Search Results for: border adjustments

Border Adjustments, also known as Border Tax Adjustments or Border Tax Assessments, are import fees levied by carbon-taxing countries on goods manufactured in non-carbon-taxing countries.

As a starting point, we strongly recommend the 2013 report, Changing Climate for Carbon Taxes: Who’s Afraid of the WTO?, by former WTO appellate officer Jennifer Hillman, published by the American Action Forum and German Marshall Fund. Hillman concluded that both the letter and spirit of WTO trade rules permit countries with carbon taxes to adopt “non-discriminatory harmonizing tariffs.” These would protect energy-intensive trade-exposed industries by eliminating the competitive advantage enjoyed by exports from countries that don’t tax carbon emissions. These tariffs would also create incentives for non-carbon taxing countries to adopt carbon taxes, since harmonizing tariffs represent revenue that the exporting country could garner by imposing its own carbon tax.

Following a thorough analysis of the WTO provisions governing harmonizing border provisions for carbon taxes, Hillman concluded:”… provided that policymakers carefully design a [carbon] tax, keeping in mind the basic requirements of the WTO not to discriminate in favor of domestic producers or to favor imports from certain countries over others … the threat of WTO challenges should not present a barrier to policymakers wishing to adopt a carbon tax system now.”

The impetus behind border adjustments is the desire to ensure a level playing field in international trade while internalizing the costs of climate damage into prices of goods and services. As Columbia University economics professor and Nobel Laureate Joseph Stiglitz wrote almost a decade ago, “Not paying the cost of damage to the environment is a subsidy, just as not paying the full costs of workers would be.” (Stiglitz was chair of president Clinton’s Council of Economic Advisers (1995-97) and Chief Economist and Senior Vice President of the World Bank (1997-2000; full bio here). He and others urge adoption of carbon border adjustments to eliminate the artificial advantage adhering to firms that manufacture goods or provide services for world markets, from countries that fail to tax or otherwise price carbon emissions at prevailing world levels.

Stiglitz wrote:

In most of the developed countries of the world today, firms are paying the cost of pollution to the global environment, in the form of taxes imposed on coal, oil, and gas. But American firms are being subsidized—and massively so. There is a simple remedy: other countries should prohibit the importation of American goods produced using energy intensive technologies, or, at the very least, impose a high tax on them, to offset the subsidy that those goods currently are receiving.

Actually, the United States itself has recognized this principle. It prohibited the importation of Thai shrimp that had been caught in “turtle unfriendly” nets, nets that caused unnecessary deaths of large numbers of these endangered species. Though the manner in which the United States had imposed the restriction was criticized, the WTO sustained the important principle that global environmental concerns trump narrow commercial interests, as well they should.

But if one can justify restricting importation of shrimp in order to protect turtles, certainly one can justify restricting importation of goods produced by technologies that unnecessarily pollute our atmosphere, in order to protect the precious global atmosphere upon which we all depend for our very well-being.

[A New Agenda For Global Warming, Economists’ Voice, July 2006.]

Stiglitz’s Columbia University Web page has links to his other articles and publications on border tax adjustments and other climate change issues.

John Hontelez, secretary general of the European Environmental Bureau (a federation of 140 environmental organizations based largely in European Union member states), made similar points in a widely-circulated piece from April 2007, Time to tax the carbon dodgers.  He wrote:

Border Tax Adjustments (BTAs) might be the answer which allows the EU to develop responsible climate policies without having to wait for other countries. They would result in products imported from the US being taxed to compensate for resulting differences in production costs. Thus EU firms would be protected against unfair, carbon-careless competition from outside.

Bridges, a newsletter published by the International Centre for Trade and Sustainable Development reported in 2006 that then-French Prime Minister Dominique de Villepin suggested that countries that don’t join a post-2012 international treaty on climate change should face extra tariffs on their industrial exports. According to Bridges, de Villepin argued that “Countries like the US and China … should not be allowed to benefit from efforts to reduce climate change without having to shoulder some of the costs or suffer from any related loss in competitiveness.” (The quote is from Bridges rather than from de Villepin himself.)

The Bridges article noted that de Villepin’s proposal has not moved forward, partly owing to concerns that border tax adjustments might be proscribed under World Trade Organization rules: According to the article:

Opinions are divided on whether WTO law permits border tax adjustments for taxable inputs that are not physically incorporated into the final traded product. For instance, it is not clear if an import tax could vary based on the amount of carbon dioxide emitted during a good’s production — WTO rules would have to be interpreted in a way that considers products not to be ‘like’ each other based on their carbon footprints.

The Bridges article quotes several authorities on border tax adjustments and contains useful links to documents on the subject from the 2006 UN Climate Conference in Nairobi at which the issue was aired.

Prof. Joost Pauwelyn, a law professor at Duke University subsequently published U.S. Federal Climate Policy and Competitiveness Concerns: The Limits and Options of International Trade Law, which holds out strong hope that border tax adjustments could pass muster under WTO and GATT (General Agreement on Tariffs & Trades) rules. Prof. Joost Pauwelyn writes:

First, a carbon tax or emission credits requirement on imports could be framed as WTO permissible “border adjustment” of a domestic, US tax or cap-and-trade system (Section V). Crucially, if such “border adjustment” does not discriminate imports as against US products, and does not discriminate some imports as against others, this type of competitiveness provision could pass WTO scrutiny without any reference to the environmental exceptions in Article XX of the General Agreement on Tariffs and Trade (“GATT”).

Second, even if “border adjustment” would not be permitted for process-based measures such as a domestic, US carbon tax, regulation or cap-and-trade system, and/or such “border adjustment” would be found to be discriminatory, the resulting GATT violation may still be justified by the environmental exceptions in GATT Article XX (Section VI). Such justification would then most likely center on whether, under the introductory phrase of GATT Article XX, a US carbon duty, emission credit requirement or other regulation on imports is applied on a variable scale that takes account of local conditions in foreign countries, including their own efforts to fight global warming and the level of economic development in developing countries.

Pauwelyn has recently updated this paper.  See Carbon Leakage Measures and Border Tax Adjustments Under WTO Law, (Graduate Institute of International and Development Studies, March 21, 2012).

We also recommend Comparing Policies to Combat Emissions Leakage Border Tax Adjustments versus Rebates by Carolyn Fischer and Alan K. Fox (Resources for the Future, 2009), and The Role of Border Tax Adjustments in Environmental Taxation (1998), by Andrew Hoerner, sustainable economics director of the innovative think-tank, Redefining Progress.

More on Border Tax Adjustments

[Written in response to a question we received about carbon taxation of imported Canadian tar sands oil, March 2013]:

In their seminal Design of a Carbon Tax (Harvard Envt’l Law Rev, 2009), Metcalf and Weisbach suggested (at pp 541-552) imposing additional border charges on foreign goods whose carbon footprint is larger than that of the domestic equivalent product. They point out that such production-based adjustments are needed to avoid creating perverse incentives for carbon “leakage,” specifically offshoring carbon-intensive processes.

They caution that while GATT/WTO rules authorize product-based tariffs, i.e. “like taxes on like products,” WTO’s (evidently less robust) environmental provisions would need to be invoked to support BTA’s based on production processes. Recently, the U.S. set an awful example by blocking the European Union’s carbon charge on aviation fuel which was based on WTO environmental provisions.

In Unilateral Carbon Taxes, Border Tax Adjustments, and Carbon Leakage (2012), Weisbach et al. found by modeling various scenarios that production based BTA’s would be needed to prevent substantial carbon “leakage” of the kind that importation of Canadian tar sands oil (with its much higher carbon footprint) would involve.

And most recently, A Guide for the Concerned: Guidance on the Elaboration and Implementation of Border Carbon Adjustment (International Institute for Sustainable Development, 2012) cautions that “BCA [a Border Carbon Adjustment] is at best a fall-back measure in absence of multilateral agreement, and at worst a divisive and imperfect tool.” While we don’t fully accept that assessment, the paper does sound an important cautionary note.

