Carbon Tax

[Jeff Miller]

Only the rich have the money to "trade". The poor never will. The rich get richer and the poor stay poor. Also, I would never suggest that money would be transferred from the poor to the rich. The poor have no money to be transfered, that is why they are poor.

Part of the reason that I favor an 'at the source' carbon tax (or fee) coupled with a monthly or quarterly dividend check is because it is simple, transparent, and progressive. It eliminates worries like those you express above that the system will be gamed in favor of business or the wealthy. More details and estimates on the distributional effects of a tax like this can be found here:

Carbon Tax Center Tax Shifts

 

[RichardC]

A Modest Proposal for a Carbon Pollution Levy and Rebate Regime for Canada

Public Policy Rationale for a New Canadian Climate Change Policy

1. Manmade greenhouse gas (GHG) emissions (principally CO2) cause climate change which has had and is projected to have increasingly high costs, in terms of both human lives and economic damage.
2. Human CO2 emissions from the burning of fossil fuels are an unnecessary form of pollution, which has a high social cost which is not borne by the polluters, but is indirectly borne by the public in form of personal harm and property damage, higher insurance premiums, higher taxes and in other ways. Currently the emitters of CO2 are imposing a high, involuntary, and steadily increasing tax on all members of the public, especially those in less developed countries whose lives are directly threatened and who do not have the resources to protect themselves from the consequences of climate change.
3. If the polluters were to bear the true cost of the CO2 emissions, free markets would automatically lead to the widespread replacement of CO2 emitting energy sources with clean alternatives. Current emissions of CO2 reflect a market failure that governments have an obligation to intervene to correct, in the public interest, as they have in the past with respect to the public dumping of untreated sewage and other dangerous pollutants into the environment.
4. In order to avoid catastrophic climate change, scientists tell us that we cannot exceed 450 ppm of CO2 in the atmosphere (human activity has already raised the level of CO2 from around 270 or 280 ppm to around 400 ppm – and the level is rising increasingly quickly).
5. 450 ppm of CO2 represents total cumulative per capita addition of around 200 Tonnes of CO2 per person to the atmosphere (calculated from the beginning of the industrial revolution when mankind began to substantially change the chemistry of the atmosphere). (This calculation is based on the current population of 7 billion.)
6. 200 Tonnes of CO2 per person translates into total cumulative emissions of around 400 Tonnes of CO2 per person (as approximately half of the emissions are removed from the atmosphere by the oceans and other natural mechanisms, while the other half remains in the atmosphere).
7. Canadians have already emitted a cumulative total of over 800 Tonnes per person (which is more than twice their fair share) and continue to emit approximately four times as much on a per capita basis as the global average. (If everyone on earth had emitted as much CO2 as Canadians, the global temperature would go up by four degrees C, which would result in a breakdown of natural and social systems upon which human civilization is based.)
8. As enlightened and responsible international citizens, Canadians need to take reasonable steps to reduce their CO2 emissions and to lead the way in the implementation of non-polluting alternatives (all of which exist and are in use at the present time).
9. It is widely recognized by economists that the most efficient way of reducing pollution to reasonable levels is to charge the polluters for the damage caused by their emissions.
10. The following section describes one model for a revenue neutral (fully refunded), relatively modest pollution levy which will increase steadily and predictably over time and could be expected to automatically induce, through the operation of the free market, the implementation of non-polluting alternatives without harming the economy, imposing a tax, or removing any money from the economy.

Pollution Levy and Dividend - Methodology and Process

1. Set a significant, and annually increasing, price on GHG emissions (Co2, methane, etc., all calculated as CO2e (carbon dioxide equivalent)) including the emissions embedded in all imported goods and services. (For example, initially $50 per tonne, increasing annually by $20 per tonne, together with any required adjustment for inflation.)
2. Establish accounting and audit standards (for example, based on ISO 14064) and collection mechanisms (which could easily piggyback on the GST collection apparatus to capture and collect the pollution added by transport and further processing).
3. Calculate total annual estimated pollution levy for the first year.
4. Divide the total annual estimated pollution levy for the first year by the number of permanent residents of Canada to determine the annual per resident dividend for the first year.
5. One quarter of the annual per resident dividend will be distributed to each permanent resident at the beginning of each calendar quarter (Jan 1, April 1, July 1 and Oct 1) in advance of the collection of the levy.
6. The same process, at annually increasing pollution levy levels, would be applied for each successive year.
7. Any adjustment (surplus or deficit) required to dividend out the full amount of the pollution levy would be made to the dividend payments for the following year.
8. The steadily increasing prices (and the known amount of the increases in the future) would encourage investments in innovation, the substitution of non-emitting alternatives and conservation, and over time lead to the gradual replacement of carbon emitting energy sources with non-emitting alternatives.

