Gore’s Climate Remedy Must Match Diagnosis (C. Komanoff — Huff Post)
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Senate's New Openness to Carbon Tax Demands New 'Framing'
With the ranking Republican on the Senate Energy & Natural Resources Committee now urging serious consideration of a revenue-neutral carbon tax, we carbon-tax advocates may want to re-examine our “framing,” even as we call upon cap-and-trade supporters to unite with us behind a carbon tax.
Let’s start with today’s news from GreenWire’s Darren Samuelsohn, which was picked up by The New York Times, that the ice jam blocking sound climate policy is finally beginning to break up:
The Senate climate debate detoured from cap-and-trade legislation today as the Energy and Natural Resources Committee weighed alternatives like a carbon tax or even sector-specific limits on power plants.
“We need to dispense with the blind loyalty to cap and trade, or at least begin to question if it is warranted,” said Sen. Lisa Murkowski (R-Alaska). “We should objectively review the strengths and weaknesses of our policy options and develop a measure that protects both our energy and the environment.”
Murkowski, the committee’s ranking member and a co-sponsor last year with Democrats of a cap-and-trade bill, said Americans now associate the cap-and-trade concept as a tax that will raise prices on a range of consumer goods. That, she added, should prompt Congress to consider other less-expensive legislative approaches that take aim at reducing greenhouse gas emissions.
“We need to be honest about those costs, and ensure that the revenues associated with them are returned to the people who will bear the burden of compliance,” Murkowski said.
Here are my takeaways from Murkowski’s statements:
- The odds for passing the Waxman-Markey / Kerry-Boxer cap-and-trade bill are worsening steadily.
- With Sen. Bob Corker (R-Tenn.) and Rep. Bob Inglis (R-So. Carolina) already in the fold, a semblance of a “GOP Caucus for a Revenue-Neutral Carbon Tax” may be starting to emerge — in contrast to monolithic Republican opposition to carbon cap-and-trade.
- The political fallout from cap-and-trade has the potential to make winning public acceptance of a carbon tax even tougher.
The import of Takeaway #3 is obvious: Committing to revenue-neutrality may not be enough to push a carbon tax through the political fog and past the fossil-fuel lobby. And rhetorically tying the carbon tax to a tax-shift and/or dividend may not suffice, either. Radical re-framing may be in order.
One possible approach is to push the tax dividend before the tax itself. That’s precisely what the Canadian environmental campaigner and writer Silver Donald Cameron did in an essay last month, Tax Those Carbon Gluttons:
LEMME TELL YOU about a carbon tax you’re gonna love… The fun starts with the government giving you maybe $2,000 as a carbon dividend.
You like it so far? Thought so. And the government gets the money by imposing a tax on everything that emits carbon dioxide into the air. The total amount raised by the carbon tax is the same amount that’s being distributed as a dividend. So it’s a wash. The government is no better off at the end of the day.
But you’re better off — if you’ve been frugal with energy, living in a snug house with solar hot water and wood heat, travelling on public transport, eating local food. You lose a bit of your dividend in taxes on gasoline and electricity and what-not — but you get to keep a good chunk of your carbon dividend. Let’s say you pay $400 more in taxes. That money just reduces your windfall dividend. The carbon tax still leaves you $1,600 ahead. How does that sound, sonny?
Fred Foulwater doesn’t.
Fred’s a carbon glutton, so he’s definitely worse off. Sure, he also gets his $2,000 dividend — but he lives in a huge house in the outer suburbs, he doesn’t turn down his thermostat and he commutes 60 kilometres to work in a monstrous SUV. He has a penchant for exotic tropical fruit in midwinter and he flies a lot, so in the end he pays a lot of tax — which doesn’t exactly feel like a tax, but feels like higher prices. Let’s say Fred’s profligacy adds $3,600 to his overall tax bill. So the new taxes have eaten up all of his $2,000 dividend — and another $1,600 besides. That’s the $1,600 that ended up in your pocket, buddy.
Pollute if you want. Buy junk if you like. Emit as you choose. But it’s going to cost you — and the money captured from you goes directly to your clever neighbours. As time goes by and the whole society becomes more serious about slashing emissions, the taxes and the dividend go up. Stupidity becomes more and more expensive.
(Emphases added. Cameron’s piece is no longer available at its original Nov. 22 posting at the Nova Scotian / Chronicle Herald, but by clicking here you can download it as an MS-Word doc.)
I happen to like Cameron’s messaging. A lot. I like that he puts the “dividend” up front. (By the way, the dividend could be a tax cut as well as a check, though the check seems cleaner and clearer.) I like the libertarian, “Pollute if you want … But it’s going to cost you.” And I like the simplicity.