In short, accounting for differing production processes is complex and fraught with technical, legal and political challenges. But even a U.S.-enacted a carbon tax with only a product-based BCA should eliminate any advantage of Canadian tar sands oil by taxing it at domestic-equivalent levels. An additional (and more controversial) process-based BCA would be needed to account for the additional CO2 emissions  from tar sands production above those of conventionally-produced domestic oil.

For more discussion of globalization and trade issues, see our blog posts:

Imagine: A Harmonized, Global CO2 Tax (March 11, 2009)

Trade Expert Is Latest to Endorse Border Adjustments to Carbon Taxes (November 12, 2013)

This page reports on carbon taxes that have been enacted (and in one case, enacted and withdrawn) in:

• • European Union: Emissions Trading System
  • United Kingdom
  • Ireland
  • Australia
  • Chile
  • Sweden

Canada has its own page, where we summarize its nationwide carbon price and also report in detail on British Columbia’s carbon tax, the Western Hemisphere’s (if not the world’s) most comprehensive and transparent carbon tax.

European Union: Emissions Trading System

The European Union (EU) implemented a carbon cap-and-trade system in 2005. The EU Emissions Trading System (ETS) is the world’s first international emissions trading system, operating in all EU member countries plus Iceland, Norway, and Liechtenstein.

The EU ETS covers over 10,000 stationary emitters — mostly power stations and industrial plants. It also covers domestic and intra-EU air travel. In toto, the ETS covers around 40 percent of the EU’s greenhouse gas (GHG) emissions, making it the largest carbon cap-and-trade program in the world, covering approximately 1.5 billion metric tons of CO2 per year.

For much of its existence, the ETS was largely ineffectual because its emissions caps were too high and granted large numbers of free allowances to big polluters. Concern about carbon leakage — polluters from the EU potentially going elsewhere to do their polluting, hence, “leaking” carbon from the EU — drove the EU to implement free allowances as its primary method of allocation back in 2005. As a result, polluters obtained large numbers of allowances — in 2013, manufacturers received 80% of their allowances for free — and many were able to maintain a surplus.

Compounding the problem of giveaways, the EU grossly overestimated future CO2 emissions in setting the cap amounts, resulting in a too-high number of allowances. In the first phase of the EU ETS, from 2005-2007, only three member states had caps lower than baseline 2005 emissions levels. And with the 2008 financial crisis driving emissions down, the caps were rendered even more useless.

Background

In December 2019, the European Commission — the executive branch of the EU — introduced the European Green Deal, an ambitious climate policy package with the general goal of at least 50% GHG emissions reductions by 2030 and carbon neutrality by 2050. The European Green Deal represents the EU’s main legislative effort to meet its commitments under the Paris Climate Agreement. The Green Deal included the ETS as an integral part of its action plan.

In 2020, the EU expanded to a 55% reduction its commitment to reduce emissions 40% from 1990 levels by 2030 and. The ramp-up came in December 2020, following all-night negotations in which the EU committed to helping coal-heavy countries like Poland meet individual-country commitments.

The U.K.’s concurrent exit from the EU and ETS caused a substantial exit of low-carbon power producers, resulting in an increase in average carbon contents for the remaining EU power producers. It’s not yet clear how these changes will play out, as the U.K. has not announced plans to link with any other carbon trading systems.

How the ETS Works

The European Trading System implements an emissions cap for the overall volume of GHG that may be emitted by covered airlines, power plants and factories. Emitting companies purchase at auction — or receive — tradable allowances, the total number of which is capped at a level that steadily decreases each year. Since 2013, the emissions cap has applied to the EU as a whole, not individual countries. The current cap for 2021 on GHG emissions from these stationary installations is 1.57 billion tonnes per year, or roughly half of 2019 CO2 emissions for the entire European Union, including the U.K.

Data from https://ember-climate.org/data/carbon-price-viewer/

The price of a carbon allowance has roughly doubled in the past several years, reaching a high of nearly €43 in March 2021. BloombergNEF (New Energy Finance) projects that prices will hit €100 by 2030. The higher price levels enable the ETA to “arguably serve its purpose by making it too expensive for emitters of fossil fuels to continue business as usual,” as reported in early 2021 by Alessandro Vitelli of Montel News.

Since January 2019, the EU ETS has included a market stability reserve (MSR), which maintains any surplus of allowances, allowing for adjustments to the supply of allowances up for auction, if needed. Unallocated allowances are transferred to the reserve, which is operated under strict rules that bar meddling by the Commission or Member States.

Phases

The ETS’s 15-year tenure to 2020 may be divided into three phases.

• Phase 1, from 2005-2007, served as a pilot of “learning by doing.” During that phase, about 12,000 installations received permits to emit about 2.2 billion tons of CO2, nearly half of EU CO2 emissions at that time. Most allowances were given for free.
• In Phase 2, 2008-2012, the cap on allowances was reduced by 6.5% compared to 2005. Phase 2 aligned with the first commitment period of the Kyoto Protocol, when countries in the EU ETS had to fulfill commitments to reduce emissions by an average of 5% below 1990 levels. (The EU and its member countries ended up cutting emissions by 8% below 1990 levels.) Several countries held auctions.
• Phase 3, 2013-present, saw the application of a single, EU-wide cap on emissions instead of the previous system of national caps. Auctioning replaced free allocation as the default method of allowance allocation. Phase 3 also brought more sectors and gases under the EU ETS umbrella. During this phase, the EU-wide cap on stationary installations decreased by 1.74% each year.

For Phase 4, from 2021-2030, the Commission revised and strengthened the EU ETS in 2018. The overall number of emission allowances will now decrease at an annual rate of 2.2%, instead of 1.74%. However, significant amounts of free allowances remain, ostensibly to combat carbon leakage. The EU will still give 100% free allocation to sectors at the highest risk of relocating production outside the EU. For industries less likely to flee, free allocation will be phased out, from a maximum of 30% in 2026 to zero by 2030. Overall, the EU predicts 6 billion free allowances will be granted from 2021-2030.

Impact

The EU ETS’s specific targets are to reduce GHG emissions by 21% between 2005 and 2020, and by 43% by 2030.

Total EU emissions of greenhouse gases fell by 23 percent from 1990 to 2018, according to the European Commission. Emissions from ETS sectors alone fell 33% from 2005-2019.

Carbon leakage

In its Green Deal statement, the European Commission addressed the concern that countries across the world will continue to have “differences in levels of ambition,” by pledging to propose a carbon border adjustment mechanism as an alternative to the ETS’s carbon-leakage measures. As Inside Climate News explains carbon border adjustments:

Economists have long suggested that there’s a way to break that global impasse [on climate action] — and that’s to treat carbon like any other international trade dispute. Impose tariffs or quotas on imports from countries that have given their manufacturers an unfair advantage of uncontrolled carbon emissions.

In March 2021, the European Parliament adopted a resolution favoring a carbon border adjustment mechanism. The European Commission will propose legislation in June 2021.

United Kingdom

The United Kingdom — England, Scotland, Wales and Northern Ireland — has maintained a carbon tax since 2013. Technically, the tax is a “carbon price floor” (CPF) that functions as the minimum price that fossil fuel producers pay for emitting CO2. The CPF applies to energy-intensive industries only and is not economy-wide.

There have been several calls lately to tax carbon emissions in the U.K. at a higher rate and on a broader scale. Grantham Institute researchers Josh Burke and Esin Serin argued in a fascinating Feb. 2021 opinion piece that carbon pricing should be enacted not as a stand-alone but “as part of a significant and broad package of post-COVID fiscal reforms.”

History

As a result of the 2008 Climate Change Act — passed with overwhelming support across parties — the U.K. was required to drastically reduce its carbon output according to five-year carbon budgets. Unsurprisingly, the U.K. — birthplace of classical economics and home base of Sir Nicholas Stern, the renowned economist who in 2007 famously called climate change “the result of the greatest market failure the world has seen” — turned to carbon pricing to carry part of the load.

