as transportation would not receive credit). A June 2015 report from the Niskanen Center concluded that even small state carbon taxes could effectuate the required emissions reductions in most cases, mirroring our own modeling results on the national level.

Still, state carbon taxing raises issues that don’t apply to a federal tax. State policy makers and advocates need to address these concerns:

Competitiveness: It would be hard for any one state to push its carbon tax too high, due to concerns over competitive advantage and inter-state “leakage” (e.g. driving out-of-state to fill up with untaxed gasoline).

Yet using some carbon tax revenues to reduce business taxes (as was proposed in Washington State) may soften concerns over economic impact. The cross-border issue may be less salient in larger Western states than in smaller East Coast states.

Jeff Renfro, a key member of a team at Northwest Economic Research Center that modeled a possible Oregon carbon tax, said:

We tried [in our modeling] to wreck the economy. We modeled a big tax – $100 a ton – with a relatively short phase-in period, and we assumed the government put the revenues toward non-productive reserves. Even in that scenario, we were surprised by how small the effects on employment were relative to the overall economy. (Interview with CTC researcher Matt Gordon, July 10, 2015)

Efficiency: Energy policy is largely determined at the federal level. Administrative costs could be disproportionately higher for state taxes, due to greater cross-border movements of electricity and fuels among states than between the U.S. and other nations. In some states, utility sector regulation may complicate efforts to tax fossil fuels sufficiently upstream.

Many states already have taxes on gas and electricity, however, and it shouldn’t be difficult to piggyback a carbon tax on those taxes without significantly increasing administrative burdens. British Columbia’s carbon tax program uses this technique, and reports the administrative burden as negligible.

Coverage: Only a national carbon tax will enable the U.S. to impose Border Adjustment Taxes to induce China and other countries to adopt their own taxes, which is a key benefit of pursuing carbon taxing. States cannot pursue a similar strategy without violating the commerce clause of the Constitution.

Although states may not tax imported goods, that prohibition shouldn’t be construed to mean they can’t tax imported electricity or fossil fuels that are then used within the state. In fact, some advocates see this as an opportunity for economic development; carbon-taxing out-of-state fossil-based electricity and fuels could stimulate growth in local renewables and energy-efficiency industries.

Local Policy: Every state has idiosyncracies. In Oregon, the constitution mandates that all revenues from taxing gasoline must be deposited in the Highway Trust Fund. In Washington, state law precluded carbon tax revenues from being used for dividends to the public. Yet this patchwork of state policies may be a motivating factor in driving a national policy. The complications of doing business in jurisdictions with varying policies have even driven some oil companies to demand more unified action on climate change.

That said, the 2016 elections further cemented the Denier (Republican) Party’s hold on state governments, as the New York Times graphic below illustrates.

Republicans hold control of the governor’s office and the legislature in 24 states, while Democrats have that status in only six, according to this New York Times graphic.

On the other hand, red states tend to be fossil fuel-dominated states already out of reach of state carbon-tax campaigns. Two states with past or present carbon tax organizing, WA and OR, have Democratic governors and legislatures. Two others, NY and CO, have Democratic governors but divided or uncertain legislatures. Massachusetts and Vermont have Democratic legislatures but Republican governors.

The 2016 Washington state carbon tax referendum: what happened

In 2015, grassroots advocates in Washington crafted a carbon tax ballot measure that, they hoped, would make theirs the first U.S. state with a carbon tax. Their Initiative 732 would have established a comprehensive statewide carbon tax reaching $25 per metric ton of CO2 in 2018 and rising thereafter at 3.5% faster than the general inflation rate. The initiative was decisively defeated, however, by a vote of 59% to 41%. We discuss I-732 and the divisiveness it spawned, directly below.

Washington Gov. Inslee’s just-proposed (Dec. 2016) carbon tax would dedicate a majority of revenue to funding education.

Five weeks after that vote, Washington Gov. Jay Inslee proposed a carbon tax whose level — starting in May 2018 at $25 per metric ton of CO2 and increasing thereafter at 3.5% a year faster than inflation — would be identical to that in I-732. The Seattle Times first reported the proposal, which is a key part of the governor’s fiscal plan, on Dec. 13. Inslee’s office has issued an informative 3-page policy brief outlining the intended uses of the carbon tax revenues; unlike I-732, which was designed to be nearly 100 percent revenue-neutral, the governor’s proposal, which requires legislative approval, is intended to patch big holes in the state budget. We hope to report on the progress of Gov. Inslee’s proposal shortly.

On Nov. 12 Carbon Washington, the grassroots advocacy group that gathered 360,000 signatures to put Measure I-732 on the November ballot, and then fought for its passage with a high-energy organizing campaign, issued a statement, Carbon tax friends, be proud of what we’ve accomplished. Here’s the opening paragraph:

Together, we accomplished something historic by putting the nation’s first statewide carbon tax before the voters. We showed that there is a strong desire for common-sense climate action in Washington State, and we influenced the national conversation on climate policy. We ran an honest, transparent, and positive campaign focused on addressing the climate and equity problems facing our society. We did all of that thanks to you.

CarbonWA says it is thinking through next steps and want[s] to hear supporters’ “thoughts on the election and where this movement that you helped build should go next.” The group invites feedback via email. Their terrific Web site, Yes on 732, is still up.

Seattle Time graphic. Earlier reports had the vote slightly closer.

Seattle Times graphic, downloaded Nov. 11. Earlier reports had the vote slightly closer. Official Nov. 13 update (see text) has same percentages.

As of Nov. 13, Washington’s Secretary of State was reporting 1,571,080 No votes vs. 1,091,626 Yes, a nearly 3-to-2 margin. Only King County, the state’s largest, which includes Seattle, voted majority Yes; all other 38 counties voted No to Measure 732.

In the aftermath of the election, the Alliance for Jobs and Clean Energy — the Washington confederation that became the locus of “green” opposition to I-732 — posted a five-page draft clean energy plan intended to fulfill its commitment to fashion an alternative policy to Carbon WA’s revenue-neutral carbon tax. The plan’s carbon tax, just $15 per ton of CO2 and with no increase beyond inflation unless as-yet-unspecified reduction targets are met, would be around half of the tax level specified in I-732; most emission reductions would come from investments in efficiency and renewables outlined but not specified in the draft. Alliance leaders pledged to push their plan to the legislature and vowed to put it on the ballot in 2017, if necessary, the Seattle Times reported on Nov. 12.

Top reads on the ballot battle (newest listed first):

The I-732 referendum received intense national as well as local coverage in the run-up to the election, in part because the split over the measure within the green movement made for a compelling (and disturbing story).

The best post-mortem we’ve seen is Marianne Lavelle’s Nov 9 story, Washington State Voters Reject Nation’s First Carbon Tax, for Inside Climate News. It’s an excellent overview of the competing perspectives of I-732 proponents and opponents (state purview vs. national, social-justice vs. economic, etc.) and has quotes from Washington social-justice advocates (who opposed the measure) and climate luminary James Hansen and CTC director Charles Komanoff, who supported it. Here, for example, is a quote from KC Golden, senior adviser to the Washington State nonprofit Climate Solutions:”

The people who came up with the idea of ‘revenue-neutral’ did it for a good reason, to defuse the partisan bomb that keeps us from getting everywhere on climate. But we can’t find any political ‘there’ there. To tell labor and communities of color, ‘We’re going to change the incentives and benefits are going to flow’ sounds…a lot like ‘trickle-down’ economics. They justifiably don’t trust that story.”

Draw your own conclusions.

Here are half-a-dozen other (pre-election) articles:

The left’s opposition to a carbon tax shows there’s something deeply wrong with the left, (Washington Post editorial, Oct 27). Strongly supported I-732 and decried left-greens’ stance that “softening the blow for the poor and middle class is not enough; the government must divert the revenue according to the wishes of specific interest groups.”
Opposition to Washington’s historic carbon tax initiative is coming from the unlikeliest of sources (Natasha Gelling in Think Progress, Oct 6). Sophisticated and concise examination of the green split over I-732.
Initiative 732: A ‘Carbon Tax Swap’ To Address Climate Change (Seattle NPR affiliate KNKX-FM, Oct 3). Excellent account of both sides’ views on I-732.
The environmental groups killing a carbon tax (“The Hill,” Sept 22). Professor of law and economics Shi-Ling Hsu — a signatory to CTC’s Paris letter last fall — dissected the opposition to I-732 from sectarian green groups.
Tax carbon polluters, not working families (“Crosscut,” Sept 20). Three veteran organizers explained why the I-732 carbon tax will be just as well as efficient.
Washington Carbon Tax Ballot Initiative Picks Up Biggest Corroboration Yet (CTC blog, Aug 5). Our quick guide to Sightline Institute’s in-depth analyses backing Carbon-WA’s claims for Measure 732 demonstrating that the carbon tax will be revenue-neutral, income-progressive and climate-effective.
There’s a cheap, proven fix to the world’s biggest problem (CNN, April 19). Political writer John Sutter interviewed Carbon-WA founder Yoram Bauman and explained why a victory for Yes on 732 could be key to unlocking carbon taxing in the U.S.

Our blog posts on I-732 (newest listed first):

The Carbon Tax Center strongly supported Carbon WA’s initiative and organizing campaign. Our blog posts during the few weeks before the election responded vigorously to attacks on Initiative 732. Earlier-dated posts mostly involved straight reportage about the merits of the initiative and the campaign to pass it.