A carbon tax, even revenue-neutral, has always been a tough sell. The fact that cap-and-trade has been partly branded as a carbon tax might make the sell tougher still. But we may be breaking through the “That’s politically impossible” screen. With the right messaging, we could get there — into and through Congress — even faster.
Photo: Flickr /Anna.Andres
The Three Newest Flaws in Cap-and-Trade
Democratic Senators Barbara Boxer (CA) and John Kerry (MA) are expected to introduce their long-awaited climate-change bill tomorrow. As the Houston Chronicle reported last weekend, the bill was delayed for months “by negotiations aimed at appeasing moderate Democrats worried that new emissions caps could impose hefty economic costs on the energy industry, struggling manufacturers and coal mining.”
The Boxer-Kerry bill is expected to be modeled after the Waxman-Markey bill that squeaked through the House in June. This means it will employ the cap-and-trade architecture that underpinned the 1997 Kyoto Accords and has been the cornerstone of the U.S. Big Green lobby’s legislative offensive on climate ever since.
[Addendum: The 821-page Boxer-Kerry “Clean Energy Jobs and American Power Act” was introduced Sept. 30. Go here for text, or here for section-by-section summary. — C.K., Oct. 1.]
Cap-and-trade has been attacked on many grounds: lack of a clear price signal, inherent complexity, and necessary reliance on trading mechanisms that would unleash a pandora’s box of financial machinations that could destabilize global finance. Of late, three new objections have surfaced against cap-and-trade as an “architecture” for reducing greenhouse gases. Each is worth considering as the Senate begins tackling climate legislation in earnest.
Outside NRDC's New York City headquarters, Sept. 24
The first concerns what has heretofore been billed as cap-and-trade’s greatest virtue: its foundation on a quantified emission target, i.e., a “cap.” Alas, the nature of a cap is to be fixed, and therefore not adaptable to changing circumstances — including, now, the sudden drop in U.S. emissions.
As everyone knows, the Great Recession has shrunk economic activity in the United States. And fossil fuel burning and CO2 emissions have been shrinking particularly fast. Consider just one sector, albeit a key one: coal-fired electric power generation.
Until very recently, coal-fired power plants were responsible for almost a third of all U.S. emissions of carbon dioxide. This year, however, the bottom has fallen out.
First-half 2009 figures released last week by the Energy Information Administration show an almost 13% drop in electricity generation from coal and an attendant 11% drop in the physical tonnage of coal burned to make power vis-à-vis the first half of 2008, as coal has absorbed the entire unprecedented 5% drop in overall electricity production. By my calculations, this six-month drop in coal burning alone has already translated to 106 million fewer metric tons of carbon dioxide, singlehandedly reducing total annual U.S. emissions by almost 2%. If continued through December, the 2009 decline in coal burning would cut U.S. emissions by 3% from 2005 levels, thereby achieving, in one sector, almost a fifth of the Waxman-Markey target of reducing 2020 emissions by 17%,
Yes, emissions will eventually “rebound” as economic recovery takes hold. But not all of the lost output will be made up. Moreover, some observers, The Earth Policy Institute’s Lester Brown among them, believe that much of the sudden drop in coal-fired and other emissions is due to emerging structural factors such as fuel-efficiency standards, the liftoff in renewable energy, and more widespread awareness of the perils of oil dependence. These developments too are cutting the Waxman-Markey 17% target down to size. While in theory this “stature gap” could be restored by writing a tougher target into the Senate bill, in practice it’s unlikely the bar will be raised this fall, or ever. If so, the vaunted “emissions certainty” in cap-and-trade will lock in a hollow achievement.
The second new flaw, variously referred to as the “voluntary reductions conundrum” or the “virtue dilemma,” concerns the prospect that under a cap-and-trade regime, any “extra” steps to reduce CO2 emissions stand to be canceled out by corresponding increases in emissions that the cap enables somewhere else. In effect, any action to, say, ride a bike instead of driving (or, on a larger scale, to create a bicycling infrastructure that can replace thousands of car trips), or to permit a wind-turbine farm whose output allows the grid to cut back on fossil-fuel generation, ends up creating “room” under the cap that lets other parties increase driving or coal-burning and emit the “saved” emissions.
The mechanism for this perverse consequence of a carbon cap would be a decrement in the auction price of allowances due to the increment in bicycling or wind output, encouraging a corresponding increment in driving or fossil-fuel power generation elsewhere within the capped entity. In effect, the celebrated cap in cap-and-trade dictates an emissions equilibrium that, in turn, vitiates any given decarbonizing measure which, absent the cap, would have reduced emissions.
