Which Is Dirtier: Taxes or Carbon (Komanoff on the WNYC Brian Lehrer Show)
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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
CARBON TAX CENTER
PRESS RELEASE
Press contacts:
Daniel Rosenblum, Co-Director • 914-837-3956 • dan@carbontax.org
Charles Komanoff, Co-Director • 212-260-5237 • kea@igc.org
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.
A Convenient Tax – May 2008
Thanks to the gas tax “holiday” proposed by Senators McCain and Clinton, gasoline taxes (a component of carbon taxes) have become a major issue in the presidential campaign. Senators McCain and Clinton have been attacked across the political spectrum for pandering. Politicians from President Bush to House Speaker Pelosi have rejected the idea, as have newspaper editorial boards from the New York Times to the Wall Street Journal.
New York City Mayor Michael Bloomberg, a powerful carbon tax advocate, may have been the most succinct, calling a temporary suspension of the federal gasoline tax “about the dumbest thing I’ve heard in an awful long time from an economic point of view” and saying he did not see “any merit to it whatsoever” (NY Times, May 2). Economists have been nearly unanimous, with over 100 economists, including three Nobel Prize winners, signing a statement opposing the gas tax holiday.
In our last newsletter we acknowledged that “the ‘T’ word is unpopular with politicians,” but asserted that “awareness is growing that ‘putting a price on carbon’ is an essential element of any successful strategy to significantly reduce greenhouse gas emissions.” In fact, awareness is growing faster than we expected. We’re heartened by the widespread recognition that the gas tax holiday proposal is fundamentally flawed because it undercuts the need to properly price gasoline and would encourage gas use just when it is essential to discourage consumption. In breaking news, the Monday (May 5) New York Times will report that by 49% to 45%, more Americans think that lifting the gas tax is a bad idea than approve of the plan.
In addition, we are intrigued by a Wall Street Journal report that some members of Congress are advocating that proceeds of a windfall profits tax be used to provide rebates for consumers. It sounds a lot like the rebate we have proposed to return carbon tax revenues to the American people. While we take no position at this time on the merits of a windfall profits tax, it’s good to see thought being given to returning the windfall profit tax proceeds. It’s a step toward a revenue-neutral carbon tax.
Our next challenge is to convert the well-reasoned opposition to a gas tax holiday into support for a carbon tax. As a first step, we have begun preliminary planning for a Carbon Tax Conference to be held in Washington, D.C. in mid-November. The conference will be designed to focus public attention on a carbon tax as the best policy for reducing U.S. greenhouse gas emissions and is timed to occur just as a new administration and Congress begin establishing priorities and mapping out strategies. Interested in being involved in the early planning? If so, please let us know.
Please check our web page regularly for the latest developments on carbon tax issues and progress. We add important news stories to the “Headlines” column on our home page almost every day. Take a look at the excellent guest post by James Handley, an extraordinary volunteer at CTC, addressing the gas tax holiday issue. It was on our web page until today (in case you haven’t noticed, previous blog posts are listed just below the current post). Our next post will take up a related issue, the impact on demand of rising gasoline prices. There is more and more evidence that higher prices, such as would result from a carbon tax, lead to reduced consumption. That’s the premise of our proposed carbon tax and it’s being validated every day.
Finally, CTC does have to admit to one major failing. We’ve been so focused on policy issues and getting the message out that we haven’t spent the necessary time on fundraising. The result is predictable. We’re desperately short of money just when we need it the most. To continue playing our essential role, we need your financial help.
You can contribute to CTC in three ways, two of which are tax-deductible:
* Tax-deductible:
Write a check or money order to ELPC (Environmental Law & Policy Center), writing Carbon Tax Center in the memo line; mail it to ELPC at 35 East Wacker Drive, Suite 1300, Chicago, IL 60601. ELPC is CTC’s fiscal sponsor.
* Tax-deductible:
Make an on-line contribution via Groundspring by clicking on the DONATE NOW box on our website, www.carbontax.org.
* Not deductible:
Write a check or money order to Carbon Tax Center and send it to our New York City mailing address: CTC, 636 Broadway, Room 602, New York, NY 10012.
Please be as generous as you can, and please donate today. Thank you.
Sincerely,
Charles Komanoff
Dan Rosenblum
Happy New Year from the Carbon Tax Center!
We established the Carbon Tax Center in January 2007. As we look back on our first year, we are thrilled by what we’ve accomplished.
CTC has established a reputation as the go-to web site for objective, non-partisan information on carbon taxes, with hundreds of hits almost every day. We have participated in conferences and debates in New York, Washington and Boston, we have appeared on national television, and we’ve been featured in newspapers, magazines and blogs. Congressional staff, academics, students and interested citizens of all stripes and from many countries have all turned to our site to get up to speed on a topic that is going to become increasingly vital as Congress and a new President grapple with reducing greenhouse gas emissions and limiting the damage from climate change.
