Carbon Taxes First


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The Carbon Tax Center's introduction to the need for a carbon tax in order to reduce greenhouse gases.

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  • Carbon Taxes First

    1. 1. Carbon Taxes First <ul><li>Charles Komanoff </li></ul><ul><li>& Dan Rosenblum </li></ul><ul><li>Carbon Tax Center </li></ul><ul><li> </li></ul><ul><li>March 19, 2007 </li></ul>
    2. 2. Global Warming Is … <ul><li>Triggering a climate crisis that threatens massive and irreversible damage to our global environment, public health, world peace, national security and economic well-being. </li></ul><ul><li>No longer seriously contested by anybody other than vested interests, their hired “experts” and indebted politicians. </li></ul><ul><li>See An Inconvenient Truth and IPCC Fourth Assessment. </li></ul>
    3. 3. Warmer Winters: 4.3 º F, 1971-2002 Winter (Dec-Jan-Feb) Mean Temp ( ºF) Cameron Wake, UNH Boston is the new Philly; NYC is the new D.C. (winter temps.) 38 39 40 41 42 43 29 30 31 32 33 34 35 36 37 Latitude ( o N) o Boston New York Philadelphia Washington, DC
    4. 4. More Extreme Weather Cameron Wake, UNH Extreme Precipitation Events, % Increase 1949-2002
    5. 5. The Problem: Unsustainable CO 2 Emissions Worldwide <ul><li>World must reduce emissions ~80% by 2050, with big cuts starting now . </li></ul><ul><li>Americans are emitting many times our share of CO 2 (next slide). </li></ul><ul><li>Americans must reduce by >80%. </li></ul>
    6. 6. Americans Emit in a Day What Others Emit in a Workweek
    7. 7. No More Free Dumping <ul><li>“Since the dawn of the industrial revolution, the atmosphere has served as a free dumping ground for carbon gases. If people and industries are made to pay heavily for the privilege, they will inevitably be driven to develop cleaner fuels, cars and factories.” </li></ul><ul><ul><li>— Avoiding Calamity on the Cheap , Nov. 3, 2006 </li></ul></ul><ul><ul><ul><li>New York Times editorial </li></ul></ul></ul>
    8. 8. Putting a Price on CO 2 Emissions <ul><li>High taxes on carbon emissions from coal, oil and natural gas will : </li></ul><ul><li>Reduce fossil fuel use and CO 2 emissions </li></ul><ul><ul><ul><li>Substitution of clean fuels and technology </li></ul></ul></ul><ul><ul><ul><li>More efficient use of energy </li></ul></ul></ul><ul><li>Provide a revenue stream to enable </li></ul><ul><ul><ul><li>Progressive tax-shifting, or </li></ul></ul></ul><ul><ul><ul><li>Rebate to all U.S. residents </li></ul></ul></ul>
    9. 9. Additional Benefits of a Carbon Tax <ul><li>Carbon tax receipts may also be used to finance </li></ul><ul><ul><li>Energy efficiency, further reducing use of fossil fuels and related emissions. </li></ul></ul><ul><ul><li>Energy R&D. </li></ul></ul><ul><li>Will also reduce dependence on foreign oil, with major national security benefits. </li></ul><ul><li>Economically, will keep dollars in USA instead of flowing overseas. </li></ul>
    10. 10. Rely on “Market Forces”? Here Come Synfuels <ul><li>Only a carbon </li></ul><ul><li>tax can subject </li></ul><ul><li>CO 2 -intensive </li></ul><ul><li>oil sands, </li></ul><ul><li>oil shale, </li></ul><ul><li>coal-into-oil, etc. </li></ul><ul><li>to a climate- </li></ul><ul><li>appropriate </li></ul><ul><li>market test. </li></ul>
    11. 11. Clean-Energy Subsidies: A Limited Answer <ul><li>Selecting the next best energy technology by fiat has largely benefited lobbyists + special interests </li></ul><ul><ul><li>Oil shale, nuclear power, synfuels, ethanol, etc. </li></ul></ul><ul><li>Many new sources also emit CO 2 </li></ul><ul><li>Renewable Portfolio Standards: helpful – but not enough </li></ul>