Naomi Klein Is Wrong On The Policy That Could Change Everything, Nov. 7, 2016. The policy that could do the most to start changing everything is on the ballot in Washington state, but somehow it’s not quite good enough for the author of “This Changes Everything.”
To The Left-Green Opponents of I-732: How Does It Feel?, Nov. 4, 2016. The Koch brothers just gave $50K to the “No On 732” forces. If you’re on the left, it’s time to ask yourselves, in Bob Dylan’s words, “Are you having a good time?”
Fighting in the Trenches Doesn’t Excuse Ignorance on Carbon Taxes, Oct. 28, 2016. We skewer criticisms of I-732 from the advocacy group Food & Water Watch, including their nonsensical claim that “carbon taxes help fossil fuel companies, not the environment.”
Washington State’s I-732: A Climate Measure for the Society We Have, Oct. 18, 2016. Invokes mid-century humanist radical Paul Goodman to critique “old-guard” green-establishment’s stance opposing Carbon Washington’s ballot initiative.
The Political Meltdown That Could Save The Climate, Oct. 8, 2016. Why the GOP-Trump electoral meltdown opens a path for I-732 to become the template for a U.S. carbon tax.
Carbon Tax Can Be a Remedy for Toxic Hot Spots (Sept. 13, 2016). Rebuts notion — left over from the 2009 Waxman-Markey bill built around cap-and-trade with offsets — that a carbon tax could perpetuate or exacerbate tosic “hot spots” in communities of color.
Washington Carbon Tax Ballot Initiative Picks Up Biggest Corroboration Yet, Aug. 5, 2016. Reports on masterly rebuttal to WA state government’s objections to I-732, from Pacific NW think tank extraordinaire Sightline Institute.
Feeling The Heat: A Carbon Tax Gains Grassroots Momentum in Washington State, July 16, 2015. CTC’s Matt Gordon captures the on-the-ground energy of Carbon WA’s petition-gathering for Initiative 732.

I-732 history and details (This pre-Nov 2016) content has not been updated.)

The Evergreen State is blessed with abundant natural beauty — Mt. Rainier, the North Cascades, Puget Sound, the Olympic Peninsula and the Columbia River basin and gorge — with an outdoor culture to match. It was also wracked by drought and forest fires in 2015. In that year, carbon tax advocates under the banner of Carbon Washington began organizing for a ballot initiative mandating a state carbon tax. Measure I-732 would have taxed carbon emissions at an initial rate of $15 per ton of CO2, rising the following year to $25 per ton, and then increasing annually by 3.5% more than the inflation rate.

Graphic from http://yeson732.org/ highlights the tax benefits.

The tax, gracefully summarized last year by the Christian Science Monitor, would have used the expected $1.7 billion in annual revenue to overhaul Washington’s unusually regressive tax code. Most of the money was earmarked to lower the state sales tax from 6.5% to 5.5%. (While the state sales tax is 6.5%, the average combined local-state sales tax rate is 8.89%, the fifth highest in the country.) The annual increases in the carbon tax would have offset the rising value of the sales tax reduction, ensuring the measure stayed revenue-neutral. Another $200 million a year would have funded the state Working Families Rebate – an extension of the federal Earned Income Tax Credit. The Working Families Rebate was created in 2008 but never funded, and revenue from the carbon tax could have assisted 400,000 low-income working families. These two pieces made I-732 the state’s most progressive tax initiative since groceries were exempted from sales taxes in 1977. The remaining funds would have enabled the state to eliminate the business and occupation tax on manufacturing — a feature designed to win business support.

CTC researcher Matt Gordon visited Washington in June 2015 and met with ballot organizers there. He wrote a blog for us about Measure I-732 last July and another in August about backbiting against Measure I-732 by some veteran state environmental advocates. (The surprising opposition to I-732 was criticized by leading right-of-center economist Greg Mankiw in a New York Times opinion piece in early September, 2015, backing the measure.) Despite the opposition, Carbon Washington collected 360,000 petition signatures — over 100,000 more than the 246,000 required to put Measure I-732 on the November, 2016 ballot for a statewide up-or-down vote.

Keibun Mori, a former economist with the Washington State Energy Office, developed a carbon-tax spreadsheet model to predict revenue generation and CO2 reductions for the state from a carbon tax. Keibun’s model used an elasticity-based approach (as does CTC’s national carbon-tax model), and was used to estimate greenhouse-gas emission reductions for the Oregon study noted above.

The Carbon Washington website has clear and compelling information, arguments and graphics for Measure I-732, including lead organizer Yoram Bauman’s clarion defense of the measure’s provisions to ensure social and economic justice. Yoram’s New Year’s 2016 update was stirring and informative as well. Sign up with Carbon-WA to stay connected and donate.

Carbon tax organizing in Oregon

The Beaver State is the locus of the most detailed examination of a carbon tax for any U.S. state to date. Oregon’s legislature allocated $200,000 to study the effects of a state-wide carbon tax. The result was Carbon Tax and Shift: How to Make it Work for Oregon’s Economy, by economists at Portland State University’s Northwest Economic Research Center, and released in March 2013. The clearly written and gorgeously designed 36-page report examined a tax based on British Columbia’s carbon tax.

Like BC’s, the carbon tax examined for Oregon would be (largely) revenue-neutral: one scenario applied 70% of the tax revenues to cut corporate taxes, 20% to cut personal income taxes, and 10% to reinvest in industrial energy efficiency programs. The other scenario apportioned 50% of the revenues to cut corporate taxes, 25% to cut personal income taxes, and 25% for industrial and residential energy efficiency and transportation infrastructure.

Oregon carbon tax supporters at “Salmon at the Redd”

The Oregon tax, starting at $10/ton of CO2 and rising by $10 per year to $60/ton, or roughly twice the level of BC’s tax, would, by 2025, reduce the state’s greenhouse gas emissions by 12-13% below baseline projections and generate over $2 billion a year in revenue, according to the report. The carbon tax outlined in the study became the basis of HB 3252, a bill aimed at establishing a state-wide carbon tax. The grassroots movement to advance the tax was led by Oregon Climate, which spread awareness via canvassing, tabling and lobbying. Oregon Climate also sought to bridge art with climate advocacy, culminating in “Salmon at the Redd,” a community project in which residents created tiles for a mosaic illustrating what they loved about their state.

Unfortunately, the carbon tax campaign was effectively pre-empted by Senate Bill 1547, which in 2016 established a Renewable Portfolio Standard mandating that Oregon utilities ramp up wind and solar facilities to supplement the state’s considerable hydro-electric supplies. Oregon Climate has shifted its focus to a national effort to help other localities advocate for carbon pricing.

Carbon tax organizing in New York

New York should be a strong venue for pursuing a state carbon tax. In October 2012, Superstorm Sandy made a climate-change believer of Gov. Andrew Cuomo. who declared, “[C]limate change is a reality, extreme weather is a reality, it is a reality that we are vulnerable,” after the tidal surge from the storm inundated coastal communities and brought unprecedented devastation to hundreds of miles of shoreline. Moreover, not just coastal residents but upstate citizens politicized by fracking have rallied around the Jacobson-Delucchi “100% Wind, Water and Sunlight” global scenario for NY State, as Jacobson and co-authors propounded in their compelling journal article in Energy Policy.

Two Carbon Tax Center officers — director Charles Komanoff and board chair Alex Matthiessen — outlined the rationale for and distributional impacts of a potential $20/ton (of CO2) NY State carbon tax in a 2013 op-ed for the Huffington Post (cross-posted here). Our draft brief envisions applying the lion’s share of carbon tax revenues to reduce the statewide sales tax rate by a full percentage point — paralleling the sales tax cut in Carbon Washington’s Measure I-732, discussed above. “Leftover” revenues could help fortify the state’s infrastructure to withstand future storms and/or expedite and incentivize homeowners’ and business owners’ installation of photovoltaic electricity generating capacity. Comments on this concise (6-page) draft document are welcome

A NY State carbon tax bill with a more aggressive design was introduced in Sept. 2015 by two Democratic legislators, Assemblyman Kevin Cahill of Dutchess County and Sen. Kevin Parker of Brooklyn. Their bill, A8372 Cahil / S6037 Parker, starts taxing CO2 emissions from coal, oil, natural gas and biofuels at $35 per ton and increases the rate annually by $15/ton, to a ceiling of $185 per ton. The bill proposes returning 60% of revenues to low- and moderate-income households, with the remaining funds used to prepare for climate change, invest in renewable energy, and build transportation infrastructure.

Environmental advocates from around New York State including CTC director Charles Komanoff met at the SUNY New Paltz campus in September, 2015 to discuss climate campaigning and carbon tax organizing. One of the participants, New York League of Conservation Voters Member Andrew Ratzkin, previously outlined the case for a NY State carbon tax in this compelling op-ed in Crain’s New York Business, in July, 2015. In mid-2016 Ratzkin published a lengthy article in the Columbia Journal of Environmental Law, You Say You Want a REV Solution, critiquing the state’s “Reforming the Energy Vision” blueprint as inferior policy to a statewide carbon tax.

Carbon tax organizing in Massachusetts

Reports by the Massachusetts Department of Energy Resources and Regional Economic Model Inc concluded that S.1747 would slash emissions while boosting employment and overall economic activity.