The good news is two-fold. One, CTC has established a very solid foundation. Two, there is widespread support for revenue-neutral carbon taxes across the political spectrum from economists, business leaders, pundits and other opinion leaders. Just take a look at our Supporters page.
But we are not naïve. We know that powerful polluters who use the atmosphere as a free dumping ground are not going to give up that entitlement without a struggle. We know that cap-and-trade has well-connected advocates, many of them with a strong economic self-interest to favor their second-best alternative over carbon taxes. We know that carbon tax opponents have tremendous financial resources they will exploit to maintain their advantages.
And we are mindful that the “T” word is unpopular with politicians. Fortunately, awareness is growing that “putting a price on carbon” is an essential element of any successful strategy to significantly reduce greenhouse gas emissions. While debate continues over the two basic ways to put a price on carbon, a carbon tax or cap-and-trade, we remain convinced that the advantages of carbon taxes are becoming increasingly clear.
A legislated price on carbon is unlikely before a new Congress and President take office, providing time for careful examination of the relative merits of a carbon tax and cap-and-trade. We intend to use the time to frame the choice between an equitable revenue-neutral carbon tax and cap-and-trade schemes that provide huge windfalls to polluting industries and the financial community. This will help voters and elected officials grasp the huge benefits of the prompt reductions in greenhouse gas emissions that will result from an easily implemented revenue-neutral carbon tax, compared to the excruciatingly slow reductions that would result from the endlessly tendentious process of implementing a cap-and-trade scheme.
CTC intends to play a central role in the ongoing debate. To do so, we need your generous financial support. As you make your end-of-year contributions, please think of the Carbon Tax Center and click our Donate Now button or click here for instructions on making a contribution.
Thanks and Happy New Year!
Daniel Rosenblum
Charles Komanoff
Co-Directors
Photo: Peter Bowers / Flickr
Is Google Betting on a Carbon Tax?
Google Inc. has a new project, Renewable Energy Cheaper Than Coal. Google is preparing to bet megabucks, mega-engineers and its cutting-edge reputation on its ability to propel solar thermal power, wind turbines and other renewable electricity up the innovation curve and under the cost of coal-fired power, Reuters reported Tuesday.
"Our goal is to produce one gigawatt [1,000 megawatts] of renewable energy capacity that is cheaper than coal. We are optimistic this can be done in years, not decades," said Larry Page, Google’s co-founder and president of products, according to Reuters.
To which we at the Carbon Tax Center say: Good luck, and don’t forget to hire the lobbyists. You’re going to need them to help win a carbon tax, ’cause without the tax, your goal of renewable energy cheaper than coal is likely to remain out of reach.
Don’t look to "market forces" to jack up the cost of coal-fired power. Unlike the 1970s, when the price of coal marched in lockstep with skyrocketing oil, coal prices are stuck in a proverbial peat bog. The national average coal price so far this year, $1.77 per million btu, is barely higher in nominal terms (and 40% less in real terms) than the 1982-1985 plateau of $1.65. The resource is abundant, mining technology is technically mature (if socially and ecologically devastating), and there’s barely a mine workers union to speak of. The power plants themselves are no harder to build, even with SOx and NOx scrubbers, than my kids’ Harry Potter lego’s, they just take a few years longer.
Coal-fired power isn’t about to get much more expensive by itself. Are renewables going to get much cheaper? Arguably not — at least not enough to win Google’s bet.
What about electricity from wind, my personal favorite energy-supply source and one for which I’ve done my share of advocacy? Wind power has gotten fabulously cheaper over the past two dozen years, as this DOE cost curve attests. But the rate of decline has slowed. Past advances — taller towers to capture higher wind speeds, larger blades to sweep larger areas, gearing to grab every available erg — appear pretty much tapped out. Further declines in wind costs will be incremental, not quantum. And to compete toe-to-toe with coal as baseload power, wind will need a support system of storage and transmission that will only add to its per-kWh cost.
Photovoltaics have more cost-cutting ahead but are starting from a much higher cost plane. I’m less up to speed on solar-thermal, but I suspect it sits somewhere between wind and PV — cheaper than PV now but with less scope for innovation. The bottom line, then, as I see it, is that coal will continue to undercut renewables in cost for the foreseeable future.
Unless a price is put on coal’s head.
