Charles Komanoff – Page 27

Carbon Tax Center

Pricing carbon efficiently and equitably

Carbon Tax Can Be a Remedy for Toxic Hot Spots

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Thanks to the environmental justice movement, we know that big carbon emitters like power plants and oil refineries are disproportionately sited in poor and predominantly people of color communities. EJ pioneers like Robert Bullard and the Environmental Justice Resource Network began documenting this painful truth decades ago, and it continues to animate the EJ and climate justice movements.

So it’s not altogether surprising if, from time to time, concern is voiced that polluting companies will respond to carbon taxes by curbing carbon pollution elsewhere rather than in frontline communities like blighted urban neighborhoods, Appalachian hollows, or Native peoples’ lands. The pioneering climate activist Bill McKibben raised that possibility yesterday in a post on Yale Environment 360:

Environmental justice [in carbon taxing] would also require policies to make sure that carbon pricing doesn’t perpetuate toxic “hot spots” in poor communities as companies look for least-cost ways to deal with the new reality [in which carbon emitters now pay to dump into the atmosphere].

Not for the first time, we wrestled with that scenario overnight. And we have to report that we can’t picture any credible circumstance in which a carbon tax would lead to emissions lock-in in certain communities. Our conclusion arises from the fact that a carbon tax, by its nature, exacts a cost for each and every squandered opportunity to curtail carbon emissions. A company that perpetuated toxic hot spots in poor communities would incur costs that would weaken and might even destroy its bottom line.

South Bronx vista. The 10 newest New York Power Authority turbines are all in EJ neighborhoods. Photo: Doug Goodman.

South Bronx vista. The 10 newest New York Power Authority turbines are all in EJ neighborhoods. Photo: Doug Goodman.

Consider an oil company that owns and operates 5 refineries in poor and/or minority communities and 5 in other locales. Under a carbon tax, any change in equipment or procedures that reduces carbon emissions at any of the 10 refineries reduces the company’s carbon tax bill. That makes it virtually certain that all 10 refineries will undergo some change leading to lower emissions.

Without knowing details on the 10 refineries, we can’t predict which changes the tax will stimulate at each, and how much each refinery’s emissions will go down vis-à-vis the others. It’s possible that logistical considerations would push the company to concentrate its reduction effort at its 5 “other” sites. But we can say with virtual certainty that no refinery will add to its emissions on account of the carbon tax.

Think of it this way: Each facility now has an array of potential capital and operating opportunities for reducing emissions. Some don’t “pencil out” today but will as the carbon tax kicks in. But why would emissions-increasing measures be taken up due to the tax, when all of the tax incentive goes in the opposite (emissions-reducing) direction?

Carbon taxing isn’t a zero-sum game. Charging for emissions opens up opportunities to cut emissions everywhere, simultaneously. The choice facing headquarters isn’t to pit potential reductions from Refineries 1-5 against reductions from Refineries 6-10, but to max out on the new opportunities to cut costs presented by the carbon tax by modifying (and possibly shrinking, as demand drops) Refineries 1 through 10.

To repeat: under a carbon tax, every pound or ton of CO2 eliminated from the waste stream yields equal savings. With no cap to game by manipulating emissions, every reduction is rewarded immediately and equally.

The vigilance by environmental-climate justice campaigners against policies that could lock in toxic hot spots can be traced in part to mainstream environmentalists’ push for carbon cap-and-trade legislation a decade ago. The Waxman-Markey bill that passed the House before dying in the Senate would have allowed U.S. polluters “to offshore” some emission cuts (e.g., by booking CO2 reductions from planting tropical tree plantations) instead of cutting their domestic emissions. That loophole was appalling and it tarnished the bill; but offsets have never been included in proposed carbon tax legislation.

For the record, other concerns raised in McKibben’s post weigh heavily here at CTC, including whether and how a carbon fee-and-dividend system would return revenues to “the estimated nearly 12 million undocumented Americans who contribute to the economy.” We agree that undocumented workers should receive a fair share of the revenue proceeds from carbon-taxing, and it’s incumbent on us carbon-tax proponents to come up with an ironclad way to ensure that.