Example: Assume average per resident Canadian emissions of 20 Tonnes CO2e

1. Year 1 - At $50 per tonne of CO2e ($0.14/litre), the annual per resident dividend for the first year would be $1000 (to be paid in quarterly installments in advance).
2. During the course of Year 1 (and thereafter) the pollution levy would be charged on all GHG emissions (including embedded GHG emissions) and any surplus or deficit carried forward to the next year.
3. Year 2 - At $70 per tonne of CO2e ($0.19/litre) and assuming a 5% decrease in GHG emissions, the annual per resident dividend for the second year would be $1330 plus any surplus or deficit carried forward from Year 1 (to be paid in quarterly installments in advance).
4. Year 3 - At $90 per tonne of CO2e ($0.25/litre) and assuming a further 5% decrease in GHG emissions, the annual per resident dividend for the third year would be $1620 plus any surplus or deficit carried forward from Year 2 (to be paid in quarterly installments in advance).
5. Year 4 - At $110 per tonne of CO2e ($0.30/litre) and assuming a further 5% decrease in GHG emissions, the annual per resident dividend for the fourth year would be $1870 plus any surplus or deficit carried forward from Year 3 (to be paid in quarterly installments in advance).
6. Year 5 - At $130 per tonne of CO2e ($0.35/litre) and assuming a further 5% decrease in GHG emissions, the annual per resident dividend for the fourth year would be $2080 plus any surplus or deficit carried forward from Year 4 (to be paid in quarterly installments in advance).

The advantages of this approach include the following:

1. It is a pollution levy, to reflect the additional cost of GHG emissions, and not a tax as it is fully paid back to the public.
2. The pollution levy is not increasing government revenues, and it is not impacting the economy as it is not removing any money from the economy. (These two points would be important to sell the approach to Conservatives and Republicans.)
3. It is not regressive in its impact on the least fortunate members of society, and will not cause any hardship as the average amount of pollution levy to be paid by Canadians will be received by them in advance.
4. The dividend can be used to finance investments in conservation and/or low emissions alternatives by the less fortunate. (These two points would be important to sell the approach to Liberals, Democrats and the New Democrats.)
5. It relies upon the free market, and the opportunities provided by the increasing pollution levy, to incent investments in innovation and the development of creative solutions.
6. While its initial impact is very small, e.g., $0.14 per litre, and provides the public, industry and investors with time to adapt and to coordinate effective responses through the market, it will gradually (over a 20 or 30 or 40 year time frame), result in the complete replacement of fossil fuels as the pollution levy increases to approximately $2 per litre (plus adjustments for inflation).
7. Recognition by investors of the massive size of the renewable energy market will lead to continually falling prices and the rapid adoption of replacement technologies at prices that will rapidly accelerate the transition from fossil fuels for most purposes.
8. This approach is comparatively simple to implement and to audit, and does not provide the broad opportunities for fraud, cheating and sector by sector government interference which are inherent in cap and trade systems. The pollution levy model can also relatively easily be extended across national borders.
9. It also facilitates planning and investment based on known future prices (unlike cap and trade models where wild swings in prices do not provide the stability and predictability required to spur investments). (The EU cap and trade model and the US renewable portfolio standards have both suffered from booms and busts which have impeded the development of alternatives.)
10. Imports would be subject to a pollution levy on their accrued emission content (on a completely non-discriminatory basis) to comply with WTO trade agreements which would prevent the export of jobs to more heavily polluting jurisdictions and in fact encourage other jurisdictions to both reduce their own GHG emissions (to improve the competitiveness of their exports) and to implement their own compatible pollution levy regimes in order to avoid losing the pollution levy revenues to Canada (and the other countries which adopt similar and compatible models).