Projected Emissions After Imposition of $5/ton Carbon Fee, rising $5/yr to $40 (Prepared for Massachusetts Department of Energy Resources)

Two other energy-related bills also include carbon pricing provisions:

Senator Marc Pacheco (D-Taunton)’s S.479, An Act relative to 2030 and 2040 emissions benchmarks, would authorize the state to “create, expand, or join market-based compliance mechanisms, including but not limited to greenhouse gas emissions trading and carbon pricing programs,” in order to achieve the greenhouse gas emissions reductions required by the Massachusetts Global Warming Solutions Act.
Solomon Goldstein-Rose (3^rd Hampshire)’s HD.1948, An Act relative to creating energy jobs, would establish a carbon-fee-and-rebate system similar to those in the Barrett and Benson bills as part of a larger initiative to make Massachusetts “the Silicon Valley of the new energy economy.”

Carbon tax organizing in Rhode Island

Detail from REMI study of a Rhode Island carbon tax.

Carbon tax organizing in Vermont

The conversation among policymakers in Vermont has begun to shift from whether the state should price carbon pollution to how, reports Tom Hughes of VPIRG, in Feb 2016.

Boulder (Colorado)

2015 Revenue distribution from Boulder’s carbon tax

Other States?

Please send us (info@carbontax.org) your reports, or even just ideas, on state-level carbon taxes, so we can post them here.

(coming soon: Utah, drawing on this link and that link)

Unicorn or Harbinger? A Republican Carbon Tax Is Readied for Debut.

July 17, 2018 By Charles Komanoff

“House Republican will introduce $23 climate fee next week.” That’s the headline of an article today in E&E News reporting that Rep. Carlos Curbelo, a two-term Republican representing Florida’s 26th Congressional District, is finalizing a bill that would impose a carbon-emissions fee on most U.S. fossil fuel-burning sectors and also eliminate or at least pause some federal regulations on climate change.

(Update: The Curbelo bill was introduced on July 23 as H.R. 6463, the Market Choice Act.)

E&E calls Curbelo’s pending bill “a rare effort by a Republican to address global temperature increases by reducing greenhouse gases.” That’s an understatement. To the best of our recollection, the bill would be the first carbon tax proposed by a sitting G.O.P. Congressmember or Senator in roughly a decade.

Any needle-moving from the Curbelo carbon tax would be in the political realm, not in direct emission cuts.

Politically, then, the appearance of Curbelo’s bill will be a big deal. In terms of straight-up carbon reductions, however, the bill is underwhelming. Our quick take from inputting the bill’s key elements into CTC’s carbon-tax spreadsheet model is that in 2020, U.S. CO2 emissions would be 22% below 2005 levels. To put that in perspective, actual U.S. emissions a year ago were 14% less than in 2005; thus, the 2020 bump from the Curbelo bill is at most 8 percentage points — less, actually, given the ongoing decarbonization of our electricity sector. (The Congressman’s draft fact sheet for the bill optimistically pegs the 2020 reduction at 24%.)

By 2032, the emissions drop from 2005 would reach 30% (per Curbelo) or 29% (per our modeling). But seeing as nearly half of that decrease was already in place without a carbon tax in 2017 — a year that is closer to the 2005 base year than to 2032 — the Curbelo proposal has to be seen as fairly thin on actual climate deliverables. Which is what one would expect from a carbon price that barely exceeds $20 per ton (the bill’s $23 starting price is per metric ton) and rises by only 2% a year above general inflation, although the bill contains a provision to ratchet up the increase if reductions fall short of specified targets.

Nevertheless, there’s a bigger picture to consider. Just yesterday we put up a post bemoaning the possibility that the anti-carbon-tax Scalise Resolution would pass, as it did in 2016, without a single Republican dissent. Now it looks like Rep. Curbelo is set to dissent in spades by shattering the decade-long G.O.P. prohibition against sponsoring or endorsing — let alone introducing — a carbon-tax bill.

If any D.C. Republican was going to take such a step, it was likely to be Carlos Curbelo. His 26th CD, extending from southwest Miami to the Everglades and covering the Florida peninsula’s entire southern tip, is a climate ground-zero twice over — sea-level rise plus hurricanes — and a classic swing district (it went blue by double-digits in the last two presidential races). A year after taking his seat in January 2015, Curbelo co-founded the bipartisan Climate Solutions Caucus with fellow Floridian Ted Deutch, a Democrat representing the 22nd CD. Whether by conscience or calculation or a combination of the two, Curbelo clearly read the handwriting and elected to break ranks with his party’s denialist orthodoxy.

The Curbelo bill itself is full of political calculation, which isn’t necessarily a bad thing. It would clear the books of the long-standing federal highway excise taxes — 18.4 cents per gallon of gasoline, 24.4 cents for diesel. The carbon tax, with its built-in annual increases, would more than make up the difference, though at the cost of a percentage point or two of economy-wide carbon reductions due to the diluting effect of the swap. The Highway Trust Fund would be a big net winner, receiving 70 percent of the entire revenue take. Whether that’s bad or good depends on whether the increased revenue is allocated to highway expansions or “fix-it-first” infrastructure repairs.

G.O.P. carbon-tax trailblazer Carlos Curbelo. Pic credit: Miami Herald.

The bill stands no chance of passage this year, of course, or in almost any imaginable Republican-controlled Congress. Indeed, under the G.O.P.’s Hastert Rule, Rep. Curbelo would need 117 Republican co-sponsors simply to clear the “majority of the majority” threshold and get the bill to the House floor.

If Rep. Curbelo were a Democrat, we would be measuring his bill against Democratic carbon-tax proposals such as Rep. John Larson’s America Wins Act (HR 4209), whose carbon price starts at $49/ton and which devotes $1 trillion to infrastructure (plus transition assistance for coal country and a relatively small “dividend” for households), and which has a few dozen Democratic co-sponsors. And while the Larson bill’s 2%-plus-inflation price increase trajectory has the same slope as Curbelo’s, it operates on a much higher base and thus packs more punch.

But that comparison runs the risk of missing the point: that a “long national nightmare” of Republican silence and inaction on climate may be starting to end. Whether other G.O.P. lawmakers will stand with Curbelo remains to be seen. He is at least blazing a path, and for that he deserves our thanks.

CTC supporter and volunteer Bob Narus contributed research and ideas to this post.

Carbon, Weed, and the Crisis of American Politics

March 22, 2018 By Daniel Lazare

America is anti-urban. This is not a feeling or a passing fancy but a fact. While the House adheres to the principle of one person-one vote, more or less, the Senate is a horror show of anti-democracy. Thanks to the principle of equal state representation, it gives the three percent of the population that live in the ten smallest states the same number of senators as the 54 percent that live in the ten largest. The Electoral College triples the clout of Wyoming, Vermont, and other under-populated states in presidential elections while Article V — the constitutional clause that says that two-thirds of each house plus three-fourths of the states must approve any amendment — allows thirteen states representing as little as 4.4 percent of the population to wield an absolute constitutional veto. In case you were wondering, this, in a nutshell, is why an eighteenth-century relic like the Second Amendment will never, ever go away.

But because the least populous states are the least urban for the most part, the result is a profound structural bias in favor of acres over people. And since American politics are also fragmented and de-ideologized, the effect is not only to short-change urban interests but to confuse and obscure them so that Americans no longer recognize what those interests really are.

Here are two examples of how US-style structural anti-urbanism plays out. One involves pot. The other involves carbon.

Although you wouldn’t know it, thanks to a near-century of Washington scare tactics, smokeable marijuana is one of the world’s most benign inebriants. As Lynn Zimmer, a sociologist at Queens College, and John P. Morgan, a professor of pharmacology at the City University of New York, showed twenty years ago in “Marijuana Myths, Marijuana Facts,” large-scale studies of users have “generally supported the idea that marijuana was a relatively safe drug — not totally free from potential harm, but unlikely to create serious harm for most individual users or society.” Contrary to anti-drug alarmists, pot does not harm reproduction or fetal development, it does not damage brain cells, and it does not cause “significant reduction in any pulmonary functions,” most likely because regular users consume at most three to five joints per day versus the ten to forty cigarettes consumed by a typical smoker. Marijuana also does not inexorably lead to an “amotivational syndrome,” which is to say stone-style listlessness, according to Zimmer and Morgan, and it is not a “gateway” to harder drugs either.

So legalization is an attractive alternative for all those seeking to make America a healthier, happier, and — dare we say it? — mellower place. But it is especially attractive from an urban point of view simply because depressed inner cities are where many of the drug war’s social costs are concentrated. Black users are nearly four times as likely to be arrested as whites according to the ACLU, while poor people in general are disproportionately penalized. In New York City’s twenty wealthiest neighborhoods (average family income: $75,000 per year), the arrest rate in 2014 for marijuana possession was just 39 per 100,000; in its twenty poorest (average family income: $34,000), the arrest rate was 498, nearly thirteen times greater.

Thus, support for marijuana legalization should be strongest among minorities and the poor and the politicians they elect. And it would be if America were more democratic. But given its present anti-urban structure — which, by the way, is worsening as the interior continues to lose ground to burgeoning coastal communities — strange anomalies appear.

One is in New Jersey, where Democratic Governor Phil Murphy was elected last fall on a pro-legalization platform. But since Murphy took office in January, replacing the disgraced Chris Christie, marijuana reform has run into a buzz saw of opposition. The resistance comes not only from skittish suburbanites, but, strikingly, from the state legislature’s black caucus. At a recent public hearing in hard-pressed Jersey City, opposition ran so high that a supporter described it as a case of “reefer madness.”

“It will devastate the African-American community,” a Newark religious leader proclaimed. “It will devastate any chance of our children having a future.” Added an ex-Newark public defender named David Evans: “Is legalization going to improve the spiritual health of the people of New Jersey? I don’t think so.”

NJ State Sen. Ronald L. Rice questions legal marijuana’s impact on Newark and other urban communities. AP Photo by Julio Cortez.