    12. 12. Efficiency Standards: Vital, but Not Enough <ul><li>Too slow </li></ul><ul><ul><li>Corporate resistance </li></ul></ul><ul><ul><li>Inherently reactive </li></ul></ul><ul><li>Corporate gaming </li></ul><ul><ul><li>(e.g., “CAFE ” loophole that enabled SUV’s) </li></ul></ul><ul><li>Scattershot – impossible to regulate the hundreds of important energy-usage sectors </li></ul><ul><li>1-dimensional </li></ul><ul><ul><li>(e.g., CAFE doesn’t affect miles driven) </li></ul></ul>
    13. 13. Nearly 60% of Oil (> 80% of Fossil Fuels) Is Not Gasoline for Cars Cars Freight Heat, Power Other Air Paving RV’s
    14. 14. Example - Gas Use Decisions <ul><li>Gas Tax-Shift </li></ul><ul><li>How high CAFE is set </li></ul><ul><li>Mfg’er mpg decisions </li></ul><ul><li>What car to buy </li></ul><ul><li>Which car to drive </li></ul><ul><li>How to drive </li></ul><ul><li>VMT (miles traveled) </li></ul><ul><ul><li>Share (carpool) </li></ul></ul><ul><ul><li>Chain trips </li></ul></ul><ul><ul><li>Transit </li></ul></ul><ul><ul><li>Walk/Bike </li></ul></ul><ul><ul><li>Proximity </li></ul></ul><ul><li>CAFE </li></ul><ul><li>Mfg’er mpg decisions </li></ul><ul><li>What car to buy </li></ul>
    15. 15. Dynamic Capitalism & CO2: I <ul><li>“ … specially equipped, </li></ul><ul><li>privately owned jumbo </li></ul><ul><li>jets – the kind that </li></ul><ul><li>normally carry 300-400 </li></ul><ul><li>passengers … recon- </li></ul><ul><li>figured … for the </li></ul><ul><li>enjoyment of, at most, </li></ul><ul><li>a couple of dozen.” </li></ul>New York Times, 17-Oct-2006: For the Super-Rich, It’s Time to Upgrade the Old Jumbo Jet
    16. 16. Dynamic Capitalism & CO2: II <ul><li>Backyard Blizzards : </li></ul><ul><li>“ Snowmaking, since the </li></ul><ul><li>mid-1960s the provenance </li></ul><ul><li>of ski resorts and, more </li></ul><ul><li>recently, some party </li></ul><ul><li>planners, has gone </li></ul><ul><li>domestic,” with 2-kW </li></ul><ul><li>plug-in snowmakers that </li></ul><ul><li>run ’round-the-clock. </li></ul>New York Times (Home Section) 15-Feb-2007: Not Enough Snow For You? Talk to Your Father
    17. 17. Example - Electricity <ul><li>Utilities and other generators will </li></ul><ul><ul><li>Respond to price signal by substituting lower-carbon fuels </li></ul></ul><ul><ul><ul><li>Renewables </li></ul></ul></ul><ul><ul><ul><li>Natural Gas </li></ul></ul></ul><ul><ul><li>Invest in efficiency on demand- and supply-side </li></ul></ul><ul><li>Consumers will </li></ul><ul><ul><li>Respond by using less </li></ul></ul><ul><ul><li>Substituting low- or non-carbon energy </li></ul></ul>
    18. 18. Carbon Tax Proportions <ul><li>Fuels are taxed by their carbon content per btu </li></ul>
    19. 19. A “Starter” Carbon Tax-Shift <ul><li>$37 / ton of carbon = </li></ul><ul><li>10 ¢ / gallon of gasoline, jet fuel, etc. = </li></ul><ul><li>0.72 ¢ / kWh (U.S. retail average) </li></ul><ul><li>Reduces U.S. CO 2 emissions ~ 4% </li></ul><ul><li>Repeat 10 X (while standards and incentives also cut emissions) </li></ul>
    20. 20. Energy Use: Not Inelastic <ul><li>Gasoline usage grew only 3.5% from 2003 to 2006, while the economy grew 11%. </li></ul><ul><li>Pump prices have risen < 50% since 2003 (adjusted for inflation) – not the doubling commonly believed. </li></ul><ul><li>The modest growth in demand points to a “short-term price elasticity” of around 0.1, and 0.4 in the long term. </li></ul><ul><li>Finding: Demand for gasoline (and other fuels) is at least somewhat price-sensitive. </li></ul>
    21. 21. Elasticity (long-run) Assumptions <ul><li>Gasoline: ­ 0.4 </li></ul><ul><li>Electricity </li></ul><ul><ul><li>Residential (37%) - 0.5 </li></ul></ul><ul><ul><li>Commercial / Industrial (63%) - 1.0 </li></ul></ul><ul><ul><li>Fuel-switching Leverage: 1.2 x </li></ul></ul><ul><li>“ Other” – midway bet. Gasoline/Elect. </li></ul>U.S. CO2 Reductions