All of the foregoing considerations are equally applicable to the US and other developed countries, would be of a net economic advantage to a substantial majority of the population and would increase the efficiency and competitiveness of the local and global economies (by recognizing and internalizing the costs of carbon emissions, rather than imposing them on the global public, taxpayers and future generations). The fossil fuel industry is the only constituency which would not benefit from such a regime.

 

[Jeff Miller]

RichardC,

That's very well written - I like it.

 

[RichardC]

Study shows a revenue-neutral carbon tax would grow economy, increase jobs

Further confirmation that a revenue neutral carbon pollution levy would not only be effective in reducing GHG emissions but would also result in greater GDP and additional jobs. As noted in the Press Release from the Citizens Climate Lobby. See: http://citizensclimatelobby.org/press-release-march-3-2014/

An aggressively-priced carbon tax in California, with revenue returned to the public, would actually grow the state’s economy and increase jobs ...

The Executive Summary describes the research and implications for the California economy as follows:

This report examines the economic, demographic, and climate impact of environmental tax reform in California. The primary policy levers behind this investigation are a carbon tax and revenue-neutrality. The carbon tax supposes the state begins to assess retail or wholesale sales taxes on energy (electricity, natural gas, and petroleum products) based on the underlying carbon content of the fuel to discourage their use and help to cut state emissions (in addition to AB32). The levels of pricing included here are $50/metric ton, $100/ton, and $200/ton. ... California may be able to prosper while reducing emissions. Higher energy costs have negative effects, but tax relief helps to restore state competitiveness. More household income encourages spending on local businesses. In contrast, reduced energy demands have little impact on jobs and gross domestic product (GDP). This "tax swap" could mean 300,000 more jobs in the state and an extra $18 billion in annual GDP by 2035, $16 billion more in annual income, and a reduction of emissions by 31% from the "no-tax" baseline.

See: http://citizensclimatelobby.org/wp-content/uploads/2014/03/REMI-CA-Carbon-Tax.pdf

 

[Norbert]

Two major market-based options exist, and politicians around the world have largely settled on carbon trading. Understanding the reality of a "great" idea is the first step.

Carbon emission trading
Carbon emission trading - Wikipedia, the free encyclopedia

How Carbon Trading Works
HowStuffWorks

Carbon Trade Exchange is a Global Electronic Carbon Credit Exchange Platformhttp://carbontradexchange.com/


Bottom line, rich will get richer and the poor will be left behind.

Just because "carbon trading" and "carbon tax" both have the word "carbon" in it?

 

[tigerade]

Helge Lund of Statoil: Carbon Tax is economically efficent but politically challenging. I agree on both points.

Video - ECO:nomics: Statoil CEO Thinks Norway's Carbon Tax Can Be a Model for the World - WSJ.com

 

[RichardC]

Carbon Pollution Levy - Not Carbon Tax

Helge Lund of Statoil: Carbon Tax is economically efficent but politically challenging. I agree on both points.

Video - ECO:nomics: Statoil CEO Thinks Norway's Carbon Tax Can Be a Model for the World - WSJ.com

To what extent would the elimination of the "T" word (Tax) help with the political challenges?

Would a carbon "pollution levy" and 100% rebate, as discussed above, which is equivalent to a carbon "pollution fee" and 100% dividend (as proposed by James Hansen and the Citizens' Climate Lobby), which should comply with the requirements of the Americans for Tax Reform's Taxpayer Protection Pledge (see: http://www.atr.org/about-the-pledge) which has been signed by 219 members of the 113th Congress and 39 Senators, make putting a price on carbon more politically palatable in the US (and also in Canada, where the Liberal party, was driven almost to the brink of extinction after proposing a carbon tax)?

 

[Robert.Boston]

IMO, the exact word isn't the problem. The GOP introduced the "cap & trade" idea into the debate but, once it found traction with the Democrats, abandoned it as a "new tax." As long as the policy hurts political heavy-hitters, it's hard to see how any carbon regulation gets through. (The cap & trade plan, btw, could have enriched certain vested interests because the carbon credits could have been distributed based on historical carbon emissions. Once that "neutrality" mechanism was gutted, the GOP turned against the idea.)

 

[Norbert]

IMO, the exact word isn't the problem.

I don't think it is the primary problem either. Nevertheless, maybe something like "pollution fee" would be better. It is more like "parking fee". I mean, why would you pay a fee for parking, but not for driving?