Search Results for: revenue

A Day To Celebrate

June 30, 2008 By Charles Komanoff

Canada Day — the First of July — is observed "not only throughout the nation, but also internationally." This year, Canada’s third-most populous province is giving the world extra cause to celebrate: on July 1, British Columbia becomes the first state or province in the Western Hemisphere with a comprehensive, revenue-neutral carbon tax.

The BC carbon tax starts at a level of $10 (Canadian) per metric ton of carbon dioxide, equivalent to 2.41 (Canadian) cents per litre of gasoline. In U.S. terms and at current exchange rates, that’s $8.91 per short ton, or just under 9 cents per gallon of gas. The rate rises by $5 in each of the next four years, reaching $30 Canadian per tonne (U.S. $26.73 per ton) in 2012.

The tax is revenue-neutral. As we reported in April, the province’s Finance Ministry has dedicated the revenues to four tax reduction measures:

A new Climate Action Credit will pay lower-income BC’ers $100 per adult and $30 per child per year.
The bottom two personal income tax rates have been reduced by 2% on the first $70,000 in earnings.
The corporate income tax rate has been reduced to 11% from the current 12%.
The small business tax rate has been cut to 3.5% from 4.5%.

Each provision will expand in tandem with the tax rate. And, showing impressive political pitch, the ministry last week preceded the tax with what it calls “an immediate Climate Action Dividend” — $100 for every man, woman and child in British Columbia — via dividend checks sent to province residents.

The BC program has catalyzed an intensive discussion of carbon taxes across Canada. Liberal Party Leader Stéphane
Dion is staking his party’s campaign to replace the Conservative government on a carbon tax featuring a $15.4 billion, four-year Green Shift. Canadians are receiving, and participating in, a national tutorial on carbon pricing, “tax vs. cap” and revenue-neutrality.

The BC tax is modest. One
source says it will deliver less than a tenth of the province’s legislated greenhouse gas reductions for 2020. That’s partly because abundant hydropower has obviated the need for fossil fuels to generate electricity. (Memo to BC: please consider an excise tax on electricity; power surpluses from price-induced conservation could be sold into the grid, with revenues flowing to the Climate Action Dividend.)

Still, the tax is a giant step — even a leap. At midnight tonight, North America will have its first large-scale, socially-mandated carbon price. Millions of carbon-impacting decisions will begin to be made with at least some recognition of the climate-curing effect of reduced carbon emissions.

Starting now, BC residents who use less carbon than average will be rewarded with an income boost. With luck, the province’s ruling Liberal Party will be rewarded as well by voters for showing courage, vision and populist appeal. And perhaps in the not too distant future the U.S. will take a page from its northern neighbor’s play book and supplement its imports of ice-hockey players and Canadian Club with something even more sustaining.

Graph: Flickr/paradigm4.

A Convenient Tax – June 2008

June 27, 2008 By Charles Komanoff

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

Hansen Lays It Out: "Yes, A Carbon Tax."

June 24, 2008 By Charles Komanoff

James Hansen, the NASA climatologist who for two decades has led the worldwide scientific community in sounding the alarm over global warming, yesterday issued a ringing call for a U.S. carbon tax-and-dividend in a speech to Congressional staff in Washington, DC.

Here’s Hansen’s prescription, courtesy of Andy Revkin’s NY Times blog, Dot Earth:

If politicians remain at loggerheads, citizens must lead. We must demand a moratorium on new coal-fired power plants. We must block fossil fuel interests who aim to squeeze every last drop of oil from public lands, off-shore, and wilderness areas. Those last drops are no solution. They yield continued exorbitant profits for a short-sighted self-serving industry, but no alleviation of our addiction or long-term energy source.

Moving from fossil fuels to clean energy is challenging, yet transformative in ways that will be welcomed. Cheap, subsidized fossil fuels engendered bad habits. We import food from halfway around the world, for example, even with healthier products available from nearby fields. Local produce would be competitive if not for fossil fuel subsidies and the fact that climate change damages and costs, due to fossil fuels, are also borne by the public.

A price on emissions that cause harm is essential. Yes, a carbon tax.