The implication is troubling, to say the least. No more could one promote a proposed renewable-energy or energy-efficiency project as a climate-saver, if its fossil-fuel-saving virtue will be offset by an equal helping of fossil-fuel vice somewhere else. At the same time, a dirty-energy project (or failure to implement a clean one) could be justified on the grounds that the resulting propping up of allowance prices will enable other low-carbon investments or behaviors to come into being and pick up the slack. The idea that “the cap will provide” turns out, it seems, to be a two-edged sword.
The third and last cap-and-trade flaw attracting notice concerns transnational fungibility. Shorn of its recondite name, it denotes the difficulty if not impossibility of establishing a normative quantity-reduction target for greenhouse gases. In a nutshell, if the U.S. were to establish an emissions reduction goal of 17%, or any other number, for 2020 or any other future year, by what criterion should that target be deemed appropriate for any other country? After all, the United States emits twice as much CO2 per capita as comparably wealthy countries in Europe, and, of course, 5 to 20 times as much per person as China, India, Brazil, et al. (And this comparison doesn’t reflect the even greater disparities in historical or aggregate emissions.)
Needless to say, this problem of fungibility, or its lack, doesn’t apply to a carbon tax. A U.S. carbon tax of so many dollars per ton of CO2 might or might not be the “optimal” level, but it would at least translate fairly and equally across borders, disadvantaging manufacturers in every nation more or less equally. Moreover, as Elaine Kamarck has pointed out, many countries lack the administrative capacity to manage a cap-and-trade system, whereas most governments can at least collect taxes.
Nor would a carbon tax be beset by flaws #1 or #2. The impacts of a carbon tax on U.S. investment decisions, infrastructure provisions and personal behaviors will be relatively unaffected by aggregate contractions in emissions. Moreover, unlike cap-and-trade, a carbon tax won’t undercut virtue but will reinforce it, since each and every elimination of emissions will be rewarded by a corresponding reduction in the tax.
At this point, cap-and-trade seems to have little going for it other than institutional inertia. Let us hope that all of its drawbacks are closely and fairly scrutinized in the Senate debate now set to begin.
Photo: David Pine, rising tide north america
Hansen Tells Ways & Means: Revenue-Neutral Carbon Tax Needed to Spur Clean Technology Revolution
A planetary crisis “threatening the young and unborn” compels a “substantial, gradually-increasing carbon tax with all revenue distributed directly as monthly ‘dividends’ to each household,” Dr. James Hansen told Congress today.
Hansen, director of NASA’s Goddard Institute for Space Studies and the unofficial dean of climate scientists, testified that measurements of Earth’s historical climate sensitivity to atmospheric CO2 make clear that rising levels are now driving our climate into ranges that will have lethal consequences. Current concentrations of 385 ppm amplify dangerous feedback mechanisms such as loss of reflective ice surfaces and release of methane gas from permafrost, he said. Atmospheric concentrations must be brought below 350 ppm as quickly as possible, Hansen stressed, specifically rejecting the target of 80% reductions by 2050 advocated by leading environmental groups.
Hansen testified at a House Ways & Means Committee hearing this morning, kicking off debate in Congress over legislation to help the U.S. achieve deep cuts in carbon emissions through a cap-and-trade system, a carbon tax, or perhaps a hybrid approach. Hansen and Union of Concerned Scientists geochemist Dr. Brenda Ekwurzel both testified in favor of vigorous action, although they differed on the cap vs. tax question. A third witness, University of Alabama professor John Christy, argued for a go-slow approach.
Hansen told the committee that a transparent carbon tax with direct dividend would “spur rapid replacement of our inefficient infrastructure” and lead to an “efficient phase-out of coal.” He strongly criticized cap-and-trade proposals, calling caps “hidden taxes,” contending that they would undermine essential price signals through price volatility while enriching traders and lobbyists at the expense of the public. He predicted that cap-and-trade could lead to "blackmail" by electricity suppliers, who would force the public to choose between meeting emissions targets and blackouts, and pointed out that the European Union’s cap-and-trade system has failed to reduce carbon emissions.
UCS’s Ekwurzel testified that acidification has already diminished the oceans’ ability to absorb more carbon dioxide — a development that will accelerate global warming. She advocated a “cap and invest” program in which emission permits are auctioned and the proceeds used to finance energy efficiency and renewable energy.
Christy’s appearance was sponsored by Republican members of Ways & Means. He testified that cloud effects outweigh human effects on climate, and contended further that any U.S. actions to reduce emissions would be overwhelmed by emissions from China and India, both of which have rejected carbon caps. He suggested that the best way to reduce CO2 emissions is a massive nuclear power construction program.