Let’s also acknowledge that the frontline communities that have suffered historically and disproportionately from toxic emissions that invariably “co-pollute” with CO2 deserve to be compensated beyond the universal fee-and-dividend monthly check. But what if a revenue-neutral carbon tax like fee-and-dividend is the only approach with political legs to actually pass Congress sometime down the road? Given that fee-and-dividend is income-progressive (poor households get more in dividend checks than they spend for costlier energy) and will cut emissions across the board, including in frontline communities, doesn’t it merit support from EJ advocates, despite its limitations?

In short, we agree with Bill that “most of the damage from both climate change and air pollution has fallen on poor people, people of color, and Native nations, both in our country and around our world.” But it’s a stretch too far to say that the potential remedy of carbon dividends “come[s] with [an] obvious moral and intellectual flaw.”

To sum up: the carbon-tax “flaw” of locking in carbon hot spots isn’t well-founded. But the flaw of excluding undocumented Americans from the carbon dividends can and should be addressed and fixed.

It may be that the surest way to do that is for members of frontline communities to assume leadership positions in the carbon tax effort. What are the best ways to encourage and make that leadership possible?

Berkeley’s soda tax works. Here’s why that matters.

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A tax on sugary soft drinks in Berkeley, CA is cutting soda consumption, according to a new study. Should climate advocates care?

Absolutely. The study offers powerful real-world support for the economic principles underlying the idea that carbon taxes can and will cut use of carbon-based fossil fuels.

This framing helped pass Berkeley's soda tax.

This framing helped pass Berkeley’s soda tax (on the 2014 ballot as Initiative D).

The soda study was conducted by five health specialists at the University of California’s Berkeley campus and a biostatistician-epidemiologist at U-C San Francisco. The study team distilled their findings in an article in the American Journal of Public Health this month, and last week the New York Times’ “Upshot” column reported on it under the headline, “More Evidence That Soda Taxes Cut Soda Drinking.”

Here’s the Times’ lede:

It may seem obvious that taxing sugary drinks causes people to drink less of them. But that’s actually controversial. Now a new study out of Berkeley, Calif., adds to the evidence that our intuition is right.

Berkeley’s fee on sugary soft drinks, the first in the U.S., was approved in a November 2014 referendum and took effect in March 2015. It charges distributors a penny per ounce of drink on so-called sugar-sweetened beverages (SSBs). Thus, a 12-oz. soda can or bottle is taxed 12 cents, though not all of the fee is passed along in the retail price. In earlier research the study team estimated that for sodas, 69% of the penny-an-ounce tax is passed through as higher retail prices, on average; whereas for all SSBs, including energy, sports, and fruit-flavored drinks along with sweetened water, coffee and tea, as well as soda, the pass-through average is 47%.

The U-C study measured changes in beverage consumption in low-income neighborhoods as of July 2015, eight months after the vote and four months after implementation. Similar districts in nearby Oakland and San Francisco were used as a control group. Data were drawn from in-person interviews with 990 people before the tax and 1,689 after.

Based on those surveys, the authors reported that consumption of SSBs decreased 21% in Berkeley and increased 4% in the comparison cities. Water consumption increased far more in Berkeley (+63%) than in the comparison cities (+19%). Both comparisons were statistically significant, signifying that the observed differences in beverage purchases between soda-taxing Berkeley and non-soda-taxing Oakland and SF are genuine and not a product of random chance.

As the Times’ Upshot piece suggests, the main takeaway is what some of us have known all along: raising the price of a good or activity leads people to demand and consume less of it. That’s the premise behind taxing carbon emissions. But the Berkeley study offers other lessons too:

  • Just 2 percent of Berkeley residents said they bought sodas outside of the city to avoid the tax. Though a higher tax would likely raise the percentage, the propensity thus far to curb consumption rather than game the system is encouraging.
  • Part of the reason for the steep (21%) drop in consumption of SSBs may be that “people became more aware of the health issue [from soda consumption] during the debate around the tax’s passage and the city’s efforts to discourage sugary drink consumption around the same time,” as the Times wrote. This demonstration of “tax salience” previously reported for British Columbia’s carbon tax confirms the merits of seeking a carbon price via a transparent fee or tax rather than by “hiding the price” through an opaque and convoluted cap-and-trade system.
  • Berkeley residents didn’t need subsidies to raise their consumption of bottled water; the “price push” of costlier SSBs was sufficient. This finding lends support to making carbon taxes revenue-neutral (via tax swaps or dividends) rather than applying the funds to subsidize clean-energy measures like weatherization or solar installations.