    22. 22. Starter Tax – Why Ramp Up? <ul><li>Win broad consensus </li></ul><ul><li>Implement ASAP </li></ul><ul><li>Help people and businesses adapt </li></ul><ul><li>Empirical validation of efficacy </li></ul><ul><li>Mid-course corrections </li></ul><ul><li>Establish long-term price trajectory </li></ul><ul><li>Complement w/ investment in EE and renewables </li></ul>
    23. 23. USA After “Starter Tax x 10” <ul><li>CO 2 emissions down by a third </li></ul><ul><li>Oil use down by ~5 million barrels/day </li></ul><ul><li>Energy </li></ul><ul><ul><li>Coal-fired generation reduced </li></ul></ul><ul><ul><li>Wind and other renewable generation increased </li></ul></ul><ul><ul><li>Incandescents / halogens out , CFL’s + LED’s in </li></ul></ul><ul><li>Transportation and Land-Use </li></ul><ul><ul><li>SUVs out , sedans in </li></ul></ul><ul><ul><li>Costlier air and highway travel creates market pull for 300-mph intercity rail </li></ul></ul><ul><ul><li>Urban trips by bicycle up 10x, to 10% </li></ul></ul><ul><ul><li>Urban revitalization </li></ul></ul>
    24. 24. The Wealthy Will Pay More
    25. 25. “Progressive” Use of Carbon Tax Revenues <ul><li>EITHER </li></ul><ul><li>Distribute pro rata to 320 million Americans (~ $1,500 each, per year) </li></ul><ul><li>OR </li></ul><ul><li>Tax Shift out of regressive taxes (green bar at right assumes 2.5%/yr drops in emissions (net of +1.5%/y income, - 4%/y price) </li></ul>
    26. 26. Two Fossil Fuel Subsidies By Taxpayers: Relatively Small By Climate: Enormous
    27. 27. Existing Carbon Taxes (1 st -year Starter Tax shown for comparison) Per ton of car-bon
    28. 28. Politics? <ul><li>Concerns about carbon tax-shifting </li></ul><ul><ul><li>Contrary to Americans’ sense of entitlement to “cheap energy” </li></ul></ul><ul><ul><li>Anti-tax ideology of past 25 years </li></ul></ul><ul><ul><li>Elected officials wary of another defeat </li></ul></ul><ul><ul><ul><li>Clinton’s 1993 Btu tax </li></ul></ul></ul><ul><ul><ul><li>Rep. John Anderson’s “50-50” program (1980 presidential campaign) </li></ul></ul></ul>
    29. 29. But: Growing Support for Taxing Carbon Emissions <ul><li>Opinion leaders </li></ul><ul><ul><li>Al Gore </li></ul></ul><ul><ul><li>Scientists such as James Hansen (NASA) </li></ul></ul><ul><ul><li>NY Times op-ed columnists Brooks, Friedman, Kristof, Krugman & Tierney </li></ul></ul><ul><ul><li>Conservative economists including Gregory Mankiw, Harvard prof. and chair of President’s Council on Economic Advisers, 2003-2005 </li></ul></ul>
    30. 30. Some Support in Opinion Polls <ul><ul><li>Feb. 2006 New York Times poll </li></ul></ul><ul><ul><ul><li>55% would support increased tax on gasoline if it reduced dependence on foreign oil. </li></ul></ul></ul><ul><ul><ul><li>59% would support if the increased tax would curb energy consumption and global warming. </li></ul></ul></ul><ul><ul><li>Oct. 2006 M.I.T. survey </li></ul></ul><ul><ul><ul><li>Over three years, 50% increase in respondents’ willingness to pay more for electricity to reduce global warming. </li></ul></ul></ul>
    31. 31. Carbon Tax v. Cap-and-Trade <ul><li>Cap-and-trade is alternative vehicle for “putting a price” on carbon </li></ul><ul><li>Proposed by US CAP – coalition of large environmental groups and large corporations </li></ul><ul><li>Emissions are capped at a level determined through the political process </li></ul><ul><li>Allowances/permits to emit CO 2 up to the cap are distributed or auctioned </li></ul><ul><li>Market participants can buy or sell as necessary </li></ul>