An average kilowatt-hour from a coal-fired power plant sends 2 pounds of CO2 into the atmosphere. A megawatt-hour (1,000 kWh) puts up a ton. Charge $10 a ton of CO2 (or $37 a ton of carbon — precisely what we at the Carbon Tax Center recommend as the yearly increase in a phased-in tax) and you lift the price per coal-fired kilowatt-hour by one cent. If the gap between wind power (sans the federal Production Tax Credit) and coal power is conservatively put at 4 cents/kWh, then $40/ton of CO2 ought to give Google its Holy Grail.
There’s already a couple of carbon tax bills rattling around the House Ways & Means Committee. The Larson bill (that’s John B. Larson of Connecticut, a member of the Democratic leadership) calls for $15/ton of CO2 in starting in 2008, with the level increasing by 10% annually along with an additional inflation-offsetting adjustment. That could bring wind halfway to parity with coal in just a few years.
Hiring genius engineers and pouring Google’s coffers into renewables are terrific moves. But nothing beats getting the prices right. Earth to Google: start pulling for a carbon tax.
A Convenient Tax — Issue #3
Welcome to the latest issue of CTC’s newsletter, A Convenient Tax, summarizing the Carbon Tax Center’s progress in advancing carbon taxes in the United States. (For Issue #2, click here.)
These are heady times for CTC. Each week, and sometimes every day, brings a major development in carbon pricing. Sometimes it has our fingerprints, and sometimes it’s a product of our work to establish a carbon tax as "the gold standard" way to put a price on carbon (as The New York Times quoted us last week).
In Just the Past Two Weeks …
New York’s Mayor Bloomberg delivered a powerful plea for a revenue-neutral carbon tax in a speech to the U.S. Conference of Mayors last Friday. Here’s the lede of The Times’ on-line account:
Mayor Michael R. Bloomberg announced today his support for a national carbon tax. In what his aides called one of the most significant policy addresses of his second and final term, the mayor argued that directly taxing emissions of carbon dioxide and other greenhouse gases that contribute to climate change will slow global warming, promote economic growth and stimulate technological innovation — even if it results in higher gasoline prices in the short term.
Echoing the Tax vs. Cap page on our Web site: Bloomberg noted that cap-and-trade is at risk from gaming, profiteering and volatility, while a straightforward carbon tax offers the essential attribute of price certainty. What is more, Bloomberg spoke as the former businessman he is:
Having spent 15 years on Wall Street and 20 years running my own company, the certainty of a pollution fee — coupled with a tax cut for all Americans — is a much better deal. It would be better for the economy, better for taxpayers and — given the experiences so far in Europe — it would be better for the environment. I think it’s time we stopped listening to the skeptics who say, "But for the politics" and start being honest about costs and benefits. Politicians tend to prefer cap-and-trade because it obscures the costs. Some even pretend that it will lower costs in the short run. That’s nonsense. The costs will be the same under either plan — and if anything, they will be higher under cap-and-trade, because middlemen will be making money off the trades. A direct fee will generate more long-term savings for consumers, and greater carbon reductions for the environment.
By 10 a.m. last Friday, CTC’s blog had a link to the Times’ story, framing Bloomberg’s speech in terms of swelling political support for carbon taxing. Since then, AP, Reuters and Newsweek (in a cover story this week) have reported on Bloomberg’s carbon-tax call.
We can’t say whether the mayor took his cue from us, or the center-right American Enterprise Institute (which issued its own report in June backing carbon taxes), or from his own internal compass. But back in July, in a piece on Gristmill, we linked Bloomberg’s NYC congestion pricing initiative with carbon taxing. We also drew Rep. John Dingell’s attention to the parallels, during a conversation with him last month (see below).
The big development the previous week was President Nikolai Sarkozy’s promise to consider a French revenue-neutral carbon tax and his urging that Europe examine the option of a European levy on imports from non-carbon-taxing countries. Sarkozy’s pledge puts pressure on the United States to do the same, a point made by New York Times columnist Roger Cohen as President Sarkozy arrived in the U.S. this week for meetings with President Bush.
Next Week
Special Invitation to NYC-area readers: CTC co-director Dan Rosenblum will be featured at a NYC Bar Association "Tax vs. Cap" debate in mid-Manhattan next Tuesday morning, Nov. 13. Go here for location, time and registration.
Congressional Support Grows for a Carbon Tax
In our last newsletter we reported on carbon tax bills introduced by Representatives Stark (D-CA) and Larson (D-CT). The two have now joined forces, with Rep. Stark and eight other members co-sponsoring the Larson bill. (Our Bills page has a list of the 10 sponsors and a summary of both bills.)
We stopped by Rep. Larson’s office recently in Washington and were deeply impressed with his staff’s and Mr. Larson’s commitment to a carbon tax. The news that Rep. Larson, the fifth highest member of the Democratic House leadership, will be participating in the United Nations Climate Change Conference in Bali next month is also heartening.
