CTC Slide Show Sept 2007

Carbon Taxes First
By Charles Komanoff
& Dan Rosenblum
Carbon Tax Center
www.carbontax.org
2007

Global Warming Is …
Triggering a climate crisis that threatens massive and irreversible damage to our global environment, public health, world peace, national security and economic well-being.
No longer seriously contested by anybody other than vested interests, their hired “experts” and indebted politicians.
See An Inconvenient Truth and IPCC Fourth Assessment.

Warmer Winters: 4.3 º F, 1971-2002 Winter (Dec-Jan-Feb) Mean Temp ( ºF) Source: Cameron Wake, UNH Boston is the new Philly; NYC is the new D.C. (winter temperatures.) 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

More Extreme Weather Cameron Wake, UNH Extreme Precipitation Events, Northeast US-Canada, 1949-2002

The Problem: Unsustainable CO 2 Emissions Worldwide
World must reduce emissions ~80% by 2050, with big cuts starting now .
Americans are emitting many times our share of CO 2 (next slide).
Americans must reduce by >80%.

Americans Emit in a Day What Others Emit in a Workweek

What about China?
“ In an alliance of
denial, China and
the United States
are using each
other’s inaction as
an excuse to do
nothing.” – New
York Times
editorial, 4-20-07
U.S. China Lines X in 2009 U.S. China Lines X in 2009 U.S. China X

Chemistry -> Responsibility
Because CO2 stays
“ resident” in the
atmosphere for at
least a century, the
U.S. is responsible
for more than 3x as
much greenhouse
gas as China. U.S.
still has a 40-year
lead.
U.S. China Lines X in 2009 U.S. China Lines X in 2009 U.S. China X

No More Free Dumping
“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.”
— Avoiding Calamity on the Cheap , Nov. 3, 2006
New York Times editorial

Putting a Price on CO 2 Emissions
High taxes on carbon emissions from coal, oil and natural gas will :
Reduce fossil fuel use and CO 2 emissions
Substitution of clean fuels and technology
More efficient use of energy
Provide a revenue stream to enable
Progressive tax-shifting, or
Rebate to all U.S. residents

Additional Benefits of a Carbon Tax
Carbon tax receipts may also be used to finance
Energy efficiency, further reducing use of fossil fuels and related emissions.
Energy R&D.
Will also reduce dependence on foreign oil, with major national security benefits.
Economically, will keep dollars in USA instead of flowing overseas.

Rely on “Market Forces”? Here Come Synfuels
Only a carbon
tax can subject
CO 2 -intensive
oil sands,
oil shale,
coal-into-oil, etc.
to a climate-
appropriate
market test.

Clean-Energy Subsidies: A Limited Answer
Selecting the “next best energy technology” by fiat has largely benefited lobbyists + special interests
Oil shale, nuclear power, synfuels, ethanol, etc.
Many new sources also emit CO 2
Renewable Energy Standards: helpful – but not enough

Efficiency Standards: Vital, but Not Enough
Too slow
Corporate resistance
Inherently reactive
Corporate gaming
(e.g., “CAFE ” loophole that enabled SUV’s)
Scattershot – impossible to regulate the hundreds of important energy-usage sectors
1-dimensional
(e.g., CAFE doesn’t affect miles driven)

More than Half of U.S. Oil Use Is Not Gasoline for Cars Cars Freight Heat, Power Other Air Paving RV’s

Example - Gas Use Decisions
Gas Tax-Shift impacts:
How high CAFE is set
Mfg’er mpg decisions
What car to buy
Which car to drive
How to drive
VMT (miles traveled)
Share (carpool)
Chain trips
Transit
Walk/Bike
Proximity
CAFE impacts:
Mfg’er mpg decisions
What car to buy

Dynamic Capitalism & CO2: I
“ … specially equipped,
privately owned jumbo
jets – the kind that
normally carry 300-400
passengers … recon-
figured … for the
enjoyment of, at most,
a couple of dozen.”
New York Times, 17-Oct-2006: For the Super-Rich, It’s Time to Upgrade the Old Jumbo Jet

Dynamic Capitalism & CO2: II
Backyard Blizzards :
“ Snowmaking, since the
mid-1960s the provenance
of ski resorts and, more
recently, some party
planners, has gone
domestic,” with 2-kW
plug-in snowmakers that
run ’round-the-clock.
New York Times (Home Section) 15-Feb-2007: Not Enough Snow For You? Talk to Your Father

Example - Electricity
Utilities and other generators will
Respond to price signal by substituting lower-carbon fuels
Renewables
Natural Gas
Invest in efficiency on demand- and supply-side
Consumers will
Respond by using less
Substituting low- or non-carbon energy

Carbon Tax Proportions
Fuels are taxed by their carbon content per btu

A “Starter” Carbon Tax-Shift
$37 / ton of carbon =
10 ¢ / gallon of gasoline, jet fuel, etc. =
0.72 ¢ / kWh (U.S. retail average)
Reduces U.S. CO 2 emissions ~ 4%
Repeat 10 X (while standards and incentives also cut emissions)

Energy Use: Not Inelastic
Gasoline usage grew only 3.5% from 2003 to 2006, while the economy grew 11%.
Pump prices have risen < 50% since 2003 (adjusted for inflation) – not the doubling commonly believed.
The modest growth in demand points to a “short-term price elasticity” of around 0.1, and 0.4 in the long term, for gasoline.
Finding: Demand for gasoline (and other fuels) is at least somewhat price-sensitive.