Hansen is equally clear about what to do with the carbon tax revenues:

Carbon tax with 100 percent dividend is needed to wean us off fossil fuel addiction. Tax and dividend allows the marketplace, not politicians, to make investment decisions.

Carbon tax on coal, oil and gas is simple, applied at the first point of sale or port of entry. The entire tax must be returned to the public, an equal amount to each adult, a half-share for children. This dividend can be deposited monthly in an individual’s bank account.

As to the impact on struggling families, Hansen recognizes that the carbon dividend stands to benefit the vast majority of the non-rich because they use less energy than the wealthy:

Carbon tax with 100 percent dividend is non-regressive. On the contrary, you can bet that low and middle income people will find ways to limit their carbon tax and come out ahead. Profligate energy users will have to pay for their excesses.

Why not have the government invest carbon tax revenues in promising energy technologies? For one thing:

Demand for low-carbon high-efficiency products will spur innovation, making our products more competitive on international markets. Carbon emissions will plummet as energy efficiency and renewable energies grow rapidly. Black soot, mercury and other fossil fuel emissions will decline. A brighter, cleaner future, with energy independence, is possible.

For his other reason, Hansen, a native Iowan, assumes full-throated populist voice:

Washington likes to spend our tax money line-by-line. Swarms of high-priced lobbyists in alligator shoes help Congress decide where to spend, and in turn the lobbyists’ clients provide “campaign” money.

Ironically, as Hansen was addressing the briefing (organized by Massachusetts Representative Edward Markey), detailed quantitative support for his carbon tax prescription was coming from a well-placed Washington economist. A new report by former U.S. Under Secretary of Commerce for Economic Affairs Robert Shapiro calls for a federal carbon tax starting at $14 per metric ton of CO2 in 2010 and rising steadily to $50 in 2030 (equivalent to $82 with inflation).

Ninety percent of the carbon tax revenues would be recycled via rebates on payroll taxes to employees and employers, or their equivalent in direct payments to households. The remaining 10% would go to energy and climate-related R&D and new technology deployment. Using the U.S. Energy Department’s NEMS consulting model, Shapiro concludes that the nearly revenue-neutral carbon tax would reduce CO2 emissions by 30% below non-taxed levels while shaving only eight-tenths of one percent off future (2030) GDP.

The report, Addressing Climate Change Without Impairing the U.S. Economy: The Economics and Environmental Science of Combining a Carbon-Based Tax and Tax Relief, was published by the U.S. Climate Task Force, a project of Shapiro’s Sonecon economic advisory company.

Photo: Flickr / chesapeakeclimate.

Dion: “Make Polluters Pay and Put Every Single Penny Back into the Hands of Canadians”

June 20, 2008 By Charles Komanoff

Canada’s Liberal Party Leader Stéphane Dion yesterday dramatically transformed the debate in Canada over how to reduce greenhouse gas emission by proposing a $15.4 billion “Green Shift” over a four-year period. The proposed revenue-neutral carbon tax shift puts a significant price on carbon and demonstrates the type of leadership that’s yet to emerge in the United States.

Introducing the carbon tax shift, Dion eloquently explained:

The Liberal Green Shift is as powerful as it is simple. We will cut taxes on those things we want more of such as income, investment and innovation. And we will shift taxes to what we all want less of: pollution, greenhouse gas emissions and waste. We need to make polluters pay an put every single penny back into the hands of Canadians.

The Green Shift Plan will be good for the environment and good for the economy. Good for the planet and good for your wallet. We need to make real progress in the fight against climate crisis, and at the same time make our economy more competitive. While energy prices continue to rise, we need to encourage energy efficiency.

Some have said that nobody would have the courage or the political will to
do what we believe is right. We need to do it. We will do it.

Dion’s message and a detailed description of the Green Shift can be found in the Green Shift Handbook, easily downloaded from the Green Shift web page . The Green Shift will begin with an immediate $10 per tonne tax on carbon and steadily rise by an additional $10 per tonne each year, reaching $40 per tonne within four years.

The tax will apply at the wholesale level to all fossil fuels based upon their respective carbon content. The tax will not apply to gasoline at the pump, since the existing excise tax on gasoline at the pump is already the equivalent of $42 per tonne of carbon.