But it would improve spiritual health for the simple reason that nothing raises morale more than the knowledge that one will not spend years in prison for the crime of puffing on a harmless weed. Critics do have half a point in the sense that no social policy is cost-free and that inner cities are justified in assuming that they will once again be saddled with a disproportionate burden. As State Senator Ronald Rice, an ex-Marine and ex-Newark police detective who chairs the NJ legislative black caucus, told The New York Times: “[I]t’s being sold on the backs of black folk and brown people. It’s clear there is big, big money pushing special interests to sell this to our communities.”

All too true. But what critics evidently don’t realize — what an inequitable power structure prevents them from realizing — is that, all things considered, inner-city communities will still be better off if non-punitive policies are adopted and the individual is left alone to decide what substances to ingest and what not to. And that’s true even if marijuana reform is revenue-neutral, that is, if it simply legalizes sale and use without dedicating cannabis tax revenues to communities hollowed out by the drug war and mass incarceration. Even a half-good reform is better than nothing.

And now onto the second issue: carbon. The arguments in favor of carbon taxes are every bit as overwhelming as those in favor of marijuana legalization. They discourage carbon-dioxide emissions that are the prime cause of global warming, they encourage a switch from fossil fuels to sustainable energy sources, and, by de-incentivizing driving, they help thin out the chronic traffic congestion that paralyzes the country’s major metropolitan areas.

But what’s often overlooked is the effect not just on traffic or climate, but on America’s much-abused urban centers. To the degree carbon taxing discourages driving, it encourages a shift to mass transit, which, by its very nature, tends to feed into densely-populated cities. Moreover, mass transit doesn’t just funnel people into such nodes — it funnels economic activity and jobs. To the degree that taxing carbon encourages energy to be used more efficiently, it encourages a switch from cars and trucks to biking, walking, and rail, all of which are more compatible with high urban densities. By altering the incentives, taxing carbon emissions applies the brake to powerful centrifugal forces that have spun employment off into ever more distant exurbs, replacing them with centripetal forces returning them to the old urban cores and central business districtss.

Carbon taxes won’t do this all at once, needless to say, but they will at least start the process moving. This is good news for a lot of people, but especially for urban job seekers who can’t afford a car and can’t pursue job opportunities ever farther out in the suburbs because of racial barriers expressly designed to keep them away. Instead of their going to the jobs, the jobs will go to them.

Given all that, one would expect environmental progressives to clamor for ever more carbon taxes — the bigger the better. But anomalies arise yet again. When the state of Washington decided to submit a modest carbon tax to a referendum in 2016, “progressives” led by DC-based Food and Water Watch countered that the tax was regressive, that “people drive because they have to, not because they want to,” and that “[i]ncreasing gasoline prices only means that struggling families will have to cut back on other expenses to fill up their cars at the pump.” Opposition by such “social justice” groups was one reason that the tax, a US first, went down in defeat by a margin of nearly 3 to 2.

From searing words like these (from “Carbon Pricing: A Critical Perspective,” by the Indigenous Environmental Network and the Climate Justice Alliance), one wouldn’t know that carbon taxing can benefit frontline communities disproportionately.

Like critics of marijuana legalization, however, “progressives” had no more than half a point. Boosting gas prices will negatively affect the working poor, which is why any proper carbon tax should include mitigations in the form of reimbursement, which the Washington referendum provided in spades, or promises to invest revenues in job-creating infrastructure projects. But the idea that “people drive because they have to” is nonsense. Driving is not inelastic. As prices rise, motorists cut back on discretionary driving or search for alternate means of going from here to there. The job of progressives is to demand that government provide such means and that it use its economic power to mold development in a way that is more cost-effective for working people, more environmentally benign, and more economically productive. Progressives also need to stop rejecting widespread evidence that “internalizing” climate damage-costs into the prices of coal, oil and gas instills powerful incentives to move off of fossil fuels, even when government investment lags behind.

The present transportation system meanwhile works less well for more and more people. By 2016, the average American was spending a hundred hours more each year in a car than in 1980, the equivalent of two and a half work weeks. Rush-hour speeds are declining according to a study by Texas A&M University, meaning that commuters are spending more time going less far. By 2012, the average car on the road was more than a year older than in 2007 according to the Bureau of Labor Statistics, while the cost of repairs, upkeep, and replacements was up as well. The duration of an average car loan has risen thirteen percent since 2009 while delinquent loans since 2012 have nearly doubled. The typical motorist is stressed sitting in traffic and stressed when struggling each month to pay off his or her loan.

As bad as this is, conditions are even worse for those who can’t afford a car and must therefore spend hours a day traveling by bus to ever more distant work places and then make their way across dangerous highways when they get back home. People like this are stranded in a hostile, highway-bound wilderness, forced to fork over large amounts of cash for a taxi or Uber whenever they want to go to a supermarket, an emergency room, or church.

The system is no less dysfunctional than America’s endless drug wars. Yet an increasingly undemocratic and anti-urban structure not only prevents Americans from acting effectively to fix it, it prevents them from even thinking about how to address a growing list of problems in a constructive way. Politics have broken down, trench warfare has engulfed Capitol Hill, and the showdown between the intelligence community and the White House grows ever more ominous. Is this how the captain of the Titanic felt when he suddenly noticed a mountain of ice looming before him?

Daniel Lazare, author of “The Frozen Republic: How The Constitution Is Paralyzing Democracy” and “America’s Undeclared War: What’s Killing Our Cities and How We Can Stop It,” among other books, is an occasional contributor to the Carbon Tax Center blog.

The Carbon Tax Center Last Year . . . and in 2018

January 16, 2018 By Charles Komanoff

Everyone’s 2017 was eventful . . . and disruptive . . . and difficult.

From January into April, we, like many of you, marched and protested while trying to see a way forward for carbon taxes under a denialist U.S. regime.

We didn’t write this headline, but we agreed with it. The Left’s opposition to the WA carbon tax was a grievous mistake.

We spoke at gatherings across New York City. We published an article in The Nation magazine decrying left-green dogmatism that doomed the campaign in Washington state to enact the USA’s first carbon tax. We allied ourselves with the Climate Leadership Council’s audacious Republican-branded carbon tax proposal. We published a 120-page guide to state carbon tax prospects compiled by Yoram Bauman, the economist-activist who spearheaded the Washington referendum.

By then we were 100 days into a new administration whose cruelty and heedlessness were sickening. At a climate march in New Jersey, we called the complicit U.S. Republican Party “a racket to restore patriarchy, extractionism and white supremacy.” This truth grew even sharper a month later when Congressional Republicans cheered Trump’s repudiation of the Paris Climate Agreement.

Outputs from CTC’s carbon-tax model: download and use!

We kept working. We retooled CTC’s carbon tax spreadsheet model, incorporating the latest data, snazzing up the user interface and graphics, and for the first time apportioning refinery emissions among their “downstream” sectors — driving, freight and air travel (jet fuel). With this change and the ongoing shrinkage in coal-fired power generation, driving is gaining on electricity for the dubious distinction of most climate-damaging U.S. sector.

Meanwhile, a campaign for congestion pricing in New York City — fees charged to vehicles driven into and within gridlocked city centers — was gathering steam amid meltdowns in the city’s mass transit system, worsening traffic gridlock, and a void of political leadership. When Gotham’s SUV- and helicopter-riding mayor crowned himself leader of state-and-local-government resistance to the White House, we upbraided him on live radio, setting off a media frenzy that continues today.

Our radio call-in touched off a roiling debate about the gap between public postures and personal acts.

But our criticism went beyond tabloid fodder; it pointed to the persistent gap between public postures and personal acts — a breach that carbon taxes could help repair.

Our pivot from national carbon tax campaigning accelerated in August, after Gov. Andrew Cuomo unexpectedly announced his support for congestion pricing. Shortly after, the analytics team advising the governor reached out to me: Would I help them deploy my monster congestion pricing model to score different congestion pricing plans?

Of course I said yes and plunged into massive updating and retooling of the model, which continues as I write this post. Details of the governor’s proposal are expected in a few days and the public debate and legislative donnybrook will almost certainly extend for several months. The fight is important, not just for the sustainability of New York and other global cities, as I argued last week on Streetsblog, but to finally establish in the USA the principle at the heart of carbon taxing: that the most surefire and equitable way to reduce pollution is to make polluters pay for it. [Addendum: The details can be found in my January Streetsblog post, The Fix NYC Congestion Pricing Plan Looks Solid — If Cuomo Aims High, which includes a link to the governor’s panel’s report.]

CTC’s program for 2018

At the national level, the main event by far for carbon taxing this year is to bring an end to Republican climate denialism. This could mean routing the GOP in the midterms, or some other path to repudiating the party’s nearly monolithic rejection of science-based climate policy and its all-out embrace of fossil fuels. It may also require, in the states, dismantling the gerrymandering that, combined with Democrats’ “clustering” in urban precincts, entrenches Republicans’ control of Congress far beyond their share of Americans’ votes.

I’m sorry to say that the notion of a bipartisan federal carbon tax is barely on life-support, as we wrote here last week, decrying the passivity of the Climate Solutions Caucus — the Noah’s Ark-like conclave that we formerly touted as a possible incubator for a revenue-neutral carbon tax. Nevertheless, CTC will continue our technical support and policy advice to members of Citizens Climate Lobby and to the Climate Leadership Council. But we harbor no illusions that current Republican officeholders will provide political leadership or even partnership for meaningful carbon pricing legislation.