In 2009, the Department of Energy and Climate Change released a report, “Carbon Valuation in UK Policy Appraisal: A Revised Approach,” detailing reasons to adopt a carbon price. Witnesses at the 2009-2010 Environmental Audit Committee’s report on Carbon Budgets called for a carbon price floor, but the Labour government opposed the idea. Then in 2010, the Coalition government consulted on proposals for a CPF, and the measure was introduced in the 2011 Budget for implementation in 2013. The 2011 Budget framed the CPF as a way to “drive investment in the low-carbon power sector” and “support the long-term stability of the public finances.” The government also said the CPF “achieves the right balance between encouraging investment without undermining the competitiveness of UK industry.”

When the carbon floor was introduced, the Confederation of British Industry and Renewables Energy Association were supportive, but the measure also found criticism from several sides that argued it was, by turns, ineffective, expensive, and uncertain for investors. But the government framed the tax as the best move for consumers, stating that the “market-based approach to pricing carbon provides the most efficient and cost-effective policy framework to meet our environmental goals.”

Data from U.K. Gov’t Energy Trends. Data exclude international aviation, shipping and emissions in producing imported goods.

Less than 10 years after implementing the CPF, the U.K. is halfway to meeting its goal of net zero greenhouse gas emissions by 2050. U.K. GHG emissions in 2020 were 51% below 1990 levels, putting the country mathematically on track to reach net zero by 2050.

30 Years of Falling Emissions

The first graph makes clear that this 2020 milestone is only slightly due to the COVID-19 pandemic. The 2020 decline in emissions, though severe, roughly 40 million tonnes, was no greater than that in 2014 (also 40 million tonnes) and was less than the 56 million tonne drop in 2009, during the severe recession. Emissions fell in almost every year from 1990.

Data from Department for Business, Energy & Industrial Strategy: Dataset for quarterly and monthly supply and consumption of electricity, Table 5.1.

The anticipated recovery from COVID-19 will, of course, provoke a partial rebound in emissions. The national government’s March 2021 Industrial Decarbonisation Strategy specifies that industrial emissions must fall by two-thirds before 2035 to enable the U.K. to meet its Dec. 2019 pledge — the first by a major economy in the world — to reach net-zero GHG emissions by 2050.

What accounts for the huge drop in U.K. greenhouse gas emissions from 1990 to 2019? Carbon Brief credits three changes for around 90% of the decline:

1. Electricity that doesn’t rely on coal – 43% of electricity was generated by renewables in 2020 (“renewables” does not include nuclear power, but it does include wind, hydro, solar, and bioenergy).
2. Cleaner industry and a shift away from carbon-intensive manufacturing.
3. A pared-down, cleaner fossil fuel supply industry.

It’s important to note, however, that a considerable amount of U.K. “renewable” electricity is generated by burning biomass, i.e. wood pellets. Inclusion of bioenergy as a renewable source of energy is at best contentious and more likely a scam, as journalist Michael Grunwald pointed out in his March, 2019 expose in Politico.

U.K. Carbon Pricing: Details

Data from https://ember-climate.org/data/carbon-price-viewer/ and https://commonslibrary.parliament.uk/research-briefings/sn05927/

Initially priced at £16/tonne in 2013, the U.K.’s carbon price floor (CPF) was set to increase to every year, hitting £30/tonne by 2020 and £70/tonne in 2030, but was capped in 2015 at £18.08/tonne until 2021 (20.40 euros at the 2015 exchange rate). The CPF has impacted the generation fuel mix significantly; coals share fell from 41% in 2013 to less than 8% in 2017.

Brits sometimes call their CPF a “top up” tax since it was intended to top up European carbon pricing in the form of the EU emissions trading scheme (ETS). The U.K. finished its Brexit transition from the EU at the end of 2020, creating the need for a new, non-EU emissions trading scheme (ETS).

The U.K. announced in February 2021 that it would launch its own carbon trading scheme in May 2021. The U.K. government says their ETS replaced the UK’s participation in the EU ETS as of January 1, 2021, but the first U.K. ETS emissions auctions will not begin until May 19, 2021.

According to Auctioning Regulations released in February, bids will follow a minimum Auction Reserve Price (ARP) of £22/tonne when they begin in May, but the price will increase: “The government will consult on its intent to withdraw the ARP as part of the planned consultation to appropriately align the U.K. ETS cap with a net zero trajectory which will be launched later this year.”

Data from https://ember-climate.org/data/carbon-price-viewer/ and https://commonslibrary.parliament.uk/research-briefings/sn05927/

The floor for the U.K. ETS was initially set to 15 pounds but raised to 22 pounds per tonne, perhaps following some form of the logic suggested by climate advocacy group Ember: “The EU ETS has averaged a price of around £22/t (€25/t) over the last two years, so it would make sense to set the U.K. carbon price floor to at least that level, especially with further reform to strengthen the EU ETS price due in the coming year.”

The U.K. government stated in the Autumn Budget 2017 that they were “confident that the Total Carbon Price, currently created by the combination of the EU Emissions Trading System [of 7.78] and the Carbon Price Support [of 20.40], is set at the right level, and will continue to target a similar total carbon price until unabated coal is no longer used.”

Ireland

(Thanks to Wesleyan University environmental studies major Nicholas J. Murphy for expanding this section in July 2015.)

Ireland enacted a carbon tax in 2010 under a coalition government of its Green Party, Fianna Fáil (one of Ireland’s two mainstay center-right parties) and the Progressive Democrats. Originally designed to provide a double dividend by offsetting income taxes, the revenue was re-allocated to satisfy the diktats of the Troika — the triumvirate of the European Commission (EC), International Monetary Fund (IMF) and European Central Bank (ECB) that administered the austerity policies on EU member nations bailed out during the 2008 debt crisis. (See OECD working paper on Ireland’s Carbon Tax and the Fiscal Crisis.)

The effect is arguably similar, since income taxes would have had to rise, absent the carbon tax revenues. Frank Convery, an economist at University College Dublin considered the foremost expert on Ireland’s carbon tax, writes enthusiastically:

Ireland is a pioneer in the implementation of a carbon tax. This has allowed us to avoid (more) increases in income tax which would have further reduced disposable income, increased labour costs and destroyed jobs. It is also facilitating us in meeting our very demanding legally binding obligations to reduce greenhouse gas emissions, and provides support for the creation of new jobs in improving energy efficiency and growing the low carbon economy.

Ireland’s carbon tax covers nearly all of the fossil fuels used by homes, offices, vehicles and farms, based on each fuel’s CO2 emissions. It began in 2010 at €15/ton and rose to €20/ton in 2012, where it remains today. Solid fuels (coal and peat) were added in 2013 at €10/ton after concerns from agricultural interests were resolved, and that price has since risen to match the €20 price on other fuels. The tax generates roughly €100 million in revenue per €5 of tax, meaning it currently draws about €400 million annually.

The carbon tax has been complemented by other environmental taxes based on vehicle fuel efficiency and domestic landfill waste, as New York Times environmental correspondent Elisabeth Rosenthal reported in Dec. 2012, in Carbon Taxes Make Ireland Even Greener:

Over the last three years, with its economy in tatters, Ireland embraced a novel strategy to help reduce its staggering deficit: charging households and businesses for the environmental damage they cause. The government imposed taxes on most of the fossil fuels used by homes, offices, vehicles and farms, based on each fuel’s carbon dioxide emissions, a move that immediately drove up prices for oil, natural gas and kerosene.

Household trash is weighed at the curb, and residents are billed for anything that is not being recycled. The Irish now pay purchase taxes on new cars and yearly registration fees that rise steeply in proportion to the vehicle’s emissions.

Environmentally and economically, the new taxes have delivered results. Long one of Europe’s highest per-capita producers of greenhouse gases, with levels nearing those of the United States, Ireland has seen its emissions drop more than 15 percent since 2008. Although much of that decline can be attributed to a recession, changes in behavior also played a major role, experts say, noting that the country’s emissions dropped 6.7 percent in 2011 even as the economy grew slightly.