Revenue-neutrality is a key element of the Green Shift, which clearly states that “For every dollar raised in taxes there will be a dollar returned to Canadians in tax cuts.” The Auditor General will ensure the Green Shift’s revenue-neutrality.

The Green Shift will return the “pollution dividend” to Canadians through:

Significant, broad-based income tax reductions, increasing each year as the pollution tax revenue rises;

Reforms to the tax system to make it fairer for low-income Canadians, including;

o Introducing a new, universal child tax benefit worth $350 per child, per year,
on top of all existing child benefits;

o Replacing the existing $1,000 employment credit with a $1,850 refundable
employment credit targeting those making less than $50,000 per year;

o Enriching the Working Income Tax Benefit, making it available on the first
dollar earned; and

o Making the Disability Tax Credit refundable;

Additional support for rural and Northern Canadians, with every rural Canadian receiving, up front, an annual Green Rural Credit of $150;

A boost in the Northern Residents Deduction for those living in Northern
Canada;

Broad-based corporate tax reductions;

Small-business income tax reductions;

Accelerated capital cost allowances for green technologies; and

Better research and development incentives.

The Green Shift is already receiving massive press coverage in Canada, a small sample can be found in our “Latest News” column. And as the press coverage makes clear, the stakes are high for both the environment and for Dion and the Liberal Party’s political future. Dion Stakes His Future on Being Greenest of Them All, according to the Globe and Mail. The attacks by Dion’s political opponents have already begun. See, for example, the Vancouver Sun story Dion’s ‘Green Shift’ Debuts to Heavy Fire, “The Conservative government and the New Democratic Party assailed Liberal Leader Stephane Dion’s proposed national carbon tax Thursday as a crazy and irresponsible plan….”

Canadian environmentalists have been far more supportive. According to an article in today’s Montreal Gazette, Greenpeace offered qualified support for the Green Shift arguing the price should be even higher, Équiterre says it’s the type of policy it could support and the Sierra Club Canada’s executive director said, "The benefit of a carbon tax is that it can be applied quickly, thereby raising the price of carbon emissions sooner; cap-and-trade systems have their benefits but they do take longer to implement properly."

That’s CTC’s response, too. We applaud Dion’s political courage, but we prefer a higher carbon tax. We fully support the concept of revenue neutrality and like the “shift” and “dividend” language, although we would prefer more direct return of the revenues through a Green Shift/carbon tax dividend or offsetting tax reductions. We applaud Dion’s targeting of Green Shift/carbon tax revenues to low-income rural energy users, necessary for both equity and political reasons. Finally, we’re intrigued that the Green Shift does not tax gasoline at the pump, although we expect that some portion of the tax will be passed through to retail customers. As we noted in a post last week, gasoline prices have already increased as much in the last year as we proposed for the next ten years. A floor on gasoline prices maintained by a revenue-neutral carbon tax might be appropriate.

There will be plenty of time to carefully examine the details of the Green Shift and, we’re sure, plenty of lessons to be learned about both the substance of the Green Shift and the politics of promoting a carbon tax. Stay tuned!

Photo of Stéphane Dion: http://www.liberal.ca/glance_e.aspx

National “EJ” Coalition Blasts Cap-and-Trade, Backs Carbon Tax

June 13, 2008 By Charles Komanoff

Condemning carbon trading as “fraught with uncertainties, lack[ing] transparency and creat[ing] large opportunities for emitting facilities to engage in fraud,” a national coalition of environmental justice organizations has called for a federal carbon tax to address “the most critical issue of our time” — the climate crisis.

Good Jobs Clean Air _ close-up _ Brooke Anderson_1.jpg The June 2 statement from the Climate Justice Leadership Forum is the latest sign of mounting disaffection with the top-down push for carbon cap-and-trade. It is particularly significant because the 28 signatory organizations, which span the country from Anchorage to New Orleans and from Oakland to New York City, have been the spearhead of a rising movement by communities of color to crack open the historically affluent and white U.S. environmental lobby, much of which has backed the cap-and-trade approach to pricing carbon emissions.