As the Times notes, the Berkeley findings are consistent with research indicating that Mexico’s nationwide soda tax cut sales of sugary drinks among poor households by 17 percent after the first year. Next up, in January, is Philadelphia’s 1.5 cents per ounce soda tax, which passed the city council several months ago.

The parallels to carbon taxing aren’t perfect, of course. The benefits of reduced soda use — less obesity, diabetes and tooth decay — are considerably closer and more personal than the benefits of clean energy. That, along with the soda tax campaign’s intentionally combative framing of “Berkeley vs. Big Soda,” may account for the extremely strong price-elasticity — a value of (minus) 2 or more — indicated by the 21% drop in SSB consumption among the surveyed residents. In CTC’s carbon-tax model, we employ far lesser price-elasticities for electricity, gasoline and other fuels: between (minus) 0.35 and 0.70, reflecting the fact that energy and fuels are more deeply wired into our economy and our behavior than are soft drinks.

Rather than extrapolate directly from the Berkeley soda tax study results, it’s best to regard them as further confirmation of the precept that taxing “bads” is a direct and effective way to make them less prevalent.

The AJPH article, “Impact of the Berkeley Excise Tax on Sugar-Sweetened Beverage Consumption,” was published on August 23, 2016. Click here for the abstract. For those interested, we calculated the soda price-elasticity by applying an approximate price increase of 0.7 cents per ounce (based on the 69% average pass-through) to an estimated average base soda retail price of 5 cents per ounce. For a 14 percent price rise (0.7 divided by 5) to effect a 21% contraction in usage, the price-elasticity must be (minus) 1.8. [Let us know via comments if you’d like to see the math for that.] Higher elasticities would result from using the 25 percent consumption drop relative to the control cities, or from applying the lesser pass-through rates for non-soda SSB’s.

Addendum, March 7, 2017 (contributed by CTC intern Michael Kendall)

New data are in from Mexico and Philadelphia, with both jurisdictions affirming that taxing sodas and other sugary drinks reduces consumption. In 2015, Mexico’s second year with the tax, purchases of sweetened beverages continued to fall. A study published in Health Affairs in Feb. 2017 provided a widely reported update on the effect of Mexico’s sugar-sweetened beverage tax on beverage purchases between 2012 and 2015. In 2014 sales fell by 5.5 percent from 2013; the reduction from 2013 grew to 9.7 percent in 2015. The decreases were greatest among the poorest households.

Philadelphia’s tax on sugary drinks went into effect on Jan. 1, and evidence from the initial month points towards significant reductions in sales. Philadelphia supermarkets and beverage sellers are reporting 30-50 percent drops in January sales, though the media narrative is focusing on threatened reductions in workforces rather than reductions in purchases. (Google “Philly soda tax” to get a taste of these headlines.) What’s not yet clear is whether soda purchases have risen significantly outside city limits. We’re looking forward to February data from Philadelphia and we’ll be keeping an eye on similar soda taxes going into effect in San Francisco, Oakland, Boulder, and Albany.

Addendum, Jan. 14, 2017

A front-page New York Times story yesterday about heavy purchases of sodas and other sugary drinks by recipients of food stamps included this passage, near the end: 

In 2014, a group of Stanford researchers studied 19,000 SNAP [Supplemental Nutrition Assistance Program] participants and compared whether banning sugary drinks or incentivizing fruits and vegetables would affect obesity rates. The researchers found that the incentive program would not. But banning sugary drinks from SNAP, they said, “would be expected to significantly reduce obesity prevalence and Type 2 diabetes incidence, particularly among ages 18 to 65 and some racial and ethnic minorities.”

In other words, raising the price of sugary drinks (the effective result of making those drinks ineligible for SNAP purchases) would be more effective in curbing use than subsidizing alternatives. That’s the carbon tax paradigm, in so many words: Making the “bad” (fossil fuel use) more costly through carbon taxes is more effective than lowering the price of alternatives to fossil fuels through subsidies.

Gary Johnson walks back his carbon-tax talk

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The weed-growing, road-biking, jeans-wearing candidate for president won’t be endorsing a carbon tax after all.