Notably, the Irish carbon tax was designed to fill gaps left by the European Union Emissions Trading Scheme (EU ETS), which addresses only large polluting firms and accounts for only roughly 40% of emissions sources while being hampered by volatility. The case of Ireland demonstrates the potential for EU-wide cooperation in setting an effective harmonized price on carbon in preference to a piecemeal and volatile ETS.

The elements of Ireland’s carbon tax introduced in 2010 are specified in the Finance Act of 2010. (See Part 3 (Customs and Excise), Chapters 1 (Oil), 2 (Natural Gas), and 3 (Solid Fuels) for tax rates and other provisions.)

Ireland’s Vehicle Registration Tax is also partly emissions-based. A VRT Calculator on the Irish Tax & Customs website provides a means to estimate the amount of tax on a vehicle based on Make/Model/CO2 Emissions. Interestingly, the CO2-sensitive VRT has touched off a pronounced shift to diesel vehicles, which emit less CO₂ but more of other pollutants with localized health impacts. Changes to the tax rate in Budget 2013 are detailed here.

Finally, the law firm Arthur Cox offers these useful guides ([1] & [2]) to Ireland’s carbon tax.

Australia

The widespread wildfires devastating much of Australia in the Southern Hemisphere’s 2019-2020 summer have drawn worldwide news coverage and cast that country’s retrograde official climate stance in appropriately harsh light. CTC’s blog post, Australia’s Brief, Shining Carbon Tax distilled and updated the information below and also revealed the stunning detail that the two years in which Australia had a national carbon tax, 2012-2014, saw dramatic drops in CO2 emissions, both absolute and relative to GDP (see graphic directly below, at left). As of this mid-January writing, however, no other media had picked up this finding.

The Liberal Party government of PM Scott Morrison has come under withering attack for hewing to the climate-denying line of the Murdoch-dominated press that alternately blames the fires on arsonists and wildland “mismanagement” while hand-wringing that unilateral action to curb Australia’s emissions would have little or no discernible impact because the country accounts for only 1 percent of global CO2. The Daily Beast has reported that James Murdoch, the media baron’s younger son, was sharply critical of Fox News and News Corp’s “climate-change denial,” while Australian union organizer James Raynes posted the ironic tweet shown at right.

Here’s how an Australia labor organizer lampooned his government’s “why bother” climate stance.

Our earlier coverage of Australia carbon taxing, though somewhat dated, is below. Be sure to read our Jan. 7 (2020) post.

Australia instituted a carbon tax on July 1, 2012 and repealed it two years later, on July 17, 2014. Both events were milestones. Though some countries, notably Sweden, have had longer-standing and stronger national carbon levies, Australia’s was the first explicit national tax on carbon emissions. The repeal was also precedent-setting, and predictably it has garnered far more global attention (and hand-wringing) than did the tax itself.

The tax level, $23 per tonne (metric ton), equated to $19.60 per U.S. ton of CO2, at the U.S.-Australian dollar exchange rate (1.00/0.94) in July 2014.

As recounted by Australian journalist Julia Baird in a 2014 NY Times op-ed, A Carbon Tax’s Ignoble End: Why Tony Abbott Axed Australia’s Carbon Tax, published a week after Australia’s Senate voted for repeal, the tax was a political stepchild, opposed by the country’s two major political parties, left-leaning Labor and center-right Liberal, and brokered by the Greens during a period of governmental stalemate in 2011-2012:

In 2010, the Labor prime minister, Julia Gillard, said she would look at carbon-pricing proposals, but also promised, “There will be no carbon tax under the government I lead.” Then, under pressure to form a minority government, she made a deal with the Greens and agreed to legislate a carbon price: a tax by any other name.

The heat, anger and vitriol directed at her as a leader — and as Australia’s first woman to be prime minister — coalesced around the promise and the tax. It grew strangely nasty: She was branded by a right-wing shockjock as “Ju-Liar,” a moniker she struggled to shake. The political cynicism surrounding the carbon tax certainly reduced Ms. Gillard’s political capital, but it was a perceived lack of conviction in the policy itself that damaged the pricing scheme’s credibility.

See also Australian ABC News’ superb Timeline of the tax’s torturous political path, posted in July 2014.

Predictably, the Times’ news dispatch, Environmentalists Decry Repeal of Australia’s Carbon Tax, cast the repeal as greens vs. economy, ignoring the reductions in carbon intensity in the power sector (which helped blunt the tax’s cost) as well as provisions that directed revenues to households to mitigate consumer impacts (see below).

Australia’s carbon tax also imposed climate-equivalent fees on methane, nitrous oxide and perfluorocarbons from aluminium smelting, and was collected from roughly 500 of the nation’s biggest emitters, according to the Big Pond Money blog. These included electricity generation, stationary energy producers, mining, business transport, waste and industrial processes; some (non-electric) industries were eligible to receive trade-exposure based assistance, according to the same source. Most if not all road transport fuel (i.e., petrol) was exempt. The tax level was indexed to inflation and rose from the initial $23.00 (Australian) per tonne to $24.15 per tonne in 2013 and $25.40 in 2014. Beginning July 1, 2015 the price was to be set by a cap-and-trade system linked to the EU ETS (whose price has fallen below $10/T CO2).  PolitiFact Australia compared the size and breadth of its carbon tax with others around the world, neatly refuting the Liberal Party’s pejorative characterization of the tax as “the world’s largest.”

In May 2013, one of Australia’s major papers, the Age, reported that national electricity generation with highly polluting lignite coal had fallen 14% vs. the same year-earlier period in the tax’s inaugural nine months, with conventional coal-fired generation also falling, by nearly 5%. During the same period, renewable electric generation “soared” by 28% and electricity output from lower-carbon methane increased by 9.5%. While factors such as greater hydro-electricity availability, flooding of a major coal mine, and implementation of a 20% renewable-energy target probably contributed to the declines in coal use, the 2.4% reported drop in overall electricity generation suggests that the carbon tax played a part.

Overall, reported the Age in the same article, “the emissions intensity of the national electricity market has fallen 5.4 per cent since the carbon price was introduced [presumably over the nine months extending from July 2012 through March 2013], meaning carbon emissions from power generation is [sic] down 7.7 per cent, or 10 million tonnes, from the previous nine months.”

Similar statistics were reported earlier, in Jan. 2013, by “The Australian” newspaper. The “big change in the mix of power” was attributed to “much greater use of renewable energy from hydroelectricity from the Snowy Mountains and Tasmania, and also wind farms.” The same source also said that “The retreat of manufacturing has been a factor, with the closure of the Kurri Kurri aluminium smelter last year and cutbacks in other metals plants affecting industrial demand.” A consultant cited by The Australian added that “the spread of roof-top solar panels and of appliances that used less energy were reducing growth in household consumption” of electricity, while another consultant, pointing to reduced electricity generation and emissions, said that “changes of this scale are without precedent in the 120-year history of the electricity supply industry.”

According to “The Australian,” the power sector accounted for about half of Australia’s emissions and a larger share of the carbon tax, because some of the largest emitters have free permits.”

Use of the carbon tax revenues was complex. Some went to the Australian Renewable Energy Agency for project funding and other monies providing “a raft of other compensation and development funds focused on biodiversity, low carbon agriculture, small business grants and support for indigenous communities,” according to Big Pond Money. More than half of the revenue was said to be earmarked to support low and middle income households to cover the increase in prices that business will pass on to consumers. The government also acknowledged, according to Big Pond Money, that the carbon tax would take more from 3 million households than it would return, while 2 million households would be no worse off and 4 million households better off. A Household Assistance Estimator developed by the authorities was said to provide a means for families to estimate how they would fare financially under the carbon tax.