Moreover, CJLF’s endorsement of “an equitable carbon tax” serves notice that lower-income and “minority” constituencies are concluding that the disproportionate impacts of carbon taxes and other user fees can (and must) be reversed through progressive use of the tax revenues. Indeed, the group’s statement declares that:

An equitable carbon tax must be set high enough to encourage emissions sources to make financial investment in technological controls and energy efficiency, and to begin researching and developing clean, renewable energy options.

A carbon tax cannot remain static and should not merely track inflation but should rise over time so that resource conservation and development of clean renewable energy can continue to be an attractive alternative to fossil fuel use.

Despite agreeing on the desirability of carbon taxes, CJLF and CTC differ on the important question of revenue treatment. The Carbon Tax Center wants 100% of carbon tax revenues to be returned to Americans via either tax-shifting or regular “dividends” to safeguard less affluent families who, on average, consume less energy than the wealthy. In contrast, the Climate Justice Leadership Forum urges:

Program revenue from a carbon tax should be used to fund programs designed to wean the economy off fossil fuel; should provide assistance for vulnerable workers and communities working to transition to the new economy; should include subsidies for energy efficiency that prioritize low- income communities and communities of color, particularly those living in vulnerable areas (coastal zones, floodplains, artics, urban areas).

CTC strongly supports such efforts but wants them funded from general revenues to avoid the horse-trading that could otherwise “raid” the carbon tax revenues and reduce dividends available to families. Still, our tactical difference with CJLF pales beside our shared perspective on the importance of enacting carbon taxes instead of carbon cap-and-trade.

Here’s part of CJLF’s critique of carbon cap-and-trading:

A cap and trade system creates a volatile market that does not create business incentives to invest in new technologies because prices of emissions credits could be less than the price of new technologies. A cap and trade system makes economic planning difficult because the market price, lacking regulation, is not consistent and is difficult for businesses to predict.

In contrast, CJLF unequivocally supports carbon taxing:

A carbon tax carbon reduction system has been found by scientists, economists, policymakers and regulatory analysts to be the most efficient means to reduce carbon emissions.

A carbon tax can insure predictability and create immediate incentives for emitters to invest in new cleaning technology for polluting facilities.

Signatories to the CJLF statement are listed below (as of June 1). As we see it, the coalition’s statement is both a milestone in climate advocacy and an indication that with growing public exposure, support for carbon pricing is slipping away from cap-and-trade and moving toward carbon taxing.

Alaska Community Action on Toxics, Anchorage AK • Arbor Hill Environmental Justice Corporation, Albany, NY • Asian Pacific Environmental Network, Oakland, CA • California Environmental Rights Alliance, Los Angeles, CA • Clark Atlanta University Environmental Justice Resource Center, Atlanta, GA • Communities for a Better Environment, Los Angeles, CA • Community Coalition for Environmental Justice, Seattle, WA • Community In-power and Development Association, Port Arthur, TX • Connecticut Coalition for Environmental Justice, Hartford, CT • Deep South Center for Environmental Justice at Dillard University, New Orleans,
LA • Detroiters Working for Environmental Justice, Detroit, MI • Environmental Justice Action Group, Buffalo, NY • Environmental Justice Climate Change Initiative, Oakland, CA • Environmental Research Foundation, New Brunswick, NJ • For a Better Bronx, Bronx, NY • Harambee House Inc., Savannah, GA • Indigenous Environmental Network, Bemidji, MN • Jesus Peoples Against Pollution, Jackson, MS • Just Transition Alliance, San Diego, CA • Land Loss Prevention Project, Durham, NC • National Black Environmental Justice Network, Washington, D.C. • National Community Revitalization Alliance, Washington, D.C. • New Jersey Environmental Justice Alliance, Trenton, NJ • New York City Environmental Justice Alliance, New York, NY • People Organizing to Demand Economic & Environmental Rights (PODER), San Francisco, CA • Southwest Network for Economic and Environmental Justice, Albuquerque, NM • United Puerto Rican Organization of Sunset Park (UPROSE), Brooklyn, NY • WE ACT for Environmental Justice, Harlem, NY

Photo: Flickr / Brooke Anderson.

Time for a Floor on Gas Prices?