Eclipsing this, however, is the hybrid carbon tax proposal floated by the venerable John Dingell, a member of the House of Representatives since 1955 and long-time chair of its Commerce & Energy Committee. Rep. Dingell’s staff reached out to us in late June for help estimating the carbon, petroleum and revenue impacts of a carbon tax that also included a surcharge on gasoline and jet fuel. Over the ensuing three months we refined our tax impact model (see below) and ran at least a dozen scenarios, which we discussed with his staff in a stream of telephone discussions and e-mails.
When Mr. Dingell released his proposal on the evening of Sept. 26, we were ready with a blog post on both our Web site and Gristmill, branding the idea a "hybrid carbon tax," praising Dingell’s vision, and quantifying the impacts. We’ve also taken the fight to those of our fellow environmentalists who have let their battles with Dingell over car mileage standards blind them to what Dingell calls The Power in the Carbon Tax. (For the record, we strongly support tougher CAFÉ standards but we regard the hybrid carbon tax as an even bigger breakthrough.) Mr. Dingell expressed his gratitude in a phone call last month. (Click here to participate in a public poll on Dingell’s hybrid carbon tax on his Web site.)
Needless to say, a carbon tax bill won’t pass Congress until 2009 at the earliest — public education is needed non-stop until the White House and Congress resolve to make carbon pricing a central element in climate policy. CTC is laying the intellectual and political foundation now for action in 2009.
Carbon Tax Research — National and State
Seeking out and advancing knowledge about carbon taxes is a big part of our mission. To analyze Rep. Dingell’s draft proposals, we scaled up our state-level carbon tax spreadsheet into a national 4-Sector Model — so-called because it disaggregates the U.S. carbon economy into four discrete pieces (electricity, automobiles, airlines and "other"). The model now encompasses the entire U.S. and includes the capability to model a supplemental tax on petroleum products (gasoline and jet fuel, in this case). Advocates and legislative staff in Colorado, Washington State, Oregon, California and Minnesota are currently using it to estimate impacts of state-level carbon taxes.
Much is still to be done on the modeling front. Our next steps are to incorporate "upstream" carbon costs in fuel prices and to reconcile our more-conservative model results with the "bigger bang" predicted by carbon tax supporters at the American Enterprise Institute and several resource think-tanks. We’re also stepping up our cataloging of carbon pricing research. Work at universities and think tanks is proliferating, and we want to establish CTC as the foremost English-language clearinghouse.
Media Continue to Rely on the Carbon Tax Center
Maybe it’s our revamped Web site. Or maybe carbon taxing is moving into the mainstream. Or both. CTC has been in the news a lot lately. Some recent highlights: mentions in two separate on-line New York Times articles on the same day (Friday, Nov. 2), in the news story reporting on Mayor Bloomberg’s carbon-tax address in Seattle, and in an analytical piece, The Real Climate Debate: To Cap or to Tax? • publication of a feature story on carbon taxes in Tikkun magazine • mentions in Conde Nast’s Portfolio.com, Forbes.com, the Minneapolis Star-Tribune and literally hundreds of environmental and climate blogs. • We maintained our standing as the leading site on Google for those searching "carbon tax." • Our Web site continues to receive over 500 visits each week.
Going Forward
The next eighteen months are shaping up as the period in which competing policies to reduce carbon emissions will be examined for their effectiveness, cost and political viability.
CTC’s strategic goal continues to be to shape that debate and properly frame the issues by working with environmental organizations and other allies to solidify support for the concept of putting a price on carbon, while educating and inspiring opinion leaders, grassroots organizations and decision-makers to go for the "gold standard" of carbon taxes rather than settling for the less predictable, less transparent, less universal and less equitable cap-and-trade approach.
As The Times noted last week:
"Making the price predictable is the most significant move you can make to control global warming," says Charles Komanoff, a long-time environmental economist who [with Dan Rosenblum] has recently started the Carbon Tax Center as an advocacy group. "It would tilt literally billions of energy critical decisions toward using less carbon."
If you agree, please help us as we develop the intellectual ammunition, provide technical assistance, assist local, state and federal carbon tax initiatives, energize a broad coalition of interest groups, and mobilize public support for fair and effective carbon taxes.
CTC is proving its effectiveness daily. To continue playing our essential role, we need your financial help. We gratefully thank all of you who have already donated to CTC. We ask carbon tax supporters who are not yet CTC contributors to become so today.
You can contribute to CTC in three ways, of which two are tax-deductible:
- Tax-deductible:
Write a check or money order to ELPC (Environmental Law & Policy Center), writing Carbon Tax Center in the memo line; mail it to ELPC at 35 East Wacker Drive, Suite 1300, Chicago, IL 60601. ELPC is CTC’s fiscal sponsor.