Committee Chairman Charles Rangel, who represents Manhattan’s Harlem neighborhood and parts of the Bronx, asked Hansen about the effects of a carbon tax on low-income households. Hansen explained that under his proposal to distribute 100% of carbon tax revenues to U.S. residents, a steadily increasing tax reaching $115 per ton of CO2 would result in estimated dividends of $9,000 per two-child household, assuming that adults got one “share” and each of the first two children got one-half. [Ed. note — Using CTC’s carbon tax impact model, we estimate that a $115/ton carbon tax would provide the average family of four with a $7,500 annual dividend.] Hansen noted that because households that use below-average amounts of fossil fuel would receive more in dividends than they paid in higher energy costs, his program would help the vast majority of middle- and lower-income Americans. Hansen also cited Congressional Budget Office findings that carbon taxes are five times as efficient as caps at reducing emissions.
UCS’s Ekwurzel argued that retrofitting homes and transportation would be a better use of carbon cap revenue than direct dividends. However, she did not address whether “breaching” strict revenue-neutrality on behalf of energy efficiency and renewables might unleash a torrent of less benign uses of the cap or tax proceeds. For his part, Christy seconded Hansen’s view that a carbon tax would be more transparent than a carbon cap-and-trade system.
Rep. Dave Camp (R-Mich.) and several other Republican members branded carbon caps as hidden taxes. They insisted that the Ways & Means Committee assert jurisdiction over any cap or carbon tax legislation.
Rep. Sander Levin (D-Mich.) responded to Christy’s testimony, saying “nobody is talking about the U.S. acting alone.” Hansen explained that the U.S. could use “average carbon content data” to set tariffs on goods from countries that didn’t enact their own carbon taxes. A U.S. tax with harmonizing tariffs would encourage trading partners to enact their own carbon taxes to negate tariffs and capture tax revenue themselves, he said.
Connecticut Democrat John Larson cited Friends of the Earth’s recent report describing carbon trading as potentially the world’s largest “dark, unregulated” derivatives market and asked why anyone should think that auctioning tradeable permits wouldn’t lead to “a speculative mess.”
During a recess in the hearing, Peter Barnes of Cap and Dividend and Mike Tidwell of Chesapeake Climate Action Network asked Hansen if he would support legislation to cap emissions and recycle revenue via a direct “dividend” to households. Hansen replied, "I don’t see what a cap gets you. We need maximum reductions as soon as possible and a tax gets that."
Committee members asked one cogent question after another. Rep. Jim McDermott (D-Wash.) focused on volatile prices under a cap, which he said would discourage clean energy entrepreneurs. Rep. Chris Van Hollen (D-Md.), a strong supporter of cap-and-dividend, asked about revenue-recycling, noting Hansen’s testimony that a carbon price will need to be high enough to affect behavior and purchasing decisions. Rep. Doggett noted that Exxon now supports a carbon tax after years of climate-change denial.
Hansen stressed the importance of a dividend to ensure continued political support as carbon prices rise. He urged Congress to direct the National Academy of Sciences to report on climate science as a way to end the debate over anthropogenic global warming once and for all.
After the hearing, I had the good fortune to join Dr. Hansen for lunch. I asked him about clean coal. He said “there is no such thing as clean coal, and there never will be.”
Links to testimony
Hansen: http://waysandmeans.house.gov/hearings.asp?formmode=view&id=7577
Erwurzel: http://waysandmeans.house.gov/media/pdf/111/ekw.pdf
Christy: http://waysandmeans.house.gov/media/pdf/111/ctest.pdf
Photo: Flickr / World Development Movement.
Could Palin Pick Spotlight "Alaska Dividend" Solution to Climate Crisis?
Note: On Oct. 15, the Alaska Permanent Fund Corporation wrote CTC with helpful details that clarify and correct some of the representations in our Aug. 29 post. The APFC graciously granted permission for us to print their e-mail in full, which we have done at the foot of this post. — C.K.
John McCain’s pick for vice-president isn’t shaping up as a win for Teddy Roosevelt-style conservation. A list of Alaska Gov. Sarah Palin’s positions on key environmental issues posted by the folks at Grist includes these anti-green stances:
- Opposed a statewide ballot initiative to prohibit or restrict new mining operations that could affect salmon in the state’s streams and rivers.
- Has pushed to build a natural-gas pipeline from Alaska’s North Slope
- Sued the Interior Department over its decision to list the polar bear as a threatened species
- Has proposed eliminating Alaska’s gas tax
- Has pushed to open Arctic National Wildlife Refuge to drilling
But the Grist list also includes this:
- Got the state legislature to pass a bill to provide each Alaskan $1,200 to help with energy costs
Which naturally brings to mind the Alaska Permanent Fund, the 49th State’s long-established program that annually sends every Alaska resident an identical check drawn from the state’s North Slope oil royalties.
