Carbon Taxes First

1
CarbonTaxes First

• Charles Komanoff
• Dan Rosenblum
• Carbon Tax Center
• www.carbontax.org
• April 24, 2007

2
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.

3
Warmer Winters 4.3ºF, 1971-2002
Boston is the new Philly NYC is the new D.C.
(winter temps.)
Cameron Wake, UNH
Winter (Dec-Jan-Feb) Mean Temp (ºF)
4
More Extreme Weather
Extreme Precipitation Events, Increase 1949-2002
Cameron Wake, UNH
5
The ProblemUnsustainable CO2 Emissions
Worldwide

• World must reduce emissions 80 by 2050, with
  big cuts starting now.
• Americans are emitting many times our share of
  CO2 (next slide).
• Americans must reduce by gt80.

6
Americans Emit in a Day What Others Emit in a
Workweek
7
What about China?






















































China
China
Lines X in 2009
Lines X in 2009
U.S.
U.S.

• In an alliance of
• denial, China and
• the United States
• are using each
• others inaction as
• an excuse to do
• nothing. New
• York Times
• editorial, 4-20-07

China
X
U.S.
8
Chemistry ? Responsibility













































































































China
China
Lines X in 2009
Lines X in 2009
U.S.
U.S.

• Because CO2 stays
• resident in the
• atmosphere for at
• least a century, one
• hundred years of
• fossil-fuel use drive
• climate responsi-
• bility. U.S. still has
• a 40-50-year lead.

X
U.S.
China
9
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

10
Putting a Price on CO2 Emissions

• High taxes on carbon emissions from coal, oil
  and natural gas will
• Reduce fossil fuel use and CO2 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

11
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 RD.
• Will also reduce dependence on foreign oil, with
  major national security benefits.
• Economically, will keep dollars in USA instead of
  flowing overseas.

12
Rely on Market Forces? Here Come Synfuels

• Only a carbon
• tax can subject
• CO2-intensive
• oil sands,
• oil shale,
• coal-into-oil, etc.
• to a climate-
• appropriate
• market test.

13
Clean-Energy SubsidiesA 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 CO2
• Renewable Portfolio Standards helpful but not
  enough

14
Efficiency StandardsVital, but Not Enough

• Too slow
• Corporate resistance
• Inherently reactive
• Corporate gaming
• (e.g., CAFE loophole that enabled SUVs)
• Scattershot impossible to regulate the hundreds
  of important energy-usage sectors
• 1-dimensional
• (e.g., CAFE doesnt affect miles driven)

15





































More than Half of U.S. Oil Use Is Not Gasoline
for Cars
Freight
Cars
Heat, Power
Other
Air
Paving
RVs
16
Example - Gas Use Decisions

• Gas Tax-Shift impacts
• How high CAFE is set
• Mfger 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
• Mfger mpg decisions
• What car to buy

17
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,
Its Time to Upgrade the Old Jumbo Jet
18
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
19
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

20
Carbon Tax Proportions

• Fuels are taxed by their carbon
  content per btu

21
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. CO2 emissions 4
• Repeat 10 X (while standards and incentives also
  cut emissions)

22
Energy Use Not Inelastic

• Gasoline usage grew only 3.5 from 2003 to 2006,
  while the economy grew 11.
• Pump prices have risen lt 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.
• Finding Demand for gasoline (and other fuels) is
  at least somewhat price-sensitive.

23
Elasticity (long-run) Assumptions
U.S. CO2

• Gasoline 0.4
• Electricity
• Residential (37) - 0.5
• Commercial / Industrial (63) - 1.0
• Fuel-switching Leverage 1.2 x
• Other midway bet. Gasoline/Elect.

Reductions
24
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

25
USA After Starter Tax x 10

• CO2 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, CFLs LEDs 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

26



































The Wealthy Will Pay More
27
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)

28
Two Fossil Fuel SubsidiesBy Taxpayers
Relatively SmallBy Climate Enormous
29
Existing Carbon Taxes(1st-year Starter Tax shown
for comparison)
Per ton of car-bon
30
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
• Clintons 1993 Btu tax
• Rep. John Andersons 50-50 program (1980
  presidential campaign)

31
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
• CEOs of Dynegy FPL Group

32
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.

33
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 CO2 up to the cap are
  distributed or auctioned
• Market participants can buy or sell as necessary

34
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

35
Are We Over-Valuing Cap-and-Trades 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)

36
Tax v. Cap Timing

• CT 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

37
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

38
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

39
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

40
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

41
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