- Tax-deductible:
Make an on-line contribution via Groundspring by clicking on the DONATE NOW box on our website, www.carbontax.org.
- Not deductible:
Write a check or money order to Carbon Tax Center and send it to our New York City mailing address: CTC, 636 Broadway, Room 602, New York, NY 10012.
Please be as generous as you can, and please donate today. Thank you.
Sincerely,
Charles Komanoff
Daniel W. Rosenblum
Bloomberg to Urge U.S. Carbon Tax
New York Mayor Michael R. Bloomberg will declare his support today for a national carbon tax, according to a report posted this morning on the New York Times City Room blog by metro reporter Sewell Chan:
Mayor Bloomberg plans to announce today his support for a national carbon tax. In what his aides are calling one of the most significant policy addresses of his second and final term, the mayor will argue that directly taxing emissions of carbon dioxide and other greenhouse gases that contribute to climate change will slow global warming, promote economic growth and stimulate technological innovation — even if it results in higher gasoline prices in the short term.
Mr. Bloomberg is scheduled to present his carbon tax proposal in a speech this afternoon at a two-day climate protection summit in Seattle organized by the United States Conference of Mayors. (A copy of the speech was provided to The New York Times by aides to the mayor; the full text is available here, along with the complete Times story.)
With his speech today, Mayor Bloomberg joins former Vice-President Al Gore as the nation’s leading advocates of a carbon tax to cap and reduce carbon emissions from fossil fuels. French President Nicolas Sarkozy called last week for a national carbon tax on global-warming pollutants and a European levy on imports from countries not complying with the Kyoto Protocol to reduce emissions. In September, U.S. Rep. John Dingell, the powerful chair of the House Commerce Committee, proposed a hybrid carbon tax combining a straight carbon tax on coal, oil and natural gas with a surcharge on gasoline and jet fuel.
In his Seattle remarks, Bloomberg hones in on the key advantage of a carbon tax over a carbon cap-and-trade scheme — price certainty:
Both cap-and-trade and pollution pricing present their own challenges – but there is an important difference between the two. The primary flaw of cap-and-trade is economic – price uncertainty. While the primary flaw of a pollution fee is political, the difficulty of getting it through Congress. But I’ve never been one to let short-term politics get in the way of long-term success. The job of an elected official is to lead – not to stick a finger in the wind. It’s to stand up and say what we believe – no matter what the polls say is popular or what the pundits say is political suicide.
From where I sit, having spent 15 years on Wall Street and 20 years running my own company, the certainty of a pollution fee – coupled with a tax cut for all Americans – is a much better deal. It would be better for the economy, better for taxpayers and – given the experiences so far in Europe – it would be better for the environment. I think it’s time we stopped listening to the skeptics who say, “But for the politics,” and start being honest about costs and benefits. Politicians tend to prefer cap-and-trade because it obscures the costs. Some even pretend that it will lower costs in the short run. That’s nonsense. The costs will be the same under either plan – and if anything, they will be higher under cap-and-trade, because middlemen will be making money off the trades…
For the money, a direct fee will generate more long-term savings for consumers, and greater carbon reductions for the environment. And I don’t know about you, but when the economists say one thing and the politicians say another, I’ll go with the economists.
Emphasizing that “Employment is good, pollution is bad,” Bloomberg says that Congress should “use the revenue from pollution pricing to cut the payroll tax,” thus joining Mr. Gore as well as the Carbon Tax Center in seeking a revenue-neutral carbon tax. Bloomberg then closes with this powerful rhetorical flourish:
There are also logistical issues with cap-and-trade. The market for trading carbon credits will be much more complex and difficult to police than the market for the sulfur dioxide credits that eliminated acid rain. And there are political issues – because the system is subject to manipulation by elected officials who want to hand out exemptions to special interests. A cap-and-trade system will only work if all the credits are distributed from the start – and all industries are covered. But this begs the question: If all industries are going to be affected, and the worst polluters are going to pay more, why not simplify matters for companies by charging a direct pollution fee? It’s like making one right turn instead of three left turns. You end up going in the same direction, but without going around in a circle first.
Bloomberg’s support of a U.S. carbon tax is philosophically consistent with his big current local initiative, a congestion pricing plan to improve mobility, economic activity and the quality of life in the Manhattan Central Business District by charging an entry fee for motor vehicles. A carbon tax and congestion pricing both embody the principle that safeguarding “the commons” — our air, water and public space — requires that we exact from ourselves a commensurate price for uses that damage or deplete it.
In July, we posted an essay on Grist drawing the links, which we reproduce in full further below.