The $1,200 per capita “resource rebate,” was proposed by Palin in July and enacted by the legislature on Aug. 7 “as a way for the state to share some of its multibillion-dollar oil revenue surplus with Alaska residents,” according to the Anchorage Daily News, effectively making it a hybrid of the Alaska Permanent Fund and the federal economic stimulus package that distributed checks to U.S. families earlier this year.
As we have long pointed out, the Alaska Permanent Fund offers a proven, straightforward model for distributing federal (or state) carbon tax revenues in revenue-neutral and progressive fashion: returning those revenues equally to all U.S. residents.
With carbon tax revenues distributed through pro rata dividends, the vast majority of poorer households, and a majority of middle-income families as well, would get back more in the dividends than they would pay in the tax. (For a federal carbon tax, the dividend checks should be provided at least quarterly and perhaps even monthly to keep households ahead of the budget treadmill.) This would cushion the impact of higher prices from carbon pricing while retaining the incentives for businesses, institutions and individuals to transist rapidly to a low-carbon economy.
This Labor Day weekend and beyond, the media will doubtless focus on Gov. Palin’s impact on McCain’s election chances. Let’s hope that a few enterprising reporters will use the selection of a candidate from the Last Frontier State as an occasion to focus on the “Alaska Dividend” as an equitable and politically palatable way of packaging a revenue-neutral national carbon tax.
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Oct. 15, 2008
Mr. Komanoff –
I saw your post today that you wrote in August mentioning the Alaska Permanent Fund. I thought you might want to know that the Fund does not send out checks from oil taxes or royalties. The Fund invests 25% of the oil royalties that the State receives (no portion of any oil taxes come to the Permanent Fund) and then sends dividends from the income on investments. This includes rent on commercial real estate, stock dividends and bond interest.
Since 1977 the Fund has received $13.2 billion in oil deposits, which has grown through investments to a current value of $30 billion while paying out $16.7 billion in dividends since 1982.
This year was a little confusing because the dividend was $2,069 per person. On top of that Governor Palin and the Legislature added an additional $1200 that came straight out of oil revenues (royalties and taxes) in the State’s general fund.
Since you are proposing our model as something that could have a broader US application, I thought you might want to know that it isn’t a straight redistribution of oil revenues. Please let me know if you have any questions.
Laura Achee, Director of Communications, Alaska Permanent Fund Corporation, www.apfc.org
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Photo: Flickr / vincentd_indy.
B.C. Carbon Tax Backlash: How Real?
For months we’ve been touting the British Columbia carbon tax, and for good reason. Not only is BC’s carbon tax the highest by far in North America ($10 per metric ton of CO2 this year, rising stepwise to $30 in 2012), but the rollout of the tax has seemed to be handled with great intelligence. The Liberal Party provincial administration took pains to make the tax revenue-neutral (mostly via reductions in personal and business tax rates), a feature it underscored by sending B.C. residents $100 carbon tax dividend checks as a down payment in the week before the tax went into effect on July 1.
So we were dismayed to read in mid-July of a poll showing a clear majority of B.C.’ers opposed to the tax. Even the $100 dividends came off badly in the poll, with at least one respondent complaining that her check only served to remind her of the loathsome tax.
Columnist Bill Tieleman, who posted the story on the Vancouver Web outlet 24 hours, drives home the point in a later story, Carbon tax has no supporters around here. Tieleman seems to fancy himself as a populist voice against B.C. premier Gordon Campbell in general and the tax in particular.
Over the weekend we discussed the poll with social entrepreneur Peter Barnes, progenitor of the intriguing Cap-and-Dividend approach to revenue-neutral carbon pricing, as follows:
Komanoff:
- Much is made of Americans’ supposed sensitivity to gasoline prices, and the same may be applying in B.C., exacerbated of course by the "market-based" rise in pump prices which has been an order of magnitude greater than the (9 cent a gallon) carbon tax. Mathematically, each of those $100 checks covers the carbon tax on 1,111 gallons, though the true coverage is less considering that gasoline accounts for only ~35% of the carbon tax bite in BC (21-22% in the U.S.). Needless to say, most BC’ers don’t consume 1,100 gallons of gas a year.
- Most likely the BC government could have done more and better p.r. Yet overall they’ve been savvy … consider if the $100 checks had lagged rather than preceded the rollout of the tax!
- The poll question wasn’t straight-up, since it suggested that the $100 check was all that BC’ers would get, when it’s actually just the down payment. Here’s that Q: "The provincial government has sent every British Columbian a cheque for $100 as a one-time ‘Climate Action Dividend.’ The total cost of ‘Climate Action Dividend’ is $440 million. This expenditure will
be paid for by B.C.’s new carbon tax of 2.4 cents per litre of gasoline and other fuel. Do you agree or disagree with this expenditure?" - One always wants to know how the poll respondents were selected. (Recall the notorious Literary Digest poll picking Landon over FDR in ’36!) Still, this isn’t to deny that even the dividend concept which you’ve been so prolific and persuasive in disseminating is an uphill fight.