A later AP story hammered Australia’s carbon tax, asserting that “Voters have never stopped hating the tax and its effect on their electric bills” and predicting that it would doom the ruling Labor Party in the Sept. 8, 2013 elections. “Longtime Labor Party supporters — even people who have helped cut pollution by installing solar panels at home — have flocked to the opposition,” AP reported, in Australian Gov’t Faces Carbon Tax Backlash at Poll (Sept. 6, 2013). “The government estimated the tax would cost the average person less than AU$10 per week,” said AP, “but three months after it took effect, most Australians surveyed by policy think-tank Per Capita said it was costing them more than twice that much. But they also expressed confusion, with most blaming the tax for higher gas prices even though it is not levied on motor fuel purchases.” In an e-mail, cap-and-dividend proponent Peter Barnes blamed the tax’s unpopularity on the absence of “100% dividends, fully transparent and highly visible.” We don’t disagree.

Update (January 2015): In case anyone doubted the effectiveness of taxing carbon pollution, the following graph of power plant CO2 emissions published in Australia’s Guardian shows what has happened in the year since the tax was repealed. The vertical red line is the repeal date.

See also, Emissions for power sector jump as carbon tax ends (Sydney Morning Herald, 1/7/15).

Chile

In October 2014, Chile enacted the first climate pollution tax in South America. It’s a modest levy — a mere $5 per metric ton of CO2 — that applies to only 55% of emissions. Moreover, it doesn’t take effect until 2018. Still, it’s a positive first step. The NY Times reported these details:

Chile’s tax, which targets large factories and the electricity sector, will cover about 55 percent of the nation’s carbon emissions, according to Juan-Pablo Montero, a professor of economics at the Pontifical Catholic University of Chile, who informally advised the government in favor of the tax. At $5 per metric ton of carbon dioxide emitted, Chile’s tax is lower than the $8-per-metric-ton carbon price in the European Union’s carbon-trading system, which has often been criticized as too lax. But it is higher than a carbon tax introduced in Mexico in January.

“We all understand we need to go way beyond the $5 mark” in order to really reduce carbon emissions, Dr. Montero said. However, he added, “I think this still allows you to start building the institutions that you need in the future, when you start moving forward toward more ambitious goals.”

Chile’s tax was enacted as part of a broader tax reform and revenue measure, according to the Times:

Chile’s approval of a carbon tax owes much to its positioning inside a broader tax package, experts said. At the same time that it passed the carbon tax, the Chilean government raised corporate taxes substantially, in a bid to increase revenues for education and other projects. As a result, the carbon tax raised less debate within Chile than it might have otherwise, though electricity companies have objected.

Sweden

Sweden enacted a tax on carbon emissions in 1991. Currently, the tax is $150/T CO2, but no tax is applied to fuels used for electricity generation, and industries are required to pay only 50% of the tax (Johansson 2000). However, non-industrial consumers pay a separate tax on electricity. Fuels from renewable sources such as ethanol, methane, biofuels, peat, and waste are exempted (Osborn). As a result the tax led to heavy expansion of the use of biomass for heating and industry. The Swedish Ministry of Environment forecasted in 1997 that by 2000 the tax policy would have reduced CO2emissions in 2000 by 20 to 25% more than a conventional, regulatory-based policy package (Johansson 2000). On September 17, 2007, Sweden’s government announced that it will increase its carbon taxes to address climate change. Petrol prices will go up 17 öre per litre, with the increase in fuel tax calculated on the basis of a 6 öre tax increase per kilo of CO2 emitted. (The Local)

A new (July 2014) major report by the International Monetary Fund, “Getting Energy Prices Right,” briefly summarized Sweden’s carbon-fuels tax regime as follows:

In the early 1990s, Sweden introduced taxes on oil and natural gas to charge for carbon and (for oil) sulfur dioxide and on coal-related sulfur dioxide and industrial nitrogen oxide emissions. These reforms were part of a broader tax-shifting operation that also strengthened the value-added taxes while reducing taxes on labor and traditional energy taxes (on motor fuels and other oil products). (See Box 3.5, “Environmental Tax Shifting in Practice,” p. 41. The full report is behind a paywall and may be ordered via this link; Chapter 1 of the report, a summary, may be downloaded at no charge via this link.)

Sweden’s carbon tax history and current status were summarized intelligently in a 2013 blog post by “realmelo,” who appears to be a graduate student in economics in British Columbia. Click here for her/his useful, brief report.

Other Nations

(Note: See comment at bottom of page on the Vermont University Law School book, The Reality Of Carbon Taxes In The 21st Century.)

France has no carbon price outside of the implicit price from its participation in the European Union’s Emission Trading System. In April 2016, however, Ségolène Royal, Minister of Environment, Energy and the Sea, issued a four-page declaration calling for the nations of Europe to adopt “a carbon component in the energy tax” of €22/tonne in 2016, with a price trajectory of €56/tonne in 2020 and €100/tonne in 2030. Converting from euros (at the 1.14 exchange rate of 4-April-2016) and metric tons, the price schedule equates to $23/ton today, $58/ton in 2020 and $103/ton in 2030. She wrote:

This measure is essential to encourage energy efficiency and the development of renewable energy in the transport and construction sectors, which have the largest potential for investment and job creation. This change can be made by revising directive 2003/96/CE restructuring the communal taxation framework for energy products and electricity, which has remained unchanged for several years. It may also be undertaken by Member States individually. It should also be based on the principle of fiscal neutrality to avoid increasing mandatory contributions and instead favour the transfer of taxation to fossil fuels. The context is favourable because the drop in the price of hydrocarbons and gas is significant enough so that the carbon component will not result in increasing the final bill including all taxes for consumers (including motorists). Thus, the introduction of the carbon component preserves purchasing power over the short term, but gives a clear signal of the need to quickly carry out energy retrofitting on housing, purchase clean vehicles and develop renewable energy (especially renewable heat and biogas).

Minister Royal’s statement also urged EU member states to “work for the establishment of the carbon price outside the European Union and unite countries that choose to act.”

The goal is not to impose a single worldwide price or a world CO2 market, but to bring together all committed countries and companies around common principles: ensure the carbon price is within the range of between $10-20/tonne before 2020 and $30-80/tonne in 2030; remove subsidies for fossil fuels; prepare for price convergence through networked carbon markets or mechanisms for rebalancing competition such as carbon inclusion mechanisms. The alliance may rely on the Carbon Pricing Leadership Coalition, on condition that it follows its road map and expands it to new countries.

Finland enacted a carbon tax in 1990, the first country to do so. While originally based only on carbon content, it was subsequently changed to a combination carbon/energy tax (U.S. EPA National Center for Environmental Economics). The current tax is €18.05 per tonne of CO2 (€66.2 per tonne of carbon) or $24.39 per tonne of CO2 ($89.39 per tonne of carbon) in U.S. dollars (using the August 17, 2007 exchange rate of USD 1.00= Euro 0.7405). Current taxes are summarized in a Ministry of the Environment fact sheet Environmentally Related Energy Taxation in Finland.

New Zealand made plans in 2005 to enact a carbon tax equivalent to $10.67 (of U.S.) per ton of carbon (based on conversion rate of USD 1.00 = NZD 0.71). The tax would have been revenue-neutral, with proceeds used to reduce other taxes (Hodgson 2005). However, a new government determined that the carbon tax would not cut emissions enough to justify the costs, and the tax was abandoned (Myer 2005). [CTC addendum: In Sept. 2007 the government unveiled a proposed emissions cap-and-trade scheme intended to cover all carbon emissions. The NZ Green Party’s preliminary assessment provides some details.]

This page contains archival material bearing on efforts to advance carbon taxing or other carbon pricing at the U.S. national (federal) level.

It begins with federal legislative proposals from roughly 2008 to 2015, in reverse chronological order. Further below is material from Democratic presidential-nomination campaigning from 2019.

Unfortunately, CTC hasn’t been able to keep up with more recent (post-2015) carbon tax legislation — not that there’s been much to report in this arena. We recommend Mike Aucott’s July 2022 post , A Novel Way to Price Industrial Carbon Emissions, along with our new page about the Inflation Reduction Act of 2022. Although in many ways the IRA is the antithesis of carbon pricing — it aims to make clean energy cheaper rather than to make dirty (fossil) energy costlier — it was a landmark legislative achievement and may eventually open the door to federal legislation to price carbon emissions.

