Perhaps no one in the U.S. has done more lately to drive public and political opinion toward carbon taxes than Ted Halstead and his Climate Leadership Council. The council’s Conservative Case For Carbon Dividends is the first Republican-based carbon tax proposal to insist not only on starting high (at $40 per ton of CO2) but also “dividend-ing” the revenues to U.S. families rather than using them to pay for corporate tax cuts (as favored by the political right) or investing them in transit, renewables and other elements of “the just transition” (as favored by much of the left).

This income-progressive but limited-government path, which Halstead and the council astutely brand as Republican, has generated a broad swath of editorial support, not just on the two coasts but also in conservative, carbon-heavy Texas. Partly that’s because the proposal would downsize or outright rescind direct federal regulation of carbon emissions, which the council argues would be mooted by the market pull of a robust (and rising) carbon tax. It’s also because Halstead has the verbal facility and personal magnetism to make his points appealing and convincing.

Not just his first name, then, makes Halstead an ideal “TED” talker, as you can see in the 11-minute talk (13, counting Q/A with moderator Chris Anderson) he taped in April and released yesterday.

Below, we present an abridged version of Ted’s talk. The full transcript can be viewed along with the video presentation.

We need a killer app to climate policy. In the technology world, a killer app is an application so transformative that it creates its own market, like Uber. In the climate world, a killer app is a new solution so promising that it can break through the seemingly insurmountable barriers to progress.

These include the psychological barrier. Climate advocates have long been encouraging their fellow citizens to make short-term sacrifices now for benefits that accrue to other people in other countries 30 or 40 years in the future. It just doesn’t fly because it runs contrary to basic human nature.

Next is the geopolitical barrier. Under the current rules of global trade, countries have a strong incentive to free-ride off the emissions reductions of other nations, instead of strengthening their own programs.

Finally, we have the partisan barrier. Even the most committed countries are nowhere near reducing emissions at the required scale and speed. And the partisan climate divide is far more acute here in the United States. We are fundamentally stuck, and that is why we need a killer app of climate policy to break through each of these barriers.

I’m convinced that the road to climate progress in the United States runs through the Republican Party and the business community. So in launching the Climate Leadership Council, I started by reaching out to a who’s who of Republican elder statesmen and business leaders, including James Baker and George Schultz, the two most respected Republican elder statesmen in America; Martin Feldstein and Greg Mankiw, the two most respected conservative economists in the country; and Henry Paulson and Rob Walton, two of the most successful and admired business leaders. Together, we co-authored “The Conservative Case For Carbon Dividends.” This represents the first time that Republican leaders put forth a concrete market-based climate solution.

Our carbon dividends solution is based on four pillars.

1. The first is a gradually rising carbon tax. Although capitalism is a wonderful system, like many operating systems, it’s prone to bugs, which, in this case, are called “market failures.” By far the largest is that market prices fail to take social and environmental costs into account. That means every market transaction is based on incorrect information. This fundamental bug of capitalism, more than any other single factor, is to blame for our climate predicament.

In theory, this should be an easy problem to fix. Economists agree that the best solution is to put a price on the carbon content of fossil fuels, otherwise known as a carbon tax. This would discourage carbon emissions in every single economic transaction, every day of the year. However