Barnes:
- One problem (from a PR standpoint) might be that the BC tax cuts are divided between individuals and businesses. So even if there is overall revenue neutrality, most voters will only get back about half of what they pay in higher prices.
- The way in which tax cuts rise along with carbon prices is not transparent or seemingly automatic. The carbon tax revenue is not placed in a separate trust fund (so far as I can tell) but is blended with general revenue. It is then up to future legislatures to adjust the tax rates. This could reasonably make people skeptical.
- A one-time dividend is an obvious gimmick. Recurring (and rising) dividends are likely to create more credibility.
- This goes to the heart of the question of whether to return carbon revenue via tax credits or dividends, which is something Obama will have to decide.
Peter concludes: "The British Columbia experience suggests that segregating carbon revenue in a trust fund and returning all of it to individuals through automatic monthly dividends (as James Hansen and others have proposed) is the best way to sustain political support." We at CTC heartily agree.
Photo: Flickr / bbboon
A Convenient Tax – June 2008
We launched the Carbon Tax Center seventeen months ago to inform and engage the public about the need for and benefits of revenue-neutral carbon taxation. Coincidentally, that same week the United States Climate Action Partnership, a coalition of mainstream environmental organizations, major electricity generators and giant industrial corporations, announced its formation and legislative agenda: a federal carbon cap-and-trade system. To state the obvious, USCAP has a lot more money and political clout than we do. Not surprisingly, USCAP managed to buy a tremendous amount of press and political support for its cap-and-trade program.
Our strategy at CTC has been simple. We provide an objective source of carbon tax and cap-and-trade related facts, economic arguments and news. We let the public know about the broad support for a carbon tax from economists and opinion leaders across the political spectrum. We were confident the public and Congress would eventually recognize that a revenue-neutral carbon tax is far superior to cap-and-trade for a variety of efficiency and equity reasons that we set forth in an issue paper on our Web site and in a variety of debates and other forums. We expected that Americans would see that the cap-and-trade scheme proposed in bills such as Lieberman-Warner is essentially a tax, with the revenue doled out to special interests. We were betting that once cap-and-trade was revealed as a hidden tax proposal, its putative political advantage over a straightforward carbon tax would vanish.
Events are proving us right. Cap-and-trade’s aura of inevitability evaporated in the U.S. Senate this month. Why? Because, just as we predicted, Senators balked at the cap-and-trade bill’s complexity, its windfall profits for carbon polluters and the feeding frenzy to distribute the revenues in classic pork-barrel fashion.
We don’t buy the notion that in rejecting cap-and-trade, the Senate is defying the public outcry for an effective response to global warming. As John Tierney wrote in his New York Times science blog, “Maybe a better deal — and a better policy — will emerge from this failure.” Tierney emphasized that James Hansen, the NASA climate scientist who has been so outspoken on the imminence of global warming, now backs a “tax-and-dividend approach” with carbon revenues “divided equally, so that people who use less energy than average — like lower-income people — would get back more than they spend.” As Tierney pointed out, “Refunding money directly removes the temptation for Congress to treat … carbon-reduction revenues as a chance to dispense trillions of dollars worth of favors — as proposed in last week’s bill, which was aptly dubbed ‘pork-and-trade.’”
Sound familiar? It should. Hansen’s proposal is the same revenue-neutral carbon tax the Carbon Tax Center has been urging all along. In fact, if you’ve been keeping up with our posts you may have noticed that CTC adopted the tax-and-dividend terminology several weeks ago, a switch we picked up from Peter Barnes’ excellent work on cap-and-dividend.
Meanwhile, as readers of our posts and our “Latest News” headlines surely know, the real action on revenue-neutral carbon pricing is in Canada. Liberal Party Leader Stéphane Dion has transformed the climate debate in Canada with his proposal for a $15.4 billion, 4-year “Green Shift.” Read our post on the subject for a quick summary, the Green Shift Handbook for the details and our “Latest News” for reaction to the Green Shift in Canada and around the world. And on Tuesday (July 1), British Columbia inaugurates the Western Hemisphere’s first substantial and comprehensive carbon tax — a day after it distributes dividend checks from the revenue-neutral tax to households and businesses.
A tremendous opportunity awaits. The failure of the Lieberman-Warner cap-and-trade scheme has created a huge opening for a better and more workable method for putting a price on carbon. Splits within USCAP have re-emerged. In a powerful speech on June 25, Lewis Hays, III, Chairman and CEO of FPL Group (a member of USCAP), reiterated his support for a carbon fee stating, “[T]he simplest and most effective way to price carbon is with a continuously escalating fee – or a ‘tax’ as the big carbon emitters like to call it. Under a carbon fee that starts modestly and rises steadily over time, companies will find it more and more expensive to use dirty fuels.”