Libertarian Party nominee (and former New Mexico governor) Gary Johnson had signaled his openness to a revenue-neutral carbon tax in an interview last week with the New York Times’ John Harwood. As Harwood reported:

He [Johnson] also distinguishes himself from most contemporary Republicans by accepting the reality of what he calls “man-caused” climate change. As a solution, he wants to explore taxing carbon — not for the revenue, but to provide a financial incentive to reduce emissions. “That may have the result of being self-regulating,” Mr. Johnson said. “The market will take care of it.”

Libertarian presidential candidate Gary Johnson at a rally at the University of Nevada in Reno this month. Photo credit: NY Times.

Libertarian presidential candidate Gary Johnson at a rally at the University of Nevada in Reno this month. Photo credit: NY Times.

Credit Harwood for hinting (“not for the revenue”) that Johnson was trying to align himself with a revenue-neutral carbon tax. Unfortunately, Johnson failed to spell out how the revenues from his carbon tax would be returned to U.S. households. While his use of the word “fee” (see below) suggests he had in mind the fee-and-dividend scheme advocated by the Citizens Climate Lobby (and backed by us at CTC), he never actually said so, leaving him open to charges from aggrieved libertarians that a Johnson administration was looking to increase their tax burden.

It didn’t take long for Johnson to walk back his carbon-tax talk, in this interview with Nick Gillespie, editor-in-chief of the libertarian Web site reason.com, last Friday:

NICK GILLESPIE: Earlier this week, you suggested you were in favor of a carbon tax or fee. Yesterday, at a rally in New Hampshire, you said you were against it. What is your position on carbon taxes?

GARY JOHNSON: [A carbon tax] sounds good in theory, but it wouldn’t work in practice. I never called it a tax. I called it a fee. As it was presented to me, this was the way to reduce carbon and actually reduce costs to reduce carbon. Under that premise—lower costs, better outcomes—you can always count on me to support that [sort of] notion. In theory it sounds good, but the reality is that it’s really complex and it won’t really accomplish that. So, no support for a carbon fee. I never raised one penny of tax as governor of New Mexico, not one cent in any area. Taxes to me are like a death plague.

GILLESPIE: You do believe that climate change is happening and that human activity adds to it. Does that mean it is an issue that should be addressed by government policy?

JOHNSON: Well, I’ll agree with the first two, but I’m a skeptic that government policy can address this. The United States contributes 16 percent of the contribution of carbon in the world…

GILLESPIE: So you would be against the United States unilaterally making any kind of move that puts a huge economic disadvantage that also wouldn’t really mitigate carbon?

JOHNSON: If there is any way we can address this issue without the loss of U.S. jobs, my ears are open.

Whew. Does Johnson have a reasoning deficit, or was he just trying to avoid having to explain himself to other libertarians? Who knows, but either way Johnson’s turnabout deprives U.S. voters of a chance to learn about the least complex way to tackle climate change: to charge an “upstream” fee on fossil fuels’ carbon content and “dividend” the proceeds equally to every American household, thus adhering to the spirit of “no new taxes,” while the resulting higher prices of fossil fuels spark a steady but relentless transformation of the U.S. energy system from dirty to clean energy.

What’s further disappointing in the exchange with Gillespie is Johnson’s apparent ignorance of the potential of a U.S. carbon tax — particularly the simple and transparent fee-and-dividend version — to spark parallel measures in other countries. That would have put the lie to two big canards about a U.S. carbon price: that it can only affect a fraction of global emissions, and that it would hobble U.S. industries, costing American jobs.

Johnson did leave himself a possible out by saying he might reconsider “if we can address this issue without the loss of U.S. jobs.” Still, his backtracking makes it harder for that oft-rumored but still unseen cadre of climate-concerned Congressional Republicans to come out for a carbon tax after the November elections.

Worse for himself, though, Johnson blew an opportunity to win over voters who want climate action but have been disinclined to vote for Clinton.

Then again, Johnson’s muddled talk about vaccination — further on in the Gillepsie interview he said he wants it left to individuals’ choice — might have repelled those voters anyway. At the least, it suggests a pervasive ignorance about externalities and “the commons,” about economics and ethics.

Whether Johnson and other libertarians like it or not, our vaccination decisions affect each other. So do unpriced carbon emissions.

Addendum: For you libertarians out there, Forbes contributor Tim Worstall’s post critiquing Johnson’s flip-flop is worth reading.

