Musk: Introduce Carbon Tax & reduce other taxes

Robert.Boston said:

In addition to Audie's excellent points, there is are challenges in selecting a carbon tax level.

Some of FlasherZ's concerns could be eased by ramping in the tax on a known schedule. A $5/MT tax ramping up by $5/MT each year until it gets to, say, $50/MT would give people time to adjust.

The bigger problem is getting a tax level that actually achieves the desired goal. Scientists have a much better handle on the quantity of greenhouse gases we can still put into the atmosphere, but economists don't have as clear a sense about what tax level will keep future emissions within that budget. We've dealt with this problem before: SO2 causing acid rain. The solution we used to solve that problem (at a far lower cost than anyone thought) was a cap-and-trade program. Although this approach is similar to a tax, it lets the market determine the price of solving the problem. Using cap-and-trade for carbon presents many problems, though, not least of which is that carbon is very long-lived in the atmosphere (creating a time dimension to the pricing not found with SO2).

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• This problem has been clearly understood for at least 40 years, it has been recognized as a critical problem for more than 30 years and has been the focus of concerted (but completely ineffectual) international action for over 20 years.
• The failure to act despite the near-absolute scientific certainty and growing evidence of real world impacts highlights the necessity for a simple model and the need for immediate action.
• We are well past the point at which we can afford the time it would take to convert the abstract, theoretical advantages of a cap and trade model into a properly functioning real world model (which would auction and price all emissions, without any free or discount priced allowances, and has yet have been implemented in practice).
• The decade-long experience with cap and trade in Europe highlights a number of the real world problems and issues (the price there spiked to over 30 euros in 2005 and 2006, but thereafter fell dramatically and has been in the single digits for the past three years).
• In Europe direct regulation, massive carbon fees (taxes) (in the form of surcharges on transportation fuels), feed-in tariff programs and other direct economic and regulatory intervention has been substantially more effective at reducing emissions than the EC cap and trade regime.
• We are now at a point where there is no longer any level of additional CO2 emissions which can be considered safe.
• The goal has to be to eliminate all additional emissions as soon as possible.
• A carbon fee (tax) which rises without limit, e.g., $30/MT this year, $130/MT a decade from now, $230/MT two decades from now, etc. will have that effect by providing a clear and visible roadmap to the cost of future emissions.
• The starting fee of $30/MT is about $0.07 (7 cents per litre), much less than the decrease in gasoline prices from the collapse of oil prices, and is easily affordable.
• The annual increase of $10/MT is about $0.02 (2 cents per litre) per year (or slightly over half a cent a quarter) will provide business and consumers with steadily increasing incentives to shift to lower emitting alternatives, but without any dramatic price shocks.
• Cap and trade provides no such clarity or predictability as to cost.
• A carbon fee (tax) can more easily be coordinated across industries and international borders than a cap and trade regime. Under cap and trade there will predictably be decades of wrangling as to the allocation of the caps, both domestically and internationally, and there are no objectively "correct" answers to any of those questions.
• Should high emitting countries and industries be given a greater cap in recognition of the time it will take them to change, or be given zero allowances on the basis that they have already used more than their fair share? Should allowances be issued on a per capita basis? What weight should be given to account for past emissions (which will continue to cause harm for centuries)?
• The allocation of allowances under a cap and trade regime is politics at it worst. It is not objectively based on science, or economics, or true public policy considerations, but rather on the effectiveness of the lobbying by competing business interests. In such battles, the public interest almost always comes in last place.
• Unlike acid rain, which involved a small number of discrete emitters within a specified geographic and political domain, climate change is truly global, involves every human being as an emitter, and requires a clear price signal in order to properly affect the near infinite number of decisions which result in emissions which are made every day.
• The clarity and predictability and enforceability of a carbon fee, as opposed the uncertainty, and unpredictability, and the enforceability challenges posed by a global cap and trade regime, make cap and trade the vastly inferior option.
• A carbon fee (tax) provides a clear metric for enforcement across different jurisdictions and permits the imposition of border adjustments to protect the industries in a higher fee jurisdictions from imports from countries with a lower carbon fee (a result which is impossible to accomplish under a cap and trade system with free allowances).
• A pre-planned carbon fee model provides the certainty required for efficient investment planning by both businesses and consumers, whereas the price level is the unknown variable under a cap and trade system (and precludes efficient and effective business planning).
• As the price of carbon is uncertain under cap and trade, it is more likely to have unpredictable and harmful impacts on businesses as prices spike and fall (and as businesses fail) and on consumers who will be sideswiped by price spikes.
• Cap and trade will also tend to harm the most vulnerable in society whereas a carbon fee (tax) and revenue neutral dividend model ensures that the least well-off are not only protected, but actually see a net increase in disposable income.
• The complexities of cap and trade systems mean that it takes many years to implement them, further years for fine tuning, and results in systems that will lose many billions of dollars to deadweight losses (in the form of fees paid to lobbyists, traders, speculators, regulators, lawyers and accountants), whereas a carbon fee and dividend model can be relatively easily added to existing commodity tax regimes, transparently returns the fees to the public, and therefor can be much more quickly and efficiently implemented and enforced.
• The fee and dividend model is much more economically efficient as the costs imposed by each additional MT of emissions are paid by the person responsible for such emissions.
• The fact that a particular industry has hired better lobbyists (and as a result has obtained no-cost carbon allowances) in no way reduces the harm caused by their emissions.
• The inherent unfairness associated with a lobbyist-driven cap and trade system will reduce public support for the system (and for carbon regulation overall) thereby further harming the effectiveness of the system.
• The only stakeholders to benefit from a cap and trade model, as opposed to a carbon fee and dividend model, would appear to be the lobbyists (and the interests that they represent), traders, speculators, regulators, lawyers and accountants, the losers include the public, the economy and the environment.