    32. 32. Cap v. Tax: Predictable Prices <ul><li>Carbon taxes provide predictable prices necessary to encourage investment in </li></ul><ul><ul><li>less carbon-intensive technology </li></ul></ul><ul><ul><li>carbon-reducing energy efficiency </li></ul></ul><ul><ul><li>carbon-replacing renewable energy </li></ul></ul><ul><li>Cap-and-trade aggravates price volatility that discourages beneficial investments </li></ul>
    33. 33. Are We Over-Valuing Cap-and-Trade’s Emissions Certainty? <ul><li>“Safety-valve” would authorize auctioning additional allowances if allowance prices exceed predetermined level </li></ul><ul><li>Emissions cap could be politically fragile without public support </li></ul><ul><li>No magic emissions level (except as low as possible) </li></ul>
    34. 34. Tax v. Cap: Timing <ul><li>C&T design and implementation: complicated, contentious, prolonged </li></ul><ul><ul><ul><li>Level of cap </li></ul></ul></ul><ul><ul><ul><li>Timing </li></ul></ul></ul><ul><ul><ul><li>Allowance allocations </li></ul></ul></ul><ul><ul><ul><li>Certification procedures </li></ul></ul></ul><ul><ul><ul><li>Offsets </li></ul></ul></ul><ul><ul><ul><li>Penalties </li></ul></ul></ul><ul><ul><ul><li>Permit banking </li></ul></ul></ul><ul><ul><ul><li>Inevitable requests for exemptions </li></ul></ul></ul><ul><li>Tax can be in place promptly with quick results </li></ul>
    35. 35. Tax v. Cap: Equity <ul><li>Cap-and-trade </li></ul><ul><ul><li>Practice has been to allocate based on past use </li></ul></ul><ul><ul><ul><li>Rewards polluters with windfall </li></ul></ul></ul><ul><ul><ul><li>Perverse incentive to pollute more now to increase base for allocations </li></ul></ul></ul><ul><ul><li>Allowances can be auctioned off to highest bidders </li></ul></ul><ul><ul><ul><li>Proposed in RGGI program </li></ul></ul></ul><ul><ul><ul><li>Proceeds used to provide public benefits </li></ul></ul></ul><ul><ul><li>Lawyers and consultants are other big winners </li></ul></ul><ul><li>Carbon tax would be revenue-neutral </li></ul>
    36. 36. Tax v. Cap: Understandability <ul><li>Carbon taxes provide direct, transparent and understandable price signals to consumers </li></ul><ul><ul><li>Perceived political liability, but essential to transform societal climate-awareness </li></ul></ul><ul><li>Cap-and-trade is complicated and opaque </li></ul><ul><ul><li>Perceived political asset, but limits public participation and could backfire </li></ul></ul>
    37. 37. Tax v. Cap: Comprehensiveness <ul><li>Carbon taxes address emissions from every sector </li></ul><ul><ul><li>All users must respond to price of carbon </li></ul></ul><ul><li>Most current cap-and-trade programs, as proposed, only target the electricity industry </li></ul><ul><ul><li>Only 40% of emissions </li></ul></ul><ul><ul><li>If allowances are allocated, polluters with sufficient allowances have less incentive to reduce emissions </li></ul></ul>
    38. 38. Keys to Political Success <ul><li>Progressive Tax-Shifting </li></ul><ul><ul><li>Not a tax increase </li></ul></ul><ul><ul><li>Carbon tax revenues used to reduce regressive payroll and sales taxes </li></ul></ul><ul><li>Provisions to Protect Low-Income Families </li></ul><ul><ul><li>Reductions in payroll/sales taxes will offset all or a portion of the carbon tax </li></ul></ul><ul><ul><li>Other measures to reduce low-income energy use </li></ul></ul><ul><li>Message: Taxing pollution instead of productive work </li></ul>
    39. 39. Summary <ul><li>Principles </li></ul><ul><ul><li>Tax-shifting – not a tax increase </li></ul></ul><ul><ul><li>Full-cost pricing </li></ul></ul><ul><ul><li>Polluter pays </li></ul></ul><ul><li>Responds to concerns about </li></ul><ul><ul><li>Climate crisis </li></ul></ul><ul><ul><li>Inequitable taxes </li></ul></ul><ul><ul><li>Security / Oil dependence </li></ul></ul><ul><ul><li>Basing economy on vulnerable energy </li></ul></ul>