Washington Carbon Tax Ballot Initiative Picks Up Biggest Corroboration Yet

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The Pacific Northwest’s leading ecology think tank, Sightline Institute, this week issued three linked papers intended to give Washington State voters an “impartial and informed” analysis of Initiative 732, the Nov. 8 ballot measure to establish the nation’s first statewide carbon tax.

Ruth Mountain in the North Cascades. We summitted it in 1972, before the onset of severe climate change. Photo courtesy of peakery.com.

Ruth Mountain in the North Cascades. Snow was deep when we summited it in late August 1972, before the onset of rising temperatures. Photo courtesy of peakery.com.

The takeaway is clear: the Sightline papers blow away the objections that for months have clouded perceptions of I-732 and threatened to capsize the extraordinary grassroots movement led by CarbonWA that last year collected 350,000 signatures and made the Evergreen State the epicenter of carbon tax organizing.

Here are key quotes from the Sightline papers:

  1. “We find I-732 a worthy policy to put Washington on a path to cutting pollution and encouraging clean energy while also helping low-income families by making Washington State taxes less regressive.”
  2. “I-732 would give Washington the continent’s, if not the world’s, most potent, persistent, and comprehensive incentive to move swiftly beyond dirty fossil fuels and to a carbon-free future.”
  3. “I-732 is revenue-neutral, to the best of anyone’s ability to forecast it… [The argument to the contrary] is a red herring… I-732 is likely to be much closer to revenue-neutral than the [State Department of Revenue’s] forecast suggests… Even if the Department’s estimates are correct, I-732 will still be a rounding error… I-732 will likely have less than a 1 percent impact on state tax revenue for decades.”
  4. “Initiative 732 does exactly what the scientists and economists prescribe: it sets a science-based, steadily rising price on pollution. The citizens’ initiative covers most of the state’s climate pollution, makes the tax code more progressive, and is administratively elegant.”
  5. “I-732 would be the biggest improvement in the progressivity of Washington’s state tax system in 40 years.”

 
Individually and collectively, these statements demolish the major criticisms that have been leveled against the carbon tax initiative.

#1 validates CarbonWA’s claim that the carbon tax is economically progressive — a result of dedicating the lion’s share of revenues to lowering the regressive state sales tax, with other funds allocated to funding the Working Families Rebate — an extension of the federal Earned Income Tax Credit.

#2 validates the precept that the most potent way to eliminate carbon pollution is to tax it, and confirms the organizers’ belief that establishing the first U.S. statewide carbon tax could be a climate breakthrough.

#3 refutes the assertion by state budget analysts that the I-732 revenues won’t fully pay for the tax cuts, calling it a “red herring.”

#4 and #5 are icing on the #1-#2-#3 cake.

(We admit to having grabbed the five points from a CarbonWA press release; it’s late Friday afternoon here on the East Coast and we’re trying to wrap the week. But we did confirm each quote from the Sightline reports.)

Read the Sightline reports and see for yourself the care they took with their analysis and the quality of CarbonWA’s work in devising and fine-tuning I-732. Then go to the Yeson732 Web site to learn how you can donate, network, agitate and support their ballot initiative which, hands down, is the boldest and best effort yet to establish carbon emissions pricing in the United States.

Sightline Report #1, Aug. 1, Weighing CarbonWA’s Tax Swap Ballot Initiative

Sightline Report #2, Aug. 2, Does I-732 Really Have a “Budget Hole”?

Sightline Report #3, Aug. 3, Weighing the Critiques of CarbonWA’s I-732

 

Brookings report on state carbon taxes is a winner

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The Brookings Institution is out with a handsome new report, State-Level Carbon Taxes: Options And Opportunities For Policymakers. We’re still digesting it, but it looks like one of the most lucid and useful publications on carbon taxes to appear in a long time. At a minimum, it’s essential reading for at least two (overlapping) groups: people seeking to advance carbon taxes at the state level, and people who want to steep themselves in the nuts and bolts of implementing actual carbon taxes.

The authors are three heavy hitters in carbon tax policy and advocacy: Adele Morris of Brookings, Yoram Bauman of Carbon Washington, and David Bookbinder of the Niskanen Center. Together they bring to bear key disciplines (economics, law, political organizing), extensive knowledge, and keen interest. It’s no surprise their report is a winner.