To take advantage of the opportunity and to capitalize on the post-election window in which new policy ideas can command serious attention, the Carbon Tax Center is organizing a conference in Washington, D.C. this November. Our goals are to:
- increase public awareness of the environmental and economic advantages of a carbon tax over other policies to reduce greenhouse gas emissions;
- place carbon taxes higher on the U.S. Congressional agenda;
- enable carbon tax advocates to forge connections with one another:
- address obstacles (political, economic, and scientific) to enacting a U.S. carbon tax, and to discuss the ideal form of such a tax;
- recognize leaders who have publicly advocated a U.S. carbon tax; and
- discuss lessons learned from the Green Shift proposal in Canada.
We are assembling a terrific roster of speakers and participants. James Hansen has already agreed to speak, and we anticipate many more leading voices on climate change and carbon pricing.
We need your financial help to make our conference happen and to continue our essential work. Please click here to find out how to contribute to CTC. [Note: the foregoing link replaces the original instructions for contributing in this post, which no longer apply.]
Please be as generous as you can, and please donate today. Thank you.
Sincerely,
Charles Komanoff
Dan Rosenblum
Which Is Dirtier: Taxes or Carbon
Which Is Dirtier: Taxes or Carbon (Komanoff on the WNYC Brian Lehrer Show)
We Explain Gasoline Demand (including why it’s sticky)
Note added April, 2017: A more current and in-depth treatment of the price-elasticity of U.S. gasoline usage may be found in our Sept 2015 blog post, What an Energy-Efficiency Hero Gets Wrong about Carbon Taxes. — editor.
With gas at $3.50 a gallon in April, the U.S. mainstream media is replete with stories of drivers abandoning SUV’s, hopping on mass transit, and otherwise cutting back on gasoline. Yet a year or two ago, when pump prices were approaching and even passing the $3.00 “barrier,” the media mantra was that demand for gasoline was so inelastic that high prices were barely making a dent in usage.
Which story is correct? We lean toward the more “elastic” view, and here we’d like to share some of the data that inform our belief.
I’ve been tracking official monthly data on U.S. gasoline consumption for the past five years, and compiling the numbers in this spreadsheet. You’ll find that it parses the data in several different ways: year-on-year monthly comparisons (say, March 2008 vs. March 2007); three-month moving averages that smooth out most of the random variations in reporting; and full-year comparisons that allow a bird’s-eye view.
Here’s what we see in the data:
- Gasoline demand is trending downward, though only slightly. In the 49 year-on-year comparisons, monthly gasoline use dipped below the year-earlier level only eight times, but these include each of the last five months (see Moving Avgs worksheet in the cited spreadsheet).
- Gasoline’s short-run price-elasticity is rising. After a low of -0.04 in 2004, the short-run price-elasticity increased to -0.08 in 2005, -0.12 in 2006 and -0.16 in 2007. (I assume an “income-elasticity” of two-thirds in calculating price-elasticity; again, see Full Years worksheet.)
- A big reason that gasoline use kept rising until recently was the growing economy. Demand is heavily affected by economic activity. The minimum year-on-year GDP growth for any month in all four years was plus 1.7% (see Moving Avgs worksheet).
- Another reason gasoline demand was slow to drop is that the price signal, while significant, was less than advertised. Adjusted for general inflation, the average 2007 pump price was only 54% higher than the 2003 price. Amid all the talk of a doubling or even tripling in gas prices, it’s sobering to learn that you have to go all the way back to 1998 to find the last year that the real price was just half the 2007 price.
- The biggest market barrier of all may have been gasoline price volatility. The spreadsheet spans 63 months, allowing 62 month-to-month comparisons. In 29 of these, the price went down (see 1-yr comparison worksheet). That’s right: the average gasoline price was less than the prior month’s an astounding 47 percent of the time (see graph). Pump prices have been so volatile that consumers didn’t know whether the price three months later would be up or down. The result? American families and automakers alike found it hard to justify long-term investments in more-efficient cars. And allied policies like de-subsidizing sprawl didn’t get taken seriously.
- Nevertheless, gas prices have now risen five years in a row and are virtually certain this year to chalk up a sixth. There hasn’t been a comparable period of sustained increases since the late 1970s.
The big takeaway for carbon taxes is that the short-run price-elasticity of gasoline demand is rising (Point #2). (The long-run price-elasticity is probably around minus 0.4, as we discuss here.) While a rising elasticity contradicts the standard economic model in which price-sensitivities don’t change much over time, Point #5 provides a reasonable explanation: gasoline prices (and energy prices in general) had fluctuated so wildly for decades, and a sense of entitlement to cheap gasoline had become so ingrained in American society, that it took a long time for households and businesses to internalize the rise in pump prices — to regard it as real.