We do take issue with Mayor Bloomberg on one important detail. He says, “People are going to keep buying gas whether it costs $1 a gallon or $2.75 a gallon — or even more — because the demand for gas is inelastic.” While gasoline is the least price-elastic of fuels — around 0.4 in the long run and less than half that much in the short run — demand for gas has some price-sensitivity, as we demonstrate elsewhere on this site. Comparing 2007 with 2004 (first 9 months for each), for example, U.S. economic activity (GDP) grew 8.4% yet gasoline usage is up only 2.7% — indicative of a 0.10-0.15 (short-run) price-elasticity, when factored against the 35% inflation-adjusted increase in gas prices over the same period.
In the longer term, carbon taxes will further conserve gasoline by stimulating a constellation of actions favoring proximity over sprawl and otherwise concentrating economic and human activity in cities. Indeed, the primary CO2-reducing aspect of Mayor Bloomberg’s congestion pricing program resides not so much in the cars it will take off the road in and en route to midtown, as in creating the wherewithal for New York City to absorb a million more people who otherwise might take up residence in Sprawlsville, USA.
From Grist, July 15, 2007: Valuing the Commons — The connection between congestion pricing and carbon taxes, by Charles Komanoff
Every so often there arises an environmental controversy that tests the capacity of Americans to face reality. One such case is emerging in New York City, where Mayor Michael R. Bloomberg has proposed a “congestion fee” on cars and trucks driving into Manhattan.
Backers from the mayor on down tout the fee as a cure-all: it will unsnarl traffic, relieve pollution and create a revenue stream to upgrade subways and buses, while also cutting global warming emissions.
These claims are a bit overstated. More probably there will be a single-digit increase in traffic speeds, a one percent drop in emissions citywide,
and perhaps a $400 million revenue infusion for a transportation system whose annual costs top $30 billion.But even though the immediate benefits of the congestion charge are relatively modest, the act of imposing such a charge is transformative in itself.
The real significance of the congestion charge is this: it establishes the principle that safeguarding “the commons” — our air, water and public space — requires that we exact from ourselves a commensurate price for uses that damage or deplete it.
The congestion charge puts our money where our mouth is.
Although it has mostly gone unstated, the congestion charge rests on ironclad economic logic: street space, being both coveted and finite, has a value; hence, our failure to charge a price for its use in effect substitutes rationing by waiting, for rationing by pricing — which is why New York, Los Angeles, and every city in between have traffic jams.
Accordingly, a congestion charge that confronts those of us who would drive with the cost of traffic delays we impose on each other isn’t just one means of reducing congestion — it’s the only way to do so.
Mayor Bloomberg could place traffic cops at every intersection, airlift every double-parked car and truck, and make the subways free — and gridlock would reappear within a week, as the improvement in traffic flow attracted drivers now deterred by the too-crowded roads.
The only way to permanently open up road space is to impose some form of road valuation, and Mayor Bloomberg’s pricing plan, while blunt and imperfect, is a very good start. Most important of all, though, it establishes the principle.
Much the same applies to the prevailing green paradigm for combating global warming. It’s essentially a scattershot approach built around individual technological fixes: rooftop solar cells, low-wattage fluorescent lights, high-mileage automobiles and so on.
What’s missing — crucially, fatally missing — is a valuation of the atmosphere’s limited capacity to absorb carbon emissions without damaging the climate. Just as the high value of street space in New York demands a congestion fee, the high value of a carbon-stable atmosphere demands a fee on carbon use — i.e., a carbon tax.
This isn’t to say that tech fixes don’t have their place. They will be needed to help get off carbon, just as car and truck alternatives such as expanded subway service, exclusive bus and bicycle lanes, and, in New York, a cross-harbor rail freight tunnel, must supplement the congestion fee. But without congestion charges and revenue-neutral carbon taxes that in effect reward every traffic-busting or carbon-reducing choice, the fixes and alternatives will be systematically underused.
The obvious, first-order, unmediated choices that will reduce congestion and carbon are things that no one can make money from — things like fewer and shorter trips, smaller homes, turning stuff off. Congestion charges and a carbon tax will cause people to make these choices, and that is the only way killer traffic and killer climate change will be brought under control. It won’t happen just by subsidizing technological fixes whose investors have the advantage of an effective lobby.
What, then, is standing in the way of congestion fees and a national carbon tax? The power of an entrenched minority, for one thing. In New York City, fewer than one in 20 working residents drives toll-free into the intended congestion charging zone, but they know who they are and are not shy about protecting their self-awarded entitlement to a toll-free commute.
Conversely, the benefits of congestion pricing will be broadly distributed but not life-changing. Indeed, judging from polls, many New Yorkers don’t even realize they are potential beneficiaries.