Here’s the start:

Much has been written about the design of a federal-level carbon tax. This paper adapts these findings to the state level, motivated by pending federal regulations (which place implementation obligations on states), policy discussions in states with commitments to ambitious long-term emissions targets, and state budget shortfalls that could necessitate new revenue. Notwithstanding the myriad political impediments to a carbon tax, this paper explains how state policymakers can design one to fit their fiscal, economic, distributional, and environmental goals.

They find that “a $20 per ton tax on energy-related CO2 emissions could raise up to 2-3 percent of state GDP in the most emissions-intensive states.” That is significant, they say, because current state revenue instruments — sales, property, income, and business taxes — typically collect only about 5% of GDP. Moreover, contrary to the usual view that a carbon tax might be an unreliable revenue generator, if only because the revenue base of carbon emissions would shrink over time, the report concludes that carbon fees could prove less volatile than other state revenue sources.

Bar chart w top 15 states (c tax revenue as share of GDP) _ 4 Aug 2016

Graphic is from Brookings issue brief (see link at end).

While carbon fees of $20/ton are almost certainly far lower than the levels needed to fully drive the transition of the U.S. economy to a low-carbon base, it’s a reasonable level for considering state taxes, given issues of leakage, interstate competition, and poorly diversified state economies. In any event, the report’s insights into state carbon tax implementation don’t depend on any particular tax level.

For all 50 states plus the District of Columbia, annual revenues from applying $20/ton state-level carbon taxes to all fossil fuel combustion would total $106 billion, based on 2013 emissions and assuming, for simplicity, zero price-responsiveness. That’s around two-thirds of one percent of combined state GDP. But the range is enormous, from a low of around 0.3 percent (for California, Connecticut, and Massachusetts; here we exclude DC, for which the tax revenue would equate to just 0.05% of GDP), to more than 2 percent for North Dakota and West Virginia and more than 3 percent for Wyoming. (See graphic; Wyoming was inadvertently omitted.)

Tellingly, of the 15 states with the highest shares of potential carbon tax revenues relative to GDP, 14 are “red” on the political map. Only New Mexico voted for a Democrat, President Obama, in 2012 (and 2008). The correlation of carbon-dependence with electoral conservatism underscores (and reflects) the political polarization over climate belief and carbon-reduction policy. And while organizing for state carbon taxing has been exclusively focused on low-carbon blue states such as Washington and Massachusetts, the sheer fiscal potential of carbon taxes in the states shown in the graphic suggests vast untapped potential to transform state economies from fossil-fuel extraction to a broader and more sustainable base.

The Brookings report is far richer than mere figures and graphs. It dives deeply but clearly into thorny questions like interstate transport of fuels and electricity, and harmonizing of state carbon fees with EPA Clean Power Plan requirements, that haven’t arisen at the federal tax level. Issues of federal pre-emption (e.g., for aviation fuels), compliance with the “dormant” Commerce Clause of the U.S. Constitution, and revenue usage are treated as well. The report is also richly referenced and annotated.

Whether or not the path to a U.S. carbon tax will need to wind from one or a few early-adopting states to Congress can’t be predicted. Regardless, the Brookings report is both a masterful summation of state carbon tax issues and a vital read for anyone pursuing carbon pricing in the United States.

Link to the full 32-page Brookings report: State-Level Carbon Taxes: Options And Opportunities For Policymakers

Link to the Brookings issue brief (contains graph shown above): What to consider when designing a state-level carbon tax

Elon Musk’s Powerful Case for a Carbon Tax

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Nov. 2 addendum: Read Musk’s carbon tax pitch, transcribed from Leonardo DiCaprio’s new climate change documentry, Before The Flood, at bottom.

Visionary inventor-entrepreneur Elon Musk is constantly in motion. Last week he was in Nevada checking on his Gigafactory, which purportedly will be the world’s largest-footprint building (as big as 107 football fields) and make enough batteries each year to power 1.5 million Tesla Model 3s. Yesterday Musk revealed his intention to merge Tesla Motors and SolarCity — a $2.6 billion wager that Tesla owners will use those batteries to store power from SolarCity panels.

This is big business, big climate and big vision rolled into one. Large-scale deployment of batteries could let solar and wind resources dominate electricity production without need for carbon-emitting grid support by fossil fuel plants. Replacing gasoline-powered autos with electrics will almost certainly squeeze carbon emissions out of transportation faster than biofuels or other low-carbon liquid fuels.