June 9, 2008 By Charles Komanoff

High gasoline prices are ravaging rural Americans, particularly families with low incomes that drive relatively long distances in gas-guzzling pick-up trucks and vans. As described in today’s front-page New York Times story Rural U.S. Takes Worst Hit as Gas Tops $4 Average:

Here in the Mississippi Delta, some farm workers are borrowing money from their bosses so they can fill their tanks and get to work. Some are switching jobs for shorter commutes.

People are giving up meat so they can buy fuel. Gasoline theft is rising. And drivers are running out of gas more often, leaving their cars by the side of the road until they can scrape together gas money.

Now imagine that Congress had enacted a revenue-neutral carbon tax years ago. Instead of the current high gasoline prices combined with huge profits for the oil industry, we would have high gasoline prices offset by large dividends being returned to all Americans. And, if the revenue-neutral carbon tax had been phased in slowly as recommended by the Carbon Tax Center, drivers would have had time to adjust to the higher costs by purchasing more fuel-efficient vehicles and changing their driving habits.

That’s a missed opportunity with devastating economic consequences. What do we do now? Provide a gasoline-tax holiday to reduce the price at the pump? Impose a carbon tax and increase the price of gasoline? The gas tax holiday idea was a cheap political stunt that was effectively rejected by the voters in North Carolina and Indiana, and by most politicians.

Should gasoline prices be increased further now? Maybe not. While a carbon tax on other fossil-fuels is still necessary, maybe it’s time to just maintain the status quo on gasoline prices.

Seventeen months ago the Carbon Tax Center proposed phasing in a revenue-neutral carbon tax that would have resulted in a ten cent a year increase in gasoline taxes for each of ten years. A $1 increase in gasoline taxes after ten years would have resulted in a somewhat lower increase in gasoline prices since the full amount of the tax would not have been passed through to consumers.

We have already seen prices increases far in excess of those which would have resulted from the CTC proposed carbon tax. The good news is that we are seeing just the type of positive results we expected. People are buying smaller and more efficient cars and they are changing their driving habits. The bad news is that there has been no carbon tax dividend to help people deal with the higher prices. The oil companies and the oil producing countries aren’t giving back any of their profits.

Now is the time to maintain high gas prices and to lock in efficiency gains by using a carbon tax to create a “floor” gasoline price. If market forces (or and end to market distortions) results in lower oil prices, gasoline taxes would maintain the current pump price. Prices would remain the same, but the gasoline taxes would be returned to all Americans through a carbon tax dividend.

Coincidentally, the Tampa Tribune today published a powerful editorial favoring a carbon tax over cap-and-trade, stating:

A better way to approach the problem is to put a direct tax on carbon, then return the extra revenue to the public through lower income taxes and more federal support of proven technologies, such as public transit. Instead of trying to pick winners and losers in the private sector, Congress should increase grants for university research in clean energy.

While the Carbon Tax Center prefers a carbon tax dividend to federal support of what Congress might consider to be “proven technologies,” we welcome the Tampa Tribune’s support of carbon taxes and its recognition that such taxes make sense even with current gasoline prices:

Consider how effectively the higher price of gasoline this year has begun to change behavior. Ridership on Hillsborough’s transit system, HART, is up 7.2 percent this year. Sales are strong for smaller cars. Motor scooters are selling like hotcakes.

But consumers are right to be angry. They’re getting no help making the transition to a lower-carbon life. The profits from expensive oil are going to big oil companies, foreign producers and speculators, while most of us see our standard of living fall.

It’s time to use a revenue-neutral carbon tax and dividend to maintain the environmental benefits of today’s high gasoline prices, but to redirect the cash flow from the oil industry to all Americans.

Boxer the Trapper (of Global Warming Deniers)

June 7, 2008 By Charles Komanoff

Guest Post by James Handley

I’m a bit surprised that Republicans fell into Boxer’s trap so predictably. With a slim Democratic majority in the Senate and a promised presidential veto, the Lieberman-Warner (“Climate Security”) bill never had a chance. Senate Environment and Public Works Committee Chair Barbara Boxer forced a vote so the environmental score-keepers could notch one up for the Ds and one down for the Rs.