cpa said:

From a common sense, practical and equitable point of view, all the above comments and suggestions are fantastic, and I agree in principle with them. There will be winners and losers with any plan; we just hope to keep the losses minimal and temporary. ...

In my opinion carbon-tax legislation is going to be vastly more complex than the Affordable Care Act. ...

I feel that this sort of thing faces a remarkably difficult uphill battle in contemporary society. [Sigh.]

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FlasherZ said:

Anyone can offer a bill in Congress (as evidenced by your last link, Sanders and Boxer). That doesn't mean anything about the practicality. Bernie Sanders could offer a bill that taxed anyone making over $100,000 at 100% to give to the people who don't want to work, and it would be "inherently very simple". But that doesn't mean it has a chance in hell of passing, because the practicality of it is zero.

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cpa said:

From a common sense, practical and equitable point of view, all the above comments and suggestions are fantastic, and I agree in principle with them. There will be winners and losers with any plan; we just hope to keep the losses minimal and temporary.

That said, I am cynical when it comes to politicians doing the right thing--at least here in these United States. Politicians view their jobs as a career, so their most compelling reasons for enacting or defeating legislation has more to do with keeping their jobs than it has to do with what is for the greater good for the country, society and the People. Frankly, I do not believe that the majority of our elected representatives are that intelligent when it comes to the myriad matters that they address each legislative cycle. They receive a lot of information (some may say propaganda) from diverse sources, and react viscerally or selfishly.

Assessing and collecting a carbon tax and redistributing it among the people (or using it for infrastructure--hey! there's an idea!) is going to be an extremely complex and unpopular undertaking. Are our elected leaders capable of understanding all the complexities, nuances, economics and future benefits of such legislation? Look at the Affordable Care Act. In many situations it has worked, but it has failed enormously in others. That legislation is hundreds and hundreds of pages long, and I have read that many senators and representatives were shocked to find out what was really contained in the bill that they supported so strenuously. They even admitted not to have read the entirety of the legislation, and relied upon summaries. (If my memory recalls correctly.)

In my opinion carbon-tax legislation is going to be vastly more complex than the Affordable Care Act. There will be years of dueling economists, scientists and business executives weighing in on various theories and proposals to persuade Congress what to do (or not to do.) The only thing that will come of this is that they will kick the can down the road and revisit this topic later. And, if by some stretch of luck, reasonable legislation is enacted into law, it is quite likely that nine people in black robes who know absolutely zero about science and economics will decide whether the legislation passes Constitutional muster.

I feel that this sort of thing faces a remarkably difficult uphill battle in contemporary society. [Sigh.]

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