Excerpt from “Results” section of our “BTA” spreadsheet model. A key goal for early 2018: A congestion pricing win for NYC that establishes the “polluter pays” principle in the USA.

There’s a corollary: it may be time to rethink revenue-neutral carbon taxes. As much as we love carbon fee-and-dividend, with its powerful logic of linking rising carbon taxes to rising “green checks,” the revulsion against Trump and the G.O.P. could make it harder to sell progressives on programs with a seemingly middle-of-the-road cast. We also can’t dismiss arguments by Frank Ackerman and others that the “fat tail” of climate worst-cases demands national mobilization on a scale that only government action can generate.

Along with political action and some soul-searching, CTC is primed this year to

Monitor and parse actual carbon emission reductions in states, sectors and countries with carbon pricing, including the 9 RGGI states;
Assess and fact-check claims of economies decarbonizing without carbon pricing;
Expand our networking with state and national carbon tax advocates in the U.S. and overseas;
Seek common ground on carbon taxing with environmental and climate justice advocates;
Explore alliances with progressives working to meld carbon pricing with “mobilization” strategies;
Seek out Republicans-conservatives who have genuine interest in non-token carbon taxes;
Gain a better understanding of the possibilities and limits in fossil fuel divestment and litigation campaigns;
Continue improving and disseminating our carbon tax spreadsheet model;
Restock CTC’s Web site;
Keep writing op-eds and magazine pieces promoting carbon taxes;
Use our blog to post commentary on unfolding political developments, policy proposals and energy trends.

As we head into the new year, we thank you for your past support and your partnership. Contributions to support our work in 2108 (please use this link) will, as always, play a valuable role in keeping CTC edgy, timely and forward-focused.

Why I Called Out My “Green” Mayor’s SUV Habit

June 8, 2017 By Charles Komanoff

I set off a media firestorm in New York City last week.

It was Friday morning, the day after Trump repudiated the Paris Climate Agreement, and Mayor Bill de Blasio was using his weekly “ask the mayor” turn on the popular Brian Lehrer radio show (NPR) to tell New Yorkers “We’re going to step up our game” to address climate change. I called in and the screener put me through as “Charles from Manhattan.” Here’s what I said:

Mayor de Blasio, you spoke eloquently a moment ago about stepping up our game in light of Trump’s withdrawal from Paris. How about you stepping up your game, leading by example, getting out of your SUV armada, and if you need to go to the Park Slope “Y” five days a week, rather than a gym near you, why don’t you take mass transit? Or even once in awhile ride a bike, like the vast majority of your fellow New Yorkers, so you will know how we are suffering under a transit system — yes governed by the governor, not by the mayor — but you need to lead by example.

My on-air scolding of NYC Mayor Bill de Blasio last week set off a media firestorm. But his SUV habit reveals deeper failings.

I finished with this:

One of the reasons we are in this climate crisis is because the average person sees elites not playing by the rules that elites seek to impose on everyone else. And you’re not going to be able to lead when you’re sitting in your SUV being chauffeured every day, twelve miles from Gracie Mansion to Park Slope just so that you can ride an exercise bike.

Then it was Mayor de Blasio’s turn. He defended his climate record and called my criticism “cheap symbolism,” as reported by Politico (abridged slightly here):

Charles, I understand the emotional appeal of what you’re saying but I’m just not going to take the bait, my friend.

I have instructed folks in my government to turn our fleet into electric cars. We are moving to renewables, we are retrofitting our buildings, that’s the real leadership — it’s not whether I go to the gym.

Whether I go to the gym does not affect the policies that affect millions of people. I’m going to keep going to the gym. I’m proud to say we have a hybrid. It’s a good car, it’s very fuel efficient. I use the subway when it makes sense to use the subway, and I do stay in touch with what people are going through and I knew it for years and years, because for many years I never had any car.

So it’s easy for you to say that, but it doesn’t really have anything to do with how we change the world. We change the world with policies that affect people and the policies of this city are going to lead to addressing climate change in a much more aggressive way than it’s ever been addressed in the history of New York City.

But again, the issue is not cheap symbolism here. The issue is, are we gonna take action. That’s really the motherlode of addressing emissions in this city. It comes from buildings. We’re going to be very very aggressive about that.

That was that, or so I thought. What I soon learned was that the City Hall media bullpen was going nuts. One of the reporters put my voice together with my first name, and the papers started calling for quotes. By nightfall, their stories were up, with front-page headlines in the Daily News and the NY Post branding the mayor a “green hypocrite” and even the staid New York Times putting my exchange with the mayor at the top of its Metro section.

I told The Times that collapsing transit was “the fundamental climate issue and the fundamental sustainability issue for the city and state.” (Link is above pic.)

I was able to go deeper in those interviews. My most-teachable moment came on Saturday. The NY Post was doing a follow-up and I said that transit riders “need a voice and we don’t have one,” when neither the mayor nor the governor rides a subway or bus.

There are levels galore, here. Let’s unpack them.

First, when we quantify the direct carbon consequence from the mayor’s mini-fleet of SUV’s from home to gym, we see it’s really small: just 24 pounds of CO2 per trip, which monetizes to a mere half-a-dollar’s worth of climate damage.

(Burning one gallon of gasoline releases 19.57 lb of CO2, we’ll call it 20 lb. Let’s assume two SUV’s, each averaging 20 mpg, though actual mileage is probably less. They’re going 12 miles, so we get 2 (vehicles) x 20 lb/gal x 1/20 gal/mile x 12 miles, which yields 24 pounds of CO2. In 2015 Pres. Obama directed federal agencies to use a “social cost of carbon” of $37 per ton of CO2, in 2007 dollars; that equates to $44/ton in 2017 dollars, which is just 2.2 cents per lb of CO2. So the mayor’s 24 lb per trip is imposing a direct climate cost of 53 cents (24 lb x 2.2 cents/lb).)

It’s true that the official U.S. cost of carbon (since rescinded by Trump) is a low-balled estimate, but even quadrupling it raises the direct climate cost of the mayor’s tailpipe CO2 to just two bucks — befitting the fact that global CO2 is the end-product of billions of actions that are individually insignificant but collectively fraught.

A second level of costs arises from the spatial impacts from driving in a dense city. These are experienced most acutely as traffic congestion and its attendant time cost. And here I mean not mayoral time lost to traffic (since de Blasio gets to read and talk by phone while being ferried to the gym) but the time his auto trip effectively takes from others on the roads, by virtue of occupying space and slowing them down.

As long-time subscribers to this blog may know, I’ve done a lot of analysis of traffic congestion costs in New York City, even to the point of quantifying the time costs from a single additional trip in or near the city’s Manhattan core. This analysis is embedded in the kaleidoscopic spreadsheet I maintain to model “congestion pricing” for New York (download here, Excel required; go to Delays and Delay-Costs tabs) but more conveniently summarized in Time Thieves, an article I wrote a half-dozen years ago with then-Princeton student Will Fisher.

The takeaway for our purposes is that a single mile driven by just one vehicle during ordinary congested conditions in or near Manhattan slows down other vehicles by a combined 8 or 9 minutes (think of it as hundreds of vehicles delayed by a few seconds each). Factoring that by the 24 miles in the mayor’s ride to the gym (12 miles by 2 vehicles), the cars, trucks, cabs and buses in the mayor’s “traffic field” are absorbing an aggregate slowdown of 3 to 4 hours. By any reasonable estimate of the average value of time of those vehicle users, the aggregate cost of the time taken from them by each mayoral ride from his residence to his gym is easily in excess of a hundred dollars.

I told fellow New Yorkers via the NY Post that vulnerable mass transit undermines our city’s sustainability.

That’s two orders of magnitude greater than the direct carbon cost per trip — indicative of the fact that traffic congestion manifests as an inefficiency problem far more than as a climate problem, at least directly. It also demonstrates that the mayor’s (or any other New York car user’s) promise to switch to an electric vehicles won’t put a dent in the societal costs of driving in a congested metropolis.

Yet even those several hours of extra congestion dissolve into insignificance in a city of 8.5 million people and 2 million registered vehicles. The crux of the matter — which I tried to telegraph in my radio remarks but didn’t really nail until that second NY Post interview the next day — is found in this syllogism:

New York City is inherently green by virtue of its urban density. This idea was most lucidly distilled by the writer David Owen in his 2009 book, Green Metropolis. Density both facilitates and enforces shorter trips, non-automobile travel, and compact and contiguous living and working spaces, all of which translate directly into smaller carbon footprints.
What makes this density possible is our mass transit (subway) system. But it is deterioriating from insufficient investment in equipment and maintenance. (The local press corps is all over this; see for example these vivid stories last month by The Times’ Emma Fitzsimmons, 1 and 2.)
Politicians are ignoring this crisis. Neither NY State Gov. Andrew Cuomo, who controls the state-chartered Metropolitan Transportation Authority, nor Mayor de Blasio, who has a voice in running the MTA along with a bully pulpit to call out problems and demand solutions, has stepped up to take responsibility. Neither of them ever rides a subway or bus, except in a photo-op.

It’s safe to say that Mayor de Blasio isn’t steeped in this logical chain connecting density, transit and leadership. For evidence, look no further than the end of his radio rejoinder to my harangue, in which he called the city’s building stock the “motherlode” of emissions and, thus, his climate focus. While it’s true that heating and powering the city’s offices and apartments generates a good deal more CO2 than fueling our cars and trucks, that’s because extensive and efficient mass transit keeps down automobile use. Take that away — as the governor and mayor are effectively doing by turning their backs as the subways fall apart — and transportation emissions will surely rise.