The bill was deeply flawed — Friends of the Earth, Greenpeace and a coalition of other progressive environmental groups point out that it would GIVE AWAY most of the carbon emission permits to polluters. Instead, these groups advocate auctioning ALL permits. Both Hillary Clinton and Barack Obama also support 100% auction. So Lieberman-Warner was already way behind the political curve.

The bill would have auctioned a minority of permits. Who would the lucky revenue winners have been? Mostly big (polluting) energy corporations.

Rep. Markey (D-Mass) introduced a House bill to auction 97% of permits and distribute revenue to individuals, while Sen. Corker (R-Tenn) offered similar amendments in the Senate: worthy improvements that didn’t get serious consideration (yet).

Lieberman-Warner was a trial balloon, but more than that, it was a trap to entice the howling dogs who deny the climate problem out into the open so Democrats and environmental groups can campaign against them. As legislation, it’s a failure. As political strategy, it lured them out and slapped shut with the alacrity of a mouse trap. I can’t help wondering why the Republican leadership didn’t try to improve the bill (or at least fake doing so) instead of obstructing it. There’s plenty to improve on (like moving from cap-and-trade to a carbon tax and requiring revenue-neutrality) and they could have avoided being tarred as Neanderthal global warming deniers.

Boxer’s political trick worked and may provide the Democratic Party with real political benefits as voters register their impatience in November. Unfortunately, the focus on a poorly-designed bill and the failure to consider constructive changes resulted in a wasted opportunity.

Economists from left to right agree that the gold standard for effective climate policy is a revenue-neutral carbon tax with dividend. Maybe the spectacular crash of Lieberman-Warner will help us start that much-needed discussion after the election.

We Explain Gasoline Demand (including why it’s sticky)

May 12, 2008 By Charles Komanoff

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.

New Canadian Poll Shows Strong Support for Carbon Tax

May 9, 2008 By Charles Komanoff

Carbon taxes having been getting much more attention in the Canadian press than they have in the United States. And familiarity with the concept of a carbon tax appears to produce support.

A Canadian Press Harris/Decima poll released last week revealed strong support for "a carbon tax levied on people and businesses based on the carbon emissions they generate," with 61% supporting such a tax and 32% opposed.

The poll showed even greater support for "an environmental tax refund paid to those who succeed in reducing their use of fossil fuels, electricity, water and the amount of garbage they produce," with 80% support and only 16% opposition.

According to Harris/Decima President Bruce Anderson, the basic concept of a carbon tax becomes more popular:

when the focus is on the broader aspects of our environmental footprint, not just carbon, when it is clear that the money raised would be used to incent environmental improvement, when the idea is that those who are taxed are those who aren’t trying, and when there is a signal that environmentally thoughtful behaviour will be rewarded." (Emphasis added.)

Rewarding the "thoughtful behavior" may explain the greater support offered for the "environmental tax refund" compared to the "carbon tax" poll question. Anderson concludes:

The central concept, of taxing particularly harmful behavior, and rewarding the opposite, is a potential political winner for the party that can get it right and describe it clearly. The tag "carbon tax" and the term "revenue neutral", from a political communications standpoint, are not ideal starting points, as communications go.

We agree with Anderson’s conclusion that "taxing particularly harmful behavior, and rewarding the opposite" — precisely what a revenue-neutral carbon tax is designed to do — is a potential political winner.

We intend to give more thought to his political communications point and whether there is a better way to frame the case for a revenue-neutral carbon tax. Ideas?

Photo: Flickr / champy1013

UPDATE – May 11 – The Canadian Press reported today on unsubstantiated rumors that the Liberal Party’s pollster has found far less favorable views about carbon tax when respondents were given details of British Columbia’s carbon tax plan. According to the rumors, "the poll found 30 per cent strongly opposed to the idea and 12 per cent somewhat opposed, compared to 23 per cent strongly supportive and 25 per cent somewhat supportive." Based upon Anderson’s conclusion above and assuming the rumored poll results are accurate, the Liberal Party pollster’s results might have been more favorable had he avoided use of the terms "carbon tax" and "revenue-neutral."

A Convenient Tax – May 2008

May 4, 2008 By Charles Komanoff

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