“Losers cry louder than winners sing,” wrote University of Michigan professor Joel Slemrod in explaining the near-impossibility of overhauling the U.S. tax code, and the What is more, the benefits from road fees or carbon taxes aren’t just diffuse; because they lie in the future they are by necessity uncertain.
“There is nothing more difficult to take in hand,” Machiavelli observed in The Prince, “than to take the lead in the introduction of a new order of things … the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the old conditions, and lukewarm defenders in those who may do well under the new.”
That is why enacting the Bloomberg congestion plan is so hard, and so necessary. America’s civic polity is stuck in traffic, so to speak. Getting it moving again will require us to imagine something other than permanent stalemate and act upon that vision.
Photo: National 911 Memorial / Flickr.
Valuing the Commons: Congestion Pricing's Hidden Payoff
A momentous debate is under way in New York City over the prospect of bringing "congestion pricing" — a concept proven in London, Stockholm and Singapore — to America’s largest and most gridlocked burg. The issue has great resonance for carbon taxing, as I argue in this piece, a slightly different version of which appeared in Gristmill in July. — C.K.
Every so often there arises an environmental controversy that tests the capacity of Americans to face reality. One such case is the Cape Wind dispute, in which well-connected Cape Codders are battling to keep a large array of non-polluting windmills out of Nantucket Sound. Another is emerging in New York City, where Mayor Michael R. Bloomberg has proposed a “congestion fee” on cars and trucks driving into Manhattan.
Backers from the mayor on down tout the fee as a cure-all: it will unsnarl traffic, relieve pollution and create a revenue stream to upgrade subways and buses, while also cutting global warming emissions.
These claims are a bit overstated. More probably there will be a single-digit increase in traffic speeds, a one percent drop in emissions citywide, and perhaps a $400 million revenue infusion for a transportation system whose annual costs top $30 billion.
But even though the immediate benefits of the congestion charge are relatively modest, the act of imposing such a charge is transformative in itself.
The real significance of the congestion charge is this: it establishes the principle that safeguarding “the commons” — our air, water and public space — requires that we exact from ourselves a commensurate price for uses that damage or deplete it.
The congestion charge puts our money where our mouth is.
Although it has mostly gone unstated, the congestion charge rests on ironclad economic logic: street space, being both coveted and finite, has a value; hence, our failure to charge a price for its use in effect substitutes rationing by waiting, for rationing by pricing — which is why New York, Los Angeles, and every city in between have traffic jams.
Accordingly, a congestion charge that confronts those of us who would drive with the cost of traffic delays we impose on each other isn’t just one means of reducing congestion — it’s the only way to do so.
Mayor Bloomberg could place traffic cops at every intersection, airlift every double-parked car and truck, and make the subways free — and gridlock would reappear within a week, as the improvement in traffic flow attracted drivers now deterred by the too-crowded roads.
The only way to permanently open up road space is to impose some form of road valuation, and Mayor Bloomberg’s pricing plan, while blunt and imperfect, is a very good start. Most important of all, though, it establishes the principle.
Much the same applies to the prevailing green paradigm for combating global warming. It’s essentially a scattershot approach built around individual technological fixes: rooftop solar cells, low-wattage fluorescent lights, high-mileage automobiles and so on.
What’s missing — crucially, fatally missing — is a valuation of the atmosphere’s limited capacity to absorb carbon emissions without damaging the climate.
Just as the high value of street space in New York demands a congestion fee, the high value of a carbon-stable atmosphere demands a fee on carbon use — i.e., a carbon tax.
This isn’t to say that tech fixes don’t have their place. They will be needed to help get off carbon, just as car and truck alternatives such as expanded subway service, exclusive bus and bicycle lanes, and, in New York, a cross-harbor rail freight tunnel, must supplement the congestion fee.
But without congestion charges and revenue-neutral carbon taxes that in effect reward every traffic-busting or carbon-reducing choice, the fixes and alternatives will be systematically underused.
The obvious, first-order, unmediated choices that will reduce congestion and carbon are things that no one can make money from — things like fewer and shorter trips, smaller homes, turning stuff off.
Congestion charges and a carbon tax will cause people to make these choices, and that is the only way killer traffic and killer climate change will be brought under control. It won’t happen just by subsidizing technological fixes whose investors have the advantage of an effective lobby.
What, then, is standing in the way of congestion fees and a national carbon tax? The power of an entrenched minority, for one thing. In New York City, fewer than one in 20 working residents drives toll-free into the intended congestion charging zone, but they know who they are and are not shy about protecting their self-awarded entitlement to a toll-free commute.
Conversely, the benefits of congestion pricing will be broadly distributed but not life-changing. Indeed, judging from polls, many New Yorkers don’t even realize they are potential beneficiaries.