Perhaps now, however, a line has been crossed. Maybe the trigger was the price of crude breaching $100 a barrel, or the unspooling credit crisis signaling a fundamental change in the U.S. economy. Or it may simply have been the accumulating weight of price increases noted in Point #6. Whatever the reason(s), Americans seem, finally, to be getting the message that higher gas prices are here to stay.
That’s good news for the climate, national security, and green jobs. But bitter medicine for hard-pressed families as well as business and jobs that aren’t oil-intensive but are being pulled under by gasoline-caused belt-tightening. Imagine if the price rises had been delivered not by a rapacious market but via socially determined ramped-up increases in the gasoline tax (as some commentators have proposed since the 1970s, including, with renewed urgency, after 9/11).
Americans would have had time to adapt, along with real choices such as truly fuel-efficient cars and smaller houses in more-compact developments. And the extra revenues from the higher-priced gasoline would have belonged to all of us rather than just the owners of oil reserves. Those revenues could have been returned to households and businesses via tax-shifts or dividends, and not skimmed off for private enrichment.
The analogy to a revenue-neutral carbon tax couldn’t be more clear.
Indiana and North Carolina Voters Reject Gas Tax Holiday, Open Door to Consideration of Revenue-Neutral Carbon Tax
The Carbon Tax Center distributed the following press release this morning.
CARBON TAX CENTER
PRESS RELEASE
FOR IMMEDIATE RELEASE
Press contacts:
Daniel Rosenblum, Co-Director • 914-837-3956 • dan@carbontax.org
Charles Komanoff, Co-Director • 212-260-5237 • kea@igc.org
INDIANA AND NORTH CAROLINA VOTERS REJECT GAS TAX HOLIDAY.
OPEN DOOR TO CONSIDERATION OF REVENUE-NEUTRAL CARBON TAX
OPEN DOOR TO CONSIDERATION OF REVENUE-NEUTRAL CARBON TAX
NEW YORK (May 7, 2008)
Voters yesterday rejected Senator Hillary Clinton’s proposed gas tax “holiday” and, with it, the idea that energy taxes are political poison. The resounding victory in North Carolina and unexpectedly strong showing in Indiana by Senator Barack Obama, the only presidential candidate to oppose the Clinton-McCain tax holiday, could open the door to consideration of a revenue-neutral carbon tax.
While not every election serves as a referendum on a particular policy issue, yesterday’s clearly did. The proposal to suspend the federal gasoline tax this summer was the major policy issue distinguishing Senator Clinton from Senator Obama between the April 22 Pennsylvania primary and today. The issue received extensive media coverage due to both senators’ focus on it amid widespread concern over gasoline prices. [Update – As the New York Times noted this morning, "In both states, the candidates’ final arguments centered on a summertime suspension of the federal gasoline tax, which Mrs. Clinton proposed as an economic lift for voters and Mr. Obama derided as a political gimmick."] In rebuffing Senator Clinton’s quick and simplistic fix, voters demonstrated that they will consent to a tax when it advances important economic, environmental and national security priorities.
“Voters sent a powerful message yesterday that they are not willing to sacrifice the environmental and economic benefits of the gasoline tax for trivial, short-term benefits,” said Daniel Rosenblum, co-director of the Carbon Tax Center. “Voters in Indiana and North Carolina have driven a spike through the conventional wisdom that supporting a tax is political suicide. The path is cleared for consideration of a revenue-neutral carbon tax-and-dividend approach that cost-effectively reduces greenhouse gas emissions, strengthens the economy, reduces America’s dangerous dependence on foreign oil and returns the tax proceeds to all Americans through monthly dividends,” Rosenblum said.
“These past few weeks, Sen. Obama has stood up for energy prices that tell the truth about climate damage and national insecurity,” said Charles Komanoff, co-director of the Carbon Tax Center. “The voters have rewarded Obama’s political courage and sent a clear signal to Washington that they support price incentives to conserve oil and curb carbon emissions,” Komanoff added.
As Senator Obama stated in his North Carolina victory speech last night, “the American people are not looking for more spin. They’re looking for honest answers to the challenges we face.” An honest answer to the climate change challenge includes truth in energy pricing.
The Carbon Tax Center is a non-profit educational organization launched in 2007 to give voice to Americans who believe that taxing emissions of carbon dioxide — the primary greenhouse gas — is imperative to reduce global warming. Co-founders Charles Komanoff and Daniel Rosenblum bring to CTC a combined six decades of experience in economics, law, public policy and social change.
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Photo: Flickr/cecily7.