But the stakes are higher still. Low-CO2 NYC can’t grow or even maintain its current population without reliable and humane transit. Businesses and families won’t suffer a city dependent on undependable transit and will locate in less inherently-green cities or suburbs instead. And while in theory leaders could care enough about transit to make it work even if they never stepped onto a train or bus, ours have shown no inclination to do so in their combined decade in office (6.5 for Gov. Cuomo, 3.5 for Mayor de Blasio).

Maybe the only way the situation gets turned around is if each of them is stuck on a jammed, sweltering, subway … or is forced to wait on a packed platform as the minutes tick and the tension mounts. And not just once, but again and again.

That, in a nutshell, is why I called up and berated the mayor. As I told The Times, I’d been pondering it for weeks. The combination of Trump’s craven Paris announcement and the mayor’s wrapping himself in the mantle of climate savior gave me an opening and also pushed me over the edge.

I’ll close with a bit of irony inspired by Nicole Gelinas, the trenchant urban affairs analyst at the Manhattan Institute and New York Post columnist. In her Monday column, Bill de Blasio is a climate change hypocrite, she noted:

People will use less carbon — eventually — not because they’re nice, but because it will be more expensive. The world’s governments could achieve this effect more quickly through a carbon tax. Why not get it over with now? Because it’s too hard, politically and practically, to change people’s behavior by making them pay the full purported cost of carbon — that is, asking you to pay for next decade’s hurricane with your gas purchase today. (emphasis added)

Yes and no. Enacting a carbon tax is hard, but not necessarily impossible. But in this case, as we’ve seen, even a stiff carbon tax wouldn’t impel de Blasio to switch to subway from SUV; and that’s probably true even if he were paying for the ride from his own pocket.

What’s needed are new social norms that will make my radio complaint so ordinary that it’s not news; and unnecessary besides, because the idea of being chauffeured 12 miles to a gym would be nearly extinct. That is where a carbon tax would help.

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

March 13, 2017 By Charles Komanoff

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A Way Forward for Carbon Taxes

February 14, 2017 By Charles Komanoff

Here we cross-post my article published in The Nation magazine this morning, under the headline, Progressives Need to Get Over Themselves and Support This GOP-Backed Carbon-Tax Plan. Except for a few extra links below, the two versions are the same.

To stay up to date on carbon tax policy, politics and economics, join our email list, click here.

— Charles

Carbon tax haters can relax. The proposal for a national carbon tax released on February 8 by high-level Republicans, including uber-GOP consigliere James Baker, isn’t going anywhere. Financially and ideologically, the American right is wedded to carbon fuels. Trumpism runs on and reeks of them. Predictably, not a single Republican in Congress, and no one in the White House, has uttered a single positive word about the new carbon tax plan.

Nevertheless, the proposal’s intended audience may not be Beltway Republicans, but rather those ordinary Americans, majorities in both parties, who say they want action on climate, and who therefore might yet figure in the political equation over climate policy. That group includes progressives. We should pay attention: Carbon taxes matter.

nation-meme-1 Our long-building climate crisis is already materializing as drowned coasts, punishing droughts, vanishing glaciers—and political upheaval. At its root is a century-old lie: market prices for gasoline and other fossil fuels that do not factor in the damage from burning them.

A clean energy revolution is at last underway, with wind power, solar electricity, and energy efficiency becoming not only cheaper by the day, but easier to deploy. Still, the clean energy transition will be slowed until prices of coal, oil, and gas reflect their true environmental costs. A carbon tax could do that, if designed properly.

How carbon taxes work is simple enough, at least in theory. Fuel use is infinitely varied and intricately woven into society in ways that regulations such as auto mileage standards can’t fully reach. Clear price signals, on the other hand, can be a nearly magic wand to help billions of invisible hands rapidly reduce and replace fossil fuels.

But with a carbon tax come difficult choices about the vast revenue it will generate. Carbon taxing had a test run at the ballot box last November in the state of Washington, and it ended badly.

On November 8, voters in the Evergreen State rejected by a nearly 3-to-2 margin what would have been the nation’s first statewide carbon tax. A win for “Initiative 732” would have given the United States a carbon tax beachhead, like Canada’s British Columbia, which has had a small but successful carbon tax since 2008.

Remarkably, the decisive factor in defeating I-732 may not have been money from big carbon or even popular aversion to higher taxes, since the initiative was tailored to keep Washingtonians’ tax burden unchanged. What doomed I-732 was a fissure within the climate movement, with centrist economists and other policy wonks in favor of the initiative and progressive greens opposed.

Stated briefly, climate activists in Washington split over opposing answers to two key questions: What are carbon taxes for, and who gets to design them?

Carbon taxes can cut emissions in two ways. As noted above, they raise the price of carbon fuels, thereby worsening their competitive position vis-à-vis cleaner fuels. In addition, the tax revenues raised by a carbon tax can be invested in clean energy infrastructure such as public transit and community solar.

The first path—the “price pull” of boosting market prices of carbon fuels—is what dazzles economists. The second route—the “revenue push” of investing in green infrastructure—appeals to many ordinary folks, especially on the left. Some progressives actively distrust policies that lean hard on price signals, partly for fear that workers in dirty industries will be penalized as investment migrates to cleaner alternatives.

For decades, reactionary forces in the US have been able to block seemingly every new public endeavor by labeling it tax-and-spend. The Washington state carbon tax proponents believed they had an antidote: don’t allow the government to spend the revenues from the carbon tax; rather, use those revenues to reduce other taxes. The political assumption seemed to be that going “revenue-neutral,” though it might frustrate the left—bye-bye public investment—could placate the right or at least capture the center. And so Carbon WA, as the advocates of I-732 called themselves, fashioned its ballot initiative around cuts to the state’s regressive sales tax.

Progressive greens recoiled. The Alliance for Jobs and Clean Energy, a state umbrella group of environmental justice organizations and mainstream allies, blasted I-732 for starving green jobs and ignoring frontline communities. So did nationally prominent progressive leaders like Naomi Klein and Van Jones. The measure’s electoral chances, which were never good, could not withstand this split. On election day, as Hillary Clinton was besting Trump in Washington state by half-a-million votes, the carbon tax was rejected, 59 percent to 41 percent.

But progressives can’t just walk away from carbon taxes. Carbon taxes are the only policy tool that, by slashing demand in a rapid, predictable way, divests our economy from fossil fuels and enables governments, business and consumers to make investments in the transition to clean energy. Carbon taxes also have the best chance of catching fire globally.

The carbon tax James Baker brought to the Trump White House on February 8 on behalf of the new Climate Leadership Council has a lot in common with I-732: the Council’s proposal is also avowedly revenue-neutral. But rather than lowering an existing tax, it relies on a so-called tax-and-dividend model: as the state of Alaska does with oil revenues, revenues from the Council’s national carbon tax would be returned equally to all American households in quarterly “dividends” digitally deposited in Social Security accounts. The tax would start at $40 per ton of carbon dioxide.

Earmarking all of the revenue to these dividends creates the political will to raise the tax every year, since the dividends rise in tandem with the tax rate. Ramping up the tax by $5 a year would shrink the use of carbon fuels so drastically that, by my calculations, US carbon emissions in 2030 would be 40 percent less than they were in 2005 (a standard baseline year).

Yet this progress comes with a catch. The Council would phase out much of the Environmental Protection Agency’s regulatory authority over greenhouse gases and would outright repeal President Obama’s Clean Power Plan to cut emissions from electricity generation. It would also immunize fossil fuel companies from lawsuits for damages done by their products—lawsuits such as those bound to arise from the revelations that ExxonMobil and other companies knew for decades about the climate damages their products cause, and lied about it.

nation-meme-2 But government policy revolves around trade-offs, and on balance the Council’s carbon tax is worth supporting. After all, well over 80 percent of the Clean Power Plan’s targeted reductions for 2030 were already achieved by the end of 2016. Thus trading away the Clean Power Plan for a tax that could scour fossil fuels from the entire economy is like swapping an aging ballplayer for the next superstar.

Of course, not everyone will see it that way, particularly traditional green groups that helped write the laws and regulations that cleaned up the nation’s air and water. Some will regard the Council’s trade as a ploy to undo the EPA’s authority to protect not just climate—where it may be largely ineffectual anyway—but public health.

With Republicans tightly lashed to climate denial, the value of Baker’s carbon tax proposal may be less as a gateway to legislation and more as a spur for progressives and other citizens to take a clear look at carbon pricing.

Will progressives trust the verdict of economists that a revenue-neutral carbon tax can drive the energy transition so long as the tax level is high enough? Or do we support carbon taxes only if the revenues are invested in the clean energy transition? If so, how do we craft a spending program that reconciles the claims of competing interests? And what is our blueprint for building political power to enact such a carbon tax, when “tax” remains a dirty word in national politics?

Clear majorities of Americans want climate action. Remarkably, some polls have even found that majorities of Americans support carbon taxes like the Climate Leadership Council’s proposal. With the Democrats’ national defeats last November, the failure of climate activists to unite on the Washington state referendum is looking like an unforced error of cruel proportions. We can’t afford to repeat that mistake at the national level.

Energy-Efficiency Standards

Since the 1970s, energy-efficiency regulations (generally called “standards”) on appliances, vehicles and buildings have helped save large amounts of electricity and fuel in the United States, largely by forcing product design changes that would not have come about from “market forces” alone.