Elon Musk carbon tax meme _ 2 aug 2016In Nevada, Musk also spoke up for carbon taxes, though hardly for the first time. Four years ago, for example, at the Wall Street Journal’s ECO:nomics conference in Santa Barbara, CA, Musk disparaged tax credits for green cars and declared that “the best method for addressing climate change in the automotive industry is to impose a tax on carbon dioxide emissions,” according to the trade journal plugincars. But what he said last week was so richly detailed and articulated that it deserves to be quoted in full.

As reported by Benjamin Spillman in the Reno Gazette-Journal, Musk was asked whether the Gigafactory would have been economically viable without over a billion dollars in state incentives, plus federal tax credits for electric vehicles and solar panels. He replied:

[I]f you accept the scientific consensus[,] every oil burning activity is subsidized, dramatically. If you believe there is a value to the CO2 capacity of the atmosphere and oceans and that CO2 capacity is not being paid for by the price at the gas pump or the coal that is being burned for electricity generation or whatever its use may be then every single fossil fuel burning activity is massively subsidized.

After reminding his Nevada audience that climate change “has become sort of an ideological issue because there are people who think that global warming is not true,” Musk continued:

[A]ll we are doing [with a carbon tax] is trying to match the inherent subsidy for fossil fuels . . . on the sustainable energy side. Fossil fuels are already getting a massive subsidy if you believe in global warming. If you don’t then [the subsidy] seems really unfair. If you do then it is like oh we are just trying to correct it.

But Musk was just warming up to the carbon taxing subject:

The real right way to correct [the subsidy] would be to establish a carbon tax. If you ask any economist they will tell you that is the obvious thing to do, put the correct price on carbon because we currently have an error in the economy which misprices carbon at zero or something closer to zero. It is a fundamental economic error.

He then turned to the supposed conflict between libertarian ideology and taxation:

For people that have a sort of libertarian bent they get a little confused. . . They need to appreciate the high level principle of why they are opposed to government intervention. They are actually opposed to government intervention because it causes false pricing. If the government says we are going to massively incent the production of corn, so that effectively corn gets mispriced and we make too much corn, that . . . does not benefit the country if you make too much of something because of a government driven pricing error . . . That is sort of what people with a libertarian bent are opposed to.

However if you have . . . an unpriced externality [with] the CO2 capacity of the oceans and atmosphere priced very close to zero then any government action to increase the price above zero reduces the error in the economy. [What libertarians] should actually be opposed to is anything that increases the error in the economy, a pricing information error. So pricing carbon, if you believe in global warming, does not increase the price of the error it decreases the price of the error.

Spillman tweeted these remarks, and Musk retweeted his approval:

Whether or not you identify as libertarian, you should savor Musk’s bracing clarity on (and for) carbon taxing. Maybe in time, other solar and wind advocates will bolster their customary pleading for subsidies with their own clarion call for carbon taxing.

Addendum, Nov. 2, 2016: Musk did a star turn in support of carbon taxes in the Leonardo DiCaprio climate docu, Before The Flood. This transcript is courtesy of EcoWatch. The film is up on YouTube through Nov. 6. Afterwards, only in theaters.

DiCaprio is in the Nevadan desert visiting the “gigafactory,” the latest project of Tesla founder Elon Musk. Once at full operation by 2020, the vast factory aims to be producing annually 500,000 electric vehicles and batteries/cells equal to 85 GWh/yr. Musk explains why this could be a game-changer:

Elon Musk: What would it take to transition the whole world to sustainable energy? What kind of throughput would you actually need? You need a hundred gigafactories.

Leonardo DiCaprio: A hundred of these?

Elon Musk: A hundred. Yes.

Leonardo DiCaprio: That would make the United States…

Elon Musk: No, the whole world.

Leonardo DiCaprio: The whole world?!

Elon Musk: The whole world.

Leonardo DiCaprio: That’s it?! That sounds manageable.

Elon Musk: If all the big companies do this then we can accelerate the transition and if governments can set the rules in favour of sustainable energy, then we can get there really quickly. But it’s really fundamental: unless they put a price on carbon…

Leonardo DiCaprio: … Then we are never going to be able to make the transition in time, right?

Elon Musk: Only way to do that is through a carbon tax.