“Losers cry louder than winners sing,” said University of Michigan professor Joel Slemrod in explaining the near-impossibility of overhauling the U.S. tax code, and the same holds true for the congestion fee and the carbon tax.
What is more, the benefits from road fees or carbon taxes aren’t just diffuse; because they lie in the future they are by necessity uncertain.
“There is nothing more difficult to take in hand,” Machiavelli observed in The Prince, “than to take the lead in the introduction of a new order of things … the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the old conditions, and lukewarm defenders in those who may do well under the new.”
That is why enacting the Bloomberg congestion plan is so hard, and so necessary. America’s civic polity is stuck in traffic, so to speak. Getting it moving again will require us to imagine something other than permanent stalemate and act upon that vision.
Photo: SkyShaper / Flickr
Who is Daniel Sperling and why is he saying bad things about carbon taxes?
Yesterday’s Los Angeles Times ran an odd op-ed calling carbon taxes an ineffectual antidote to global warming. Unlike other critiques that brand carbon taxes as politically unpalatable, this one argued that they’re simply not up to the job of cutting carbon emissions:
“Carbon taxes — taxes on energy sources that emit carbon dioxide (CO2) — aren’t a bad idea. But they only work in some situations. Specifically, they do not work in the transportation sector, the source of a whopping 40% of California’s greenhouse gas emissions (and a third of U.S. emissions).”
I’ve known Daniel Sperling, the author of the op-ed, for decades. As the long-time director of the Institute of Transportation Studies at UC-Davis, Dan probably knows as much about automotive engineering as anyone in the world. What’s more, he’s conscientious, tireless and concerned.
So why do I think he’s wrong about carbon taxes? Actually, Dan is part right, but his message is wrong. Let me explain.
It’s been clear for awhile that carbon taxes won’t make a huge dent in carbon emissions from gasoline — relative to their impact on the biggest source of U.S. carbon dioxide: coal-fired electricity generation. There are three reasons:
- Gasoline has less carbon per btu than coal.
- Engines make better use of their btu’s than do power plants.
- Americans are less behaviorally sensitive to higher prices for gas than for electricity.
When we ran the numbers here at the Carbon Tax Center, we found out just how much gasoline would underperform while electricity overachieved under a level carbon tax. Using Colorado as a test case, we estimate that a statewide carbon tax would draw 60% of all of its carbon reductions from the electricity sector (which is responsible for 42-43% of that state’s CO2), but only 10% from gasoline (which accounts for 20% of emissions).
So we agree with Dan on some key facts. But we think he’s let his natural pessimism about price incentives (he’s an engineer, after all) run a bit amok.
For one thing, the low (10% or less) price-sensitivity for gasoline Dan cites (from his own UC-Davis study) is short-run only. The long-run price-elasticity of gasoline demand is invariably much higher since it can reflect long-term investment decisions — by households in buying more efficient vehicles, by automakers in designing and producing them, and by everyone in making location decisions that reduce driving.
Two widely respected transportation economists at UC Irvine, Ken Small and Kurt Van Dender, looked at pretty much the same gasoline data as Dan and observed the same low (under 10%) short-run price-elasticity. Unsurprisingly but importantly, Small and Van Dender found gasoline’s long-run price-elasticity to be much higher, approximately 40%.
Using that figure, and making assumptions similar to Sperling’s about the potential for substituting lower-carbon fuels, we find that a ramped-up carbon tax that increased the price of gas 10 cents a gallon every year for a decade would reduce CO2 emissions from motor vehicles further and faster than the Low-Carbon Fuels Standard Sperling touts in his op-ed.
Again using Colorado as a test case, the same carbon tax would eliminate more than five times as much CO2 in the electricity sector and almost three times as much in “other” sectors (trucking, space heating, aviation, etc.). Indeed, that tax, which in carbon terms tacks on a charge of $37 per ton (or $10 per ton of CO2) each year for 10 years, would lop off almost 40% from that state’s carbon emissions by 2020. And the revenue stream would be enormous — enough to permit the legislature to zero out the widely disliked state Sales Tax and Business Personal Property Tax by the fifth year, even while providing generous per-resident and per-employee rebates, supplementing the federal Earned Income Tax Credit to assist low-income families, and financing targeted investment in energy efficiency and renewable energy.
We’ll grant the point made by Dan (or the Times’ editors) at the top of his piece: Taxes on CO2 emissions alone won’t get us where we need to go. We’ll need judicious and creative incentives and regulations in addition to a carbon tax, and the Low-Carbon Fuel Standard that Dan is helping advance in California fits that bill. But let’s stop the nay-saying over carbon taxes. They’re the powerful tailwind America needs to get our carbon emissions down equitably, efficiently and immediately.
Photo: Tony.Gonzalez’s photostream (Flickr)