But energy standards by themselves will never achieve the deep cuts in energy usage needed for the clean-energy transition. Standard-setting takes a long time and invariably involves compromises with powerful industries (automobiles, consumer durables) that lead to confusing and wasteful loopholes. Moreover, standards by nature can handle only one product or usage-sector at a time and tend to be static whereas energy use is ever-evolving, especially in dynamic and “disruptive” late capitalism. In addition, standards provide no incentive for users (drivers, households) to change their behavioral patterns to maximize energy savings.

Carbon taxes combined with efficiency standards will achieve far more than standards alone by encouraging manufacturers and builders to proactively maximize energy efficiency while giving consumers ongoing incentives to make cost-effective choices valuing efficiency in shopping, traveling and purchase of homes and other durables.

We made many of these points in a blog post in September 2015, What an Energy-Efficiency Hero Gets Wrong about Carbon Taxes, from September, 2015. It was one of our most popular posts, and we reproduce it directly below. We hope to add content soon about the limits of automobile mpg standards.

— Charles Komanoff, November 2015

What an Energy-Efficiency Hero Gets Wrong about Carbon Taxes (from Sept 2015)

It’s rare that critiques of carbon taxing are as quantitative as the post last month by David Goldstein on the Natural Resource Defense Council’s Searchlight blog.

Goldstein qualifies as a genuine energy-efficiency hero, in my book. He has spearheaded NRDC’s pioneering analyses of appliance engineering, manufacture and marketing since the 1970s and guided the council’s strategic interventions in utility governance and energy standard-setting in California and at the federal level. This in-the-trenches work has slashed power consumption and carbon emissions from refrigerators, air conditioners, light bulbs and building envelopes in all 50 states. Goldstein’s 2002 MacArthur Foundation “genius award” was richly deserved. (The Washington DC-based American Council for an Energy-Efficient Economy, ACEEE, merits a shout-out as well.)

Befitting his analytical bent, Goldstein’s critique sticks to the high road. No self-fulfilling taunts about carbon taxers’ naivete or the tax’s political infeasibility. His post does drag out a straw man, though, insisting up-front that “carbon emissions fees alone cannot solve the climate problem” — a position held by few carbon tax advocates. (We ourselves “recommend carbon taxes in addition to energy–efficiency standards.”) His criticism sharpens at the end: “In summary, carbon pollution fees, as a stand-alone policy, are incapable of doing much to solve the climate problem.”

Goldstein has certainly thrown down the gauntlet. He has four main arguments, which I’ll treat in order. Some math is involved, but it’s central to the issue.

Argument #1: Carbon Taxes Must Raise U.S. Energy Prices 44-Fold to Meet Our Carbon Targets

Let’s start with an assertion by Goldstein that is startling but accurate — mathematically:

If we wanted energy demand to drop by 85 percent [the minimum required for the U.S. to meet IPCC temperature-rise targets] due to price, the math behind elasticities shows that we would require a price increase of 44 times. This is an impossibility condition. (emphasis added)

Price-elasticity is how economists denote the extent to which a rise in price causes demand or usage of a good or service to diminish. Assuming, as Goldstein does for argument’s sake (and as we do in modeling carbon taxes), that the price-elasticities of the various forms in which energy is used in the U.S. have an average value of minus 0.5, then a doubling of energy prices, whether effected through a carbon tax or market fluctuations, will cause energy use over time to shrink by 29 percent. (See sidebar for calculations.) With two doublings in price, the shrinkage would be 50 percent.

Elasticity math. You can do it.

Note that the second doubling in price produces less of a decrease in usage than the first, reflecting the famed Law of Diminishing Returns. Indeed, three doublings, increasing the price 8-fold, would only bring about an overall 65 percent drop in usage. To hit the 85 percent reduction target requires a 44-fold energy-price rise. Goldstein’s math is spot-on.

But not the use to which it is put. While an 85 percent reduction in energy use would indeed cure the United States’ carbon obligations (not to mention protect and conserve air, water and land), it far exceeds what’s required, thanks to the ongoing and parallel reduction in the carbon intensity of energy supply. This decarbonization of supply is prominent in energy and climate discourse, and has been evident in the electricity sector over the past decade. Measured as pounds of CO2 emitted per kWh generated, the emission rate for all electricity generated in the U.S. last year was 16 percent less than the rate in 2005. For that we can thank increased generation from lower-carbon natural gas and zero-carbon wind. (Solar electric generation, though growing very fast, started from a tiny base and wasn’t a notable factor in the decarbonization to date.) Energy efficiency has helped as well by reducing the need to fire up high-carbon coal plants.

A carbon emissions tax, which by its nature favors wind and solar over gas, and gas over coal, will help sustain and accelerate this encouraging supply-side trend. Indeed, the price-sensitivities built into CTC’s spreadsheet model imply that energy supply decarbonization will account for an estimated 53 percent of the overall projected CO2 reductions from any carbon tax. This means that reductions in emissions via demand, i.e., conservation and/or efficiency, that are Goldstein’s stock-in-trade need only accomplish a bit under half (47 percent) of the total task.

The relevant math, then, is this: Thanks to supply decarbonization, the U.S. can limit its reduction in energy usage to 59 percent and still achieve the 85 percent CO2 reduction target. While a roughly 60 percent reduction in energy consumption is still a tall order, it’s far less fantastical than 85 percent. Assuming energy price-elasticities average minus 0.5, that 60 percent reduction in usage could be effected with a “mere” 6-fold rise in energy prices. No 44-fold rise required. (See calculations at end of this post.)

Argument #2: A Carbon Tax High Enough to Be Effective Would Distort the U.S. Economy

To his credit, Goldstein appears to have anticipated my rebuttal above. He posits a 5-fold increase in energy prices, slightly on the easy side of my 6-fold rise, which he then dismisses on three grounds. Each is problematic, however:

1. “Energy would be pushing a fourth of GDP” (vs. today’s share of ten percent or less), says Goldstein, and, thus, would gobble up too much economic activity. The idea of expensive energy colonizing the economy is definitely a concern in a last-gasp laissez-faire economy in which the costly energy arises through “extreme extraction” of oil from the Arctic, deep waters, and tar sands. But a carbon tax would have the opposite effect, obviating most energy exploration, extraction, conversion, transport and combustion, in accordance with the 60 percent decline in usage posited above. In short, a carbon tax will make our society and economy less energy- and fuel-intensive, not more (while the energy barons, with their wealth clipped, will wield less political power).

2. A 5- or 6-fold increase in energy prices “is not politically possible. Electricity at 50 cents a kilowatt hour?,” Goldstein asks rhetorically. “Gas at $12 a gallon?” Here, Goldstein presumes that a carbon tax would lead to those lofty prices overnight, rather than phasing in over decades. In the latter scenario, the impacts will be softened, yet the price signals guiding long-term investments will be loud and clear. The impacts will be tempered further as the improved efficiency of usage lets businesses and households heat, cool, light and move with fewer units of energy. (Ironically, it was Goldstein and his NRDC colleagues who coined the mantra that what matters is electricity bills and not rates. Note also that CTC is on record criticizing proposed carbon taxes that would start with abrupt energy price rises, on account of the likelihood of economic dislocation.)

3. The carbon tax required to boost energy prices 5- or 6-fold “would be potentially devastating to the poor,” Goldstein argues. Potentially yes, if the wealthy are allowed to siphon off the carbon tax revenues that could buffer U.S. households from the higher energy prices. But the carbon tax designs with the most adherents are those that either use the proceeds to reduce regressive job-killing payroll taxes or distribute them pro rata to households as “fee-and-dividends.” In fact, the need for a socially and economically just distribution of carbon tax revenues only underscores the urgency for environmental progressives to coalesce now behind carbon tax legislation that can safeguard the 90 percent rather than solidifying the advantages held by the top 10 or 1 percent.

Argument #3: Energy Demand is Price-Inelastic, So a Carbon Tax Won’t Affect It

Goldstein next revisits energy price-elasticity in an attempt to show that its actual value lies closer to a barely behavior-influencing (minus) 0.1 than the more robust (minus) 0.5 figure he granted earlier for argument’s sake. But curiously, he builds his case on a commodity that no end-user actually purchases: crude oil. Refineries consume crude, of course, but the businesses and households whose decisions determine aggregate demand consume petroleum products: The fuels whose price-elasticities need to be estimated empirically are gasoline, diesel fuel and jet fuel ― not crude oil.

Over the years there’s been no dearth of claims by representatives of Big Green groups that changes in the price of gasoline elicit little change in usage. Most of these claims are either mere assertions or rest on cursory and selective glances at the data. Perhaps this year’s surge in gasoline sales will finally put that notion to rest: U.S. gasoline sales in the first half of 2015 were 3 percent above 2014 sales — the biggest year-on-year increase in gasoline demand since the late 1970s (subject to the caveat that the comparison covers only six months in each year). The driving force behind this surge isn’t economic activity, since GDP for the first half of 2015 grew only at a middling rate of 2.8 percent; the reason is free-falling pump prices. (NB: The original version of this post had first-half 2015 sales growth at 3.3% over 2014; that figure has been changed to 3.0%, with revised data. The assertion that this is the biggest increase since the late seventies remains valid.)

In any event, the way to estimate gasoline’s (or other fuels’) price-elasticity is with multivariate regression analysis. Here’s a summary of the estimation I performed for gasoline for CTC’s carbon-tax spreadsheet:

Using an approach suggested by retired energy economist Vince Taylor, who earned his PhD at M.I.T. from Nobel laureate Robert Solow in the 1960s, and whose insights animated my 1981 magnum opus on nuclear power cost escalation, I “regressed” the annual percentage changes in U.S. gasoline consumption from 1960 through 2014 on three independent variables: (i) the same year’s percentage change in economic activity (GDP); (ii) the same year’s percentage change in the average real retail price of gasoline; and (iii) the average percentage change in that price over the 10 years prior to the current year. The third variable was intended to reflect lags inherent in Americans’ responses to changing gasoline prices, insofar as automobile purchases and location choices that affect usage tend to change over years rather than weeks or months. The parameters may be referred to as income-elasticity, immediate price-elasticity, and lagged price-elasticity, respectively.