Elasticity (long-run) Assumptions
Gasoline: 0.4
Electricity
Residential (37%) - 0.5
Commercial / Industrial (63%) - 1.0
Fuel-switching Leverage: 1.2 x
“ Other” – midway betw Gasoline/Elect.
U.S. CO2 Reductions

Starter Tax – Why Ramp Up?
Win broad consensus
Implement ASAP
Help people and businesses adapt
Empirical validation of efficacy
Mid-course corrections
Establish long-term price trajectory
Complement w/ investment in EE and renewables

USA After “Starter Tax x 10”
CO 2 emissions down by a third
Oil use down by ~5 million barrels/day
Energy
Coal-fired generation reduced
Wind and other renewable generation increased
Incandescents / halogens out , CFL’s + LED’s in
Transportation and Land-Use
SUVs out , sedans in
Costlier air and highway travel creates market pull for 300-mph intercity rail
Urban trips by bicycle up 10x, to 10%
Urban revitalization

The Wealthy Will Pay More

“Progressive” Use of Carbon Tax Revenues
EITHER
Distribute pro rata to 320 million Americans (~ $1,500 each, per year)
OR
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)

Two Fossil Fuel Subsidies By Taxpayers: Relatively Small By Climate: Enormous

Existing Carbon Taxes (1 st -year Starter Tax shown for comparison) Per ton of car-bon

Politics?
Concerns about carbon tax-shifting
Contrary to Americans’ sense of entitlement to “cheap energy”
Anti-tax ideology of past 25 years
Elected officials wary of another defeat
Clinton’s 1993 Btu tax
Rep. John Anderson’s “50-50” program (1980 presidential campaign)

But: Growing Support for Taxing Carbon Emissions
Opinion leaders
Al Gore
Scientists such as James Hansen (NASA)
NY Times op-ed columnists Brooks, Friedman, Kristof, Krugman & Tierney
Conservatives including Gregory Mankiw, Bush chief Economic Advisor, 2003-2005
CEO’s of Dynegy & FPL Group

Some Support in Opinion Polls
Feb. 2006 New York Times poll
55% would support increased tax on gasoline if it reduced dependence on foreign oil.
59% would support if the increased tax would curb energy consumption and global warming.
Oct. 2006 M.I.T. survey
Over three years, 50% increase in respondents’ willingness to pay more for electricity to reduce global warming.

Carbon Tax v. Cap-and-Trade
Cap-and-trade is alternative vehicle for “putting a price” on carbon
Proposed by US CAP – coalition of large environmental groups and large corporations
Emissions are capped at a level determined through the political process
Allowances/permits to emit CO 2 up to the cap are distributed or auctioned
Market participants can buy or sell as necessary

Cap v. Tax: Predictable Prices
Carbon taxes provide predictable prices necessary to encourage investment in
less carbon-intensive technology
carbon-reducing energy efficiency
carbon-replacing renewable energy
Cap-and-trade aggravates price volatility that discourages beneficial investments

Are We Over-Valuing Cap-and-Trade’s “Emissions Certainty”?
“Safety-valve” would authorize auctioning additional allowances if allowance prices exceed predetermined level
Emissions cap could be politically fragile without public support
No magic emissions level (except as low as possible)

Tax v. Cap: Timing
C&T design and implementation: complicated, contentious, prolonged
Level of cap
Timing
Allowance allocations
Certification procedures
Offsets
Penalties
Permit banking
Inevitable requests for exemptions
Tax can be in place promptly with quick results

Tax v. Cap: Equity
Cap-and-trade
Practice has been to allocate based on past use
Rewards polluters with windfall
Perverse incentive to pollute more now to increase base for allocations
Allowances can be auctioned off to highest bidders
Proposed in RGGI program
Proceeds used to provide public benefits
Lawyers and consultants are other big winners
Carbon tax would be revenue-neutral

Tax v. Cap: Understandability
Carbon taxes provide direct, transparent and understandable price signals to consumers
Perceived political liability, but essential to transform societal climate-awareness
Cap-and-trade is complicated and opaque
Perceived political asset, but limits public participation and could backfire

Tax v. Cap: Comprehensiveness
Carbon taxes address emissions from every sector
All users must respond to price of carbon
Most current cap-and-trade programs, as proposed, only target the electricity industry
Only 40% of emissions
If allowances are allocated, polluters with sufficient allowances have less incentive to reduce emissions

Keys to Political Success
Progressive Tax-Shifting
Not a tax increase
Carbon tax revenues used to reduce regressive payroll and sales taxes
Provisions to Protect Low-Income Families
Reductions in payroll/sales taxes will offset all or a portion of the carbon tax
Other measures to reduce low-income energy use
Message: Taxing pollution instead of productive work

Summary
Principles
Tax-shifting – not a tax increase
Full-cost pricing
Polluter pays
Responds to concerns about
Climate crisis
Inequitable taxes
Security / Oil dependence
Basing economy on vulnerable energy
www.carbontax.org

CTC Slide Show Sept 2007

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CTC Slide Show Sept 2007 — Presentation Transcript

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