Federal Legislation (through 2015)

Climate Protection and Justice Act

On December 10, 2015, a day before the close of the UN climate summit in Paris, Senator (and presidential candidate) Bernie Sanders introduced the “Climate Protection and Justice Act.” His bill would impose a charge of $15 per metric ton (“tonne”) of CO2 emitted from fossil fuel combustion, with the fee taking effect in 2017. It would then rise at an average annual rate of $3.22/tonne, reaching $73 by 2035. At that point the tax trajectory would change to a percentage basis, growing by 5% annually until attaining a level of $150/tonne in 2050. Proceeds from Sanders’ proposed carbon tax would be returned to households making less than $100,000/year, a rebate of roughly $900 in 2017, rising to $1,900 in 2030. Revenue would also fund investments in energy efficiency and low-carbon energy.

Sanders’ press release claims his measure would reduce U.S. CO2 emissions to 80% below 1990 levels by 2050. The results of seven major integrated assessment models reported by the Stanford Energy Modeling Forum suggest that a more aggressive carbon price trajectory, rising to roughly $440/ton, would be needed to accomplish this ambitious 80% reduction target by 2050, in the absence of major technological breakthroughs. Nevertheless, model results become increasingly murky as time horizons grow more distant. In any event, Senator Sanders is the first (and, as of January 2016, the sole) candidate in the 2016 presidential race to endorse an explicit and rising tax on carbon pollution.

On April 22, 2015, Earth Day, Rep. John Delaney introduced a discussion draft of his “Tax Pollution, Not Profits Act” that would establish a tax $30 per metric ton of carbon dioxide or carbon dioxide equivalent, increasing each subsequent year at 4% above inflation. Delaney’s proposal would apply revenues to reduce the corporate tax rate to 28%, provide monthly payments to low-income and middle-class households and fund job training, early retirement and health care benefits to coal workers. At an Earth Day AEI event discussing his bill, Rep. Delaney took the bold step of suggesting his proposal for a simple economy-wide carbon tax could replace the EPA Clean Power Plan.

American Opportunity Carbon Fee Act of 2014

On November 19, 2014, Sen. Sheldon Whitehouse (D-RI), renowned for his weekly “Time To Wake Up” speeches on the Senate floor, introduced the “American Opportunity Carbon Fee Act.” This bill would impose fees on both CO₂ and non-CO₂ greenhouse gases, including fugitive methane from shale gas wells and coal mines, at their CO2-equivalent rates. AOCFA includes a border tax adjustment to impose equivalent climate pollution fees on imported goods from nations that have not enacted their own.

AOCFA pegs its pollution fee to U.S. EPA’s estimate of the “social cost of carbon” currently, $42/ton CO2, and would rise by only 2% annually in real terms. The Carbon Tax Center’s 7-sector price-elasticity spreadsheet model projects that the proposed starting price of $42 per ton of CO₂ would quickly reduce US emissions by about 15%. But the bill’s subsequent 2% annual real price increases would barely stem the rising emission tide due to increased affluence, resulting in essentially flat emissions rather than a declining curve.

Our blog post, New Senate Bill Would Build Polluter Pays Principle into Climate Action, has more on Sen. Whitehouse’s bill.  Sen. Whitehouse and co-sponsor Brian Schatz (D-HI) re-introduced an updated version in June 2015.

Managed Carbon Price Act of 2014 

On May 28, 2014, Rep. McDermott (D-WA) introduced H.R. 4754, a direct and transparent measure to phase out free dumping of climate pollution into our atmosphere. The 21-page bill would steadily raise the cost of climate pollution, enabling investments in renewable energy and efficiency to compete effectively with continued extraction and burning of dirty fossil fuels.

McDermott’s pollution tax would start modestly at $12.50/tonne (metric ton) of CO2 and rise annually by the same amount ($12.50/tonne), reaching $125/tonne CO2 within a decade. The result, according to CTC’s carbon tax spreadsheet model, would be a one-third reduction in U.S. carbon pollution in the tax’s tenth year, vis-a-vis actual U.S. emissions in 2005. By 2030, the target year for the heralded new EPA-White House Clean Power Plan, the McDermott pollution tax would be reducing U.S. CO2 emissions by an estimated 2,051 million metric tons per year, or nearly 6 times the 355 million tonne reduction we have estimated for that year from the Clean Power Plan.

Rep. McDermott’s Managed Carbon Price Act of 2014 compared to June 2014 EPA “Clean Power” proposal

Obviously, a carbon tax like that in the McDermott bill requires an act of Congress — a far more difficult process (though administratively simpler) than the EPA plan. Nevertheless, the nearly 6-fold difference between their respective CO2 reductions is instructive, illustrating both the narrow scope of the EPA plan and the vast reach of carbon taxing.

Other Key Features of McDermott’s Managed Carbon Price Act:

• Dividend: Returns 100% of revenue to individuals as equal (pro rata) “dividends.”
• Other greenhouse gases: The five other major GHG’s, including methane, are taxed at their CO2 climate-damage equivalence.
• Border Tax Adjustments: HR 4754 would tax the climate pollution of imported goods at the same rate as domestic goods, creating strong and growing incentives for other nations to tax climate pollution while protecting U.S. manufacturers from unfair competition by countries that do not tax climate pollution.

Sanders-Boxer “Climate Protection Act”

On February 14, 2013, Senators Bernie Sanders (I-VT) and Barbara Boxer (D-CA) introduced the Climate Protection Act. Sanders-Boxer would  impose an economy-wide tax on CO2 pollution, starting at $20/T CO2 and rising over a decade to $33/T CO2. We estimate that this price signal and trajectory would induce a 12% reduction in CO2 emissions over the course of a decade. The measure includes border tax adjustments to protect domestic industry and encourage other nations to enact their own carbon taxes. Sen. Sanders posted a rousing op-ed in the Huffington Post in July 2014 in support of his and Sen. Boxer’s bill.

The Progressive “Back to Work” Budget

The House Progressive Caucus has also included a carbon tax in its 2014 Better Off Budget proposal. The tax would start at $25/T CO2 and rise 5.6% annually, raising $1.1 trillion in revenue between 2014-2023.

Earlier Carbon Pricing Proposals

Carbon Tax Proposals:

Rep. Stark (D-CA) introduced H.R. 594 “Save Our Climate Act of 2009″ (1/15/09):

• A carbon-content tax on fossil fuels starting at $10/ton CO2
• Increasing by $10 every year.
• Upstream:  Fossil fuels taxed they enter the U.S. economy (i.e., at the production or importation level).
• Revenue use: not specified.
• Exports credited for carbon tax.

Rep. Larson (D-CT) introduced H.R. 1337 “America’s Energy Security Trust Fund Act of 2009″ (3/5/09):

• A carbon-content tax on fossil fuels starting at $15/T CO2.
• Increasing by $10 each year, but in any year that EPA-identified emission targets (based on reaching 80% below 2005 emissions by 2050) are not met, the tax would increase by $15.
• We have estimated the carbon-reducing impact of the Larson bill, using CTC’s 4-Sector Carbon Tax Impact Model. Projected emissions reduction trajectory would meet 80% by 2050.
• Upstream (at production or importation).
• Revenue use:
  • 1/6 of first year’s revenue for clean energy technology research (funding amount remains fixed at tax rate increases),
  • 1/12 (declining to zero over 10 years) for affected industry transition assistance,
  • All remaining revenue distributed to individuals. Returns payroll taxes via a federal income tax credit. In the first year, payroll taxes on the first $3,800 of earnings returned; amount of returned revenue rising with the tax rate. Social Security recipients receive a 10% supplement.
• Border Adjustments: carbon equivalency fee on carbon-intensive goods imported from non-carbon taxing nations.  Exported goods credited for carbon tax.