Two “models” best fitted the data, both statistically and conceptually. (All variables were statistically significant.)

One model yielded an income-elasticity of 0.47; an immediate price-elasticity of (minus) 0.12; and a lagged price-elasticity of (minus) 0.21. The sum of the immediate and lagged price-elasticities was (minus) 0.34.
The other model added a “dummy” variable to adjust for an arguably atypical six-year period covering 2002-2007. This variable was premised on the unusually high discounts/rebates offered for SUV’s during that period, as well as America’s post-9/11 paranoia and Iraq War-inspired triumphalism that may have contributed further to higher purchases and use of SUV’s. (SUV’s average more gas per mile than sedans, of course.) The regression results were, respectively: +0.46, -0.13, -0.24, and +1.4%, indicating an income-elasticity of 0.46; an immediate price-elasticity of (minus) 0.13; and a lagged price-elasticity of (minus) 0.24. The sum of the immediate and lagged price-elasticities was (minus) 0.37. (We ignored the dummy variable as transitory; its inclusion in the model was to filter out influences that could distort the elasticity estimates. May 2016 addendum: we repeated both regressions with 2015 data added. The only change was a slightly reduced income-elasticity in the three-variable model in the prior bullet, to 0.46, from 0.47.)
From the two sets of regressions, we rough-averaged the respective price-elasticity sums of (minus) 0.34 and (minus) 0.37. The result, a figure of (minus) 0.35, is the price-elasticity we use in our spreadsheet model to estimate the long-term responsiveness of gasoline demand to a carbon tax.

In the CTC carbon-tax model we specify higher price-elasticities for other energy-use sectors: (minus) 0.5 for diesel fuel, (minus) 0.6 for jet fuel, and (minus) 0.7 for electricity. We premise them on businesses’ greater capacity to respond to higher energy prices than drivers’, and on our gleanings from the extensive literature of price-elasticity.

The takeaway? The price-elasticities of U.S. energy usage, while not necessarily high (all are below one), are not only much greater than what Goldstein suggests; they’re large enough to establish beyond any doubt that taxing carbon emission will indeed reduce energy usage, rather than merely punishing consumers into paying more for the same amount of energy.

Argument #4: The Best Path to Carbon Reductions is Prescriptive Energy Policies

So what is the Goldstein-NRDC solution, if not carbon emissions pricing? Here’s Goldstein’s prescription:

This [pessimistic] analysis does not apply to actually implemented or proposed cap-and-trade plans, such as the one adopted by California pursuant to AB32 or the one proposed in the Waxman-Markey bill, both of which rely primarily on non-price energy policies. The overwhelming bulk of emissions savings come from (1) improved building and equipment efficiency standards, (2) integrated land use and transportation system planning that meets goals for travel reduction, (3) emissions standards on fuels and vehicles, (4) requirements for utilities to purchase and integrate renewable energy sources, (5) regulatory reforms that encourage utilities to rely primarily on energy efficiency, and (6) a host of other policies that are independent of energy prices. Numerals added; otherwise quoted verbatim.

That’s NRDC’s credo in a nutshell, and much of it is admirable — particularly #1, which I touted at the start of this post; also #4, which helped jump-start the U.S. wind-power industry (though perhaps no more than did the federal Production Tax Credit for wind electricity), and #5, an effort in which I participated peripherally as a utility reform advocate at the dawn of the “demand-side management” era several decades ago.

On the other hand, it can be argued that the vaunted CAFE standards (#3) were only able to be legislated in the mid-1970s and ramped up several times since then because of rising gasoline prices — somewhat mooting the standards and demonstrating the power of prices that Goldstein largely discounts. Moreover, Goldstein’s #2 is stunningly squishy (“planning that meets goals for travel reduction”); yes, Goldstein had to shoehorn his description but the fact is that NRDC’s standards-and-regulations approach, which has proven so potent in making appliances more efficient, is powerless to rein in the use of vehicles.

The Crux

And therein lies the fundamental difference between Goldstein’s (NRDC) and my (CTC) respective approaches. Miles-per-gallon rules reduce carbon emissions per vehicle-mile driven, but they do nothing to affect the other half of the formula that equally determines emissions: the number of vehicle-miles driven.

In contrast, a carbon tax effectively makes every action that reduces fossil fuel use less costly, by raising the rewards from using less fuel. Taxing carbon will open up multiple paths that will influence the literally billions of daily decisions that determine energy usage and, hence, carbon emissions.

In driving, a carbon tax will affect whether and how far and often to drive . . . which car to take on a family trip . . . how high an mpg rating to demand in the next lease or purchase . . . and, at the societal level, whether public transit investments “pencil out” and might be prioritized over wider highways, and whether hyper-efficient car designs pencil out in corporate boardrooms and venture-capital spreadsheets.

Second Sidebar for Energy-Efficiency Hero post _ 3 Sept 2015

The power of carbon-taxing, in a nutshell.

The same goes for other energy-use sectors. Costlier diesel fuel will not only stiffen legislators’ and regulators’ spines in promulgating truck mpg standards; they’ll incentivize local and regional provision over far-flung shipping of food, raw materials and consumer goods, thus cutting down on freight-miles and resultant emissions. Rising electric rates — at least during the decades until carbon fuels are eliminated — will not only strengthen NRDC’s and ACEEE’s case for ever more-efficient appliances; their price pressures will help restrain the size and number of appliances sold and also motivate consumers to use them more efficiently.

Costlier electricity and natural gas will likewise discourage developers from building, and families from insisting upon, gargantuan homes whose outsize volumes must be heated and cooled. Not to mention that a carbon tax provides an antidote to the oft-postulated “rebound effect” by which increased energy efficiency, by reducing the implicit price of energy services, can engender greater energy usage and inadvertently cancel some of the intended savings from those efficiencies. A carbon tax acts as a direct brake on that implicit price reduction and, thus, on the rebound effect.

The point is clear: No other policy can match a carbon tax’s reach, or its simplicity. As we wrote last year in comments we submitted to the Senate Finance Committee concerning energy subsidies and pricing:

The U.S. energy system is so diverse, our economic system so decentralized, and our species so varied and innovating that no subsidies regime, no matter how enlightened, and no system of rules and regulations, no matter how well-intentioned, can elicit the billions of carbon-reducing decisions and behaviors that a swift full-scale transition from carbon fuels requires. At the same time, nearly all of those decisions and behaviors share a common, crucial element: they are affected, and even shaped, by the relative prices of available or emerging energy sources, systems and choices. Yet those decisions cannot bend fully toward decarbonizing our economic system until the underlying prices reflect more of the climate damage that carbon fuels impose on our environment and society.

Carbon Taxing Going Forward

Two carbon tax bills now before Congress — submitted by Reps. Jim McDermott (D-WA) and John Larson (D-CT) — ramp up the tax level steadily and predictably to reach triple digits (i.e., $100 per ton of CO2) a decade on. Our modeling suggests that either bill, by the end of its tenth year, will have reduced total U.S. carbon emissions from fossil fuel burning by more than 30 percent, vis-à-vis 2005 emissions — with the reductions rising as the tax level continues ramping up. As noted, a little more than half of the reductions will come about by sustaining and accelerating the ongoing decarbonization of the U.S. fuel mix, not just in electricity but by motivating increased electrification of sectors like driving that are now dominated by hydrocarbon fuels. The remainder will result from energy efficiency and conservation, i.e., reduced usage per unit of economic activity.

Such a carbon tax has myriad other advantages, including the ease with which it can be replicated globally, that no other approach can match. One unsung advantage is that taxing carbon harmonizes with other measures for reducing energy consumption and carbon emissions. My or other individuals’ energy-savings don’t undermine the tax’s effect on other economic actors ― whereas under cap-and-trade, autonomous energy-saving actions lower the price of the emission permits and thus attenuate the price signal. Likewise, a carbon tax reinforces the economic effectiveness of the appliance and vehicle and building efficiency standards so ably championed by David Goldstein and NRDC, just as those standards play an essential role in overcoming the market failures that are hard to counteract with price signals alone.

It’s 26 years and counting since my first carbon tax op-ed, and almost 9 years since I co-founded the Carbon Tax Center. We at CTC have long since abandoned the hope that NRDC or the other big green giant, the Environmental Defense Fund, would lead the charge for a U.S. carbon tax. We’re okay with that, but we ask our environmental colleagues to refrain from devising and attacking straw-man versions of carbon taxes.

We’ve never said that “carbon emissions fees alone can . . . solve the climate problem.” Rather, we believe that the climate problem can’t be solved without them.

Calculations for 9^th paragraph in post: If decarbonization of supply is to account for 53% of the CO2 reduction, and reduction in usage for the other 47%, then K, the percentage change in usage needed to reduce CO2 by 85%, is calculated by the equation: K x K x .47/.53 = 0.15. That is solved by K = 0.41, which equates to a 59% reduction in usage. To effect such a reduction, assuming price-elasticity of -0.5, the factor increase in energy prices, M, is given by the equation: M^(-0.5) = 0.41. The solution is M = 5.95, denoting a 6-fold price rise.

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