Rep. Inglis (R- SC) introduced H.R. 2380, “Raise Wages, Cut Carbon Act of 2009’’ (5/13/09):

• Upstream carbon tax.
• Starting at $15/T CO2 rising to $100 in 30 years.
• All revenue used to reduce payroll tax rate.  (Contrast with Larson bill which would exempt first ~ $3,800 earned from payroll tax.)
• Tax reduction split between employer and employee.
• Border Adjustments: equivalent tax on imports, exports credited.

“Managed Market” Proposal

Rep. Doggett (D-TX) introduced H.R. 1666 “Safe Markets Development Act of 2009″ (3/23/09):

• Cap-and-trade program to reduce greenhouse gas emissions from covered sources from 6.153 billion metric tons in 2012 to 253 million in 2050.
• Treasury to auction 100% of allowances quarterly.
• Board (6 members, appointed by President) to set targets for allowance prices, manages quarterly auctions by changing supply of allowances to maintain a smooth price path through 2019, oversees secondary markets (not clear how).
• Covered entities may bank up to 5% of allowances from a calendar year.
• Revenue use: not specified.

Cap and Trade Proposal:

Reps. Waxman (D-CA) and Markey’s (D-MA) “American Clean Energy Security Act” (7/7/09):

ACESA included a cap-and-trade title, including 2 billion tons of offsets (up to 75% international) effectively delaying domestic U.S. emissions reductions by at least a decade. The bill would have given away 85% of allowances, auctioning only 15%. (Grist summary here.)

“Cap and Dividend” Proposals:

Senators Cantwell (D- WA) and Collins (R-ME) introduced the Carbon Limits and Energy for America’s Renewal (CLEAR) Act (12/11/09):

While retaining a “cap” and limited trading, CLEAR would avoid the most profound flaws of the Waxman-Markey bill (passed by the House) and the Kerry-Boxer bill (which stalled in the Senate).  CLEAR would set a floor and ceiling (“collar”) on carbon allowance prices, authorize only “covered entities” to hold allowances and would not allow offsets to be used in place of allowances.  CLEAR proposed to “recycle” 75% of revenue directly to households, contrasting sharply with the cap-and-trade bills’ give-away of carbon revenue and its equivalent in free allowances to an array of special interests and energy projects.  With Sen. Susan Collins’ (R-ME) co-sponsorship, CLEAR began as a bipartisan proposal.

CLEAR purported to preclude a secondary market (or “derivatives”) in carbon allowances.  But analysts raised doubts about whether the bill could prevent large energy users  from contracting to hedge against seasonal and cyclical price swings. Also, the low price range of bill — $7 to $21 per ton of CO2 in the initial year, 2012, rising each year at approximately 6% above inflation — is not nearly sufficient to achieve the needed emissions reductions. CTC’s Carbon Tax Model suggests that this price trajectory would only lead to a 7.5% drop in U.S. CO2 emissions from 2005 levels in 2020. Instead of a substantial price signal, the bill relied heavily on subsidies for clean-energy investment which would come from the 25% of revenue not returned to households.  CLEAR’s goal was emissions reductions of 20% from a 2005 baseline by 2020. CLEAR’s price collar would have made carbon prices more predictable, closer to a carbon tax than other cap-and-trade proposals. But its $7 – 21 range was wide enough to allow significant volatility that could discourage investment in alternatives and efficiency while generating profits for speculators. Potential volatility combined with CLEAR’s low price meant that its price signal would be “noisy” and small — not the clear upwardly trending price signal that would most strongly encourage low-carbon energy.

Rep. Van Hollen (D-MD) introduced H.R. 1862 “Cap and Dividend Act of 2009″ (1/1/09):

• CO2 Cap. Fossil fuel producers, importers surrender permits for CO2 emissions each year. Permits decline annually, leading to an 85% reduction below 2005 CO2 emissions from covered entities by 2050.
• 100% auction of permits
• Permits tradeable.
• Volatility-limiting measures: Unlimited banking. Borrowing if permit prices increase more than 100%.
• Revenue use: Funds distributed monthly in equal amounts to those with a social security number.
• Border Adjustments: Exporters credited, importers pay “carbon equivalency fee.”

Related CTC Blog Posts and News Items:

• Bipartisan Plaudits for Rep. Delaney’s “Tax Pollution, Not Profits Act” (8/12/15).
• Don’t Anchor a Carbon Tax to the Social Cost of Carbon (Analysis of effectiveness of price trajectory in Sen. Whitehouse‘s bill, 6/8/15).
• New Senate Bill Would Build “Polluter Pays” Principle into Climate Action (Discussing design of Whitehouse bill, 11/19/14).
• One Cheer for a New “Cap-and-Dividend” Bill  (Discussing Van Hollen bill, 7/30/14).
• The Audacity of Common Sense: Progressive Caucus’ ‘Better Off Budget’ (Balanced budget proposal to restore social safety net, tax financial transactions and tax carbon pollution, San Diego Free Press, 4/14/14).
• Rep. McDermott (D-Wa) Introduces Bold “Managed Price” Carbon Tax Bill  (8/2/12).
• Should Carbon Pricing Advocates Support the Cap-and-Dividend Bill? (Discussing Cantwell-Collins and Van Hollen bills, 12/2/10).
• Progressive Democrats Endorse Rep. Larson’s Carbon Tax Bill (2/1/10).
• Bipartisan Senate Bill Could Breathe Fresh Air into Climate Debate (Analysis of Cantwell-Collins bill, (12/11/09).
• Rep. Doggett on Waxman-Markey: “I Cannot Support It. (6/26/09).
• “Simplicity Matters” — Tom Friedman on Rep. Larson‘s Carbon Tax Bill  (4/8/09).
• New Larson Bill Raises the Bar for Congressional Climate Action (4/6/09).
• An Emissions Plan Conservatives Could Warm To (Bob Inglis & Arthur Laffer, NY Times (12/27/08).

2020 presidential campaign

Last update: June 11, 2019

Inslee demands DNC rescind its climate-debate ban

Washington Gov. Jay Inslee used his June 11 appearance on “Democracy Now” (downloadable MP3) to demand the Democratic National Committee withdraw its threat to exclude from its forums any presidential candidate who participates in non-DNC-sanctioned debates.

Inslee addressed the DNC stance at the start of his 30-minute interview with Democracy Now hosts Amy Goodman and Juan Gonzalez (the segment begins at minute 13:00 of the program). The interview focuses, as does Inslee’s campaign, on climate change but it also ranges across related topics such as immigration, health care and economic development.

Biden climate plan includes a fee on carbon pollution . . . and carbon tariffs

Former V-P and current Democratic front-runner Joe Biden “proposes that Congress pass a law by 2025 to establish some form of price or tax on carbon dioxide pollution, a policy championed by most economists as the most effective way to fight climate change,” the New York Times reported on June 4.

Though Biden did not specify a dollar level for a carbon tax, and a 2025 launch date appears very far off, his climate plan, which goes far beyond a carbon price, was applauded by some activists. “He put out a comprehensive climate plan that cites the Green New Deal and names climate change as the greatest challenge facing America and the world,” Varshini Prakash, executive director of the Sunrise Movement, told the Times. “The pressure worked.”

The Biden plan also includes “carbon tariffs” on imported goods, according to the Times. Such a measure presumes a U.S. carbon tax, since carbon tariffs would be levied on the excess of domestic U.S. carbon taxes relative to other countries’ own carbon price. (For more on carbon tariffs see our Border Adjustments page.)

Dems: 8 out of 18 strongly for taxing carbon emissions

A year and a half out, the 2020 presidential campaign has already paid more attention to climate change than any previous election — perhaps even every previous election combined. (Bill McKibben surveyed the depressing history as part of an election preview for Politico.)

The best news of all is that voters are speaking up. In an April 2019 Monmouth University Poll of Iowa Democrats, climate change ranked second among issues of concern, albeit far behind health care. (Environmental concerns generally also ranked fairly high, which may also reflect climate concern.) The June 4 Times article cited above (re Biden) quoted a Democratic pollster proclaiming, “Climate change is an incredibly important issue for the Democratic base right now. It’s about the future, and it’s something that [President Trump] has made worse in the minds of the Democratic base.”

The candidates — well, the Democrats, anyway — are responding:

• Every sitting senator in the race has cosponsored the Green New Deal resolution sponsored by Sen. Edward Markey (D-MA). (CTC policy associate Bob Narus identified the policy synergies between carbon taxes and the Green New Deal in two recent posts, Green New Dealers Should Embrace a Carbon Tax and Carbon Tax Advocates Should Embrace a Green New Deal.)
• A dozen candidates have sworn off campaign contributions from fossil-fuel companies, according to Oil Change International (see graphic).
• Most importantly, a number of candidates — Beto O’Rourke, Jay Inslee, Elizabeth Warren and, now, Joe Biden have rolled out serious, detailed climate programs. (See below for coverage of these proposals.)

The dozen candidates shown above have pledged to campaign free of fossil fuel contributions, according to Oil Change International

Only three candidates have explicitly endorsed a carbon tax, however. Aside from Biden, Former Maryland representative John Delaney  was an original cosponsor of the Energy Innovation and Carbon Dividend Act of 2018, which largely followed Citizens’ Climate Lobby’s fee-and-dividend template. And South Bend, Indiana, mayor Pete Buttigieg made an articulate case for the same approach in an appearance on the Tonight Show (beginning at 6:15):

There’s also a plan called a carbon tax and dividend. Basically you set a price on things that put carbon into the atmosphere, but then you can rebate that back out to the American people so most of us would actually be better off if we did it. Meanwhile it would help change the economic incentives so that you’d see less activity that hurts the environment. Because the true cost is not reflected in the price of, for example, energy that comes from coal. If you were facing the true cost of it you’d have to set that price a lot higher.

Most of the field has been tiptoeing around the issue, perhaps fearing, in the words of New York Times columnist David Leonhardt, that carbon taxes “focus people’s attention on the short-terms costs of moving away from dirty energy” instead of on the benefits of clean energy.

But if they aren’t running on carbon pricing, at least some of the candidates aren’t running away from it, either. In April 2019, when the Times surveyed the announced Democratic candidates (18 at the time) on climate change, it found seven who “put their weight firmly behind a carbon tax”: Cory Booker, Pete Buttigieg, Julián Castro, John Delaney, Kirsten Gillibrand, Marianne Williamson and Andrew Yang. (Presumably, Biden has joined the ranks.)

Five others said they were “willing to consider” a carbon tax, according to the Times: Jay Inslee, Amy Klobuchar, Beto O’Rourke, Tim Ryan, Eric Swalwell.

In  May 2019, Citizens Climate Lobby posted a more detailed survey, Which 2020 candidates support carbon pricing?, with thumbnails of eight Democratic candidates as well as two possible Republican challengers to President Trump.

Sanders is said to “demote” carbon taxing

A Climatewire story in early June examined the reticence of climate hawk and erstwhile carbon tax proponent Sen. Bernie Sanders to express support for carbon taxing in 2019. Though the story, Sanders demotes carbon taxes. Here’s what it means for Dems, leads with the Vermont senator, it finds a similar reluctance across much of the Democratic field.

First, about Sanders:

His [Sanders’] 2020 presidential campaign still focuses on global warming, but gone are the regular broadsides over carbon pricing. Missing, too, is any reference to carbon taxes in the climate section of his official campaign website. Instead, Sanders has chosen to emphasize the Green New Deal when talking about climate change — a shift that underscores how much the politics of global warming have transformed in a few short years. Part of that, perhaps, is a broader decline in enthusiasm for carbon pricing among left-leaning politicians and activists.

Climatewire also notes:

Sanders’ shift in focus is striking. During the 2016 campaign, Sanders repeatedly hammered Clinton over her unwillingness to get behind a tax on carbon emissions. “I would ask you to respond. Are you in favor of a tax on carbon?” he asked in one debate. Later — after Clinton had sewn up the Democratic nomination — Sanders pressed to include carbon taxes in the party’s 2016 platform in part by appointing longtime environmentalist Bill McKibben to the drafting committee.

(We reported those 2016 developments in two posts, What the Sanders-Clinton Clash over a Carbon Tax Says about Democrats and Climate Change, and Democratic Platform Vote Was a Win for Carbon Taxes.)

The Climatewire story concludes with a curious but revealing quote from an advisor to Congressmember and Green New Deal spearhead Alexandria Ocasio-Cortez. “I feel we’re very locked into what we can do when we lead with a carbon tax,” says Andrés Bernal. The operative word is “lead,” as the story implies by noting that Bernal’s statement “doesn’t mean [he] doesn’t see carbon taxes as part of the equation at some point.”

Even so, any “lock-in” would be in the realm of politics, not policy. A carbon tax was never going to be a stand-alone, but rather both a market-pulling force and a pay-for, as this site has pointed out practically since its founding in early 2007, most recently in the April post by CTC policy associate Bob Narus, Green New Dealers Should Embrace a Carbon Tax.

Beto O’Rourke

On April 29, former Texas representative Beto O’Rourke surprised everyone by being first out of the Democratic gate with a comprehensive climate policy. His four-part plan includes:

• Immediate executive and regulatory actions ranging from controlling methane leakage and building efficiency standards to “clean” government procurement
• $1.5 trillion in spending (paid for by taxes on the wealthy and corporations), leveraging an additional $3.5 trillion in non-government spending, on clean energy investments and R&D
• A 2050 target date for net-zero emissions
• Efforts to protect communities, agriculture and military installations from the impacts of climate change

O’Rourke doesn’t use the term “carbon tax,” but he does promise a “legally enforceable standard” for meeting the 2050 deadline, explaining:

This standard will send a clear price signal to the market to change the incentives for how we produce, consume, and invest in energy, while putting in place a mechanism that will ensure the environmental and socio-economic integrity of this endeavor — providing us with the confidence that we are moving at least as quickly as we need in order to meet a 2050 deadline.

That language seems to envision some form of carbon pricing.

Jay Inslee

On May 3, Washington Governor Jay Inslee released his “100% Clean Energy for America Plan” in several media (video, Web page, 8-page pdf). Carbon pricing isn’t mentioned. Excerpts from the Inslee campaign’s Web page:

Governor Jay Inslee’s 100% Clean Energy for America Plan will achieve 100% clean electricity, 100% zero-emission new vehicles and 100% zero-carbon new buildings. This plan will empower America to make the entire electrical grid and every new car and building climate pollution-free, at the speed that science and public health demand.

The 100% Clean Energy for America Plan is the first major policy announcement in Governor Inslee’s Climate Mission agenda – a bold 10-year mobilization to defeat climate change and create millions of good-paying jobs building a just, innovative and inclusive clean energy future, with meaningful targets and plans for execution based on his experience as a governor. Governor Inslee will announce additional major planks of his detailed climate plan in the coming weeks.

Two weeks later came Phase 2 — Inslee’s Evergreen Economy Plan.  The 38-page plan defies easy summarization, but highlights include:

• a Rebuild America Initiative to upgrade buildings
• a $90 billion green bank to support clean energy projects
• a $3 trillion infrastructure program
• a clean manufacturing program, including federal procurement standards
• greatly expanded clean-energy R&D
• higher wages, benefits and union rights for clean-energy workers

All told, Inslee proposes spending $300 billion per year, leveraging another $600 billion in private investment , for a total of $9 trillion over a decade. No word yet on where he plans to get that $300 billion/year. “I have plans,” he told us at a Manhattan meet-and-greet the same day he released the proposal.

Not surprisingly, Inslee is winning the David Roberts Primary:

To put it bluntly, Inslee is writing a Green New Deal. . . . This isn’t just a campaign play, it’s a document the next Democratic president is going to want in-hand when the time comes to get to work.

Alexander Kaufman at Huffington Post also has a good summary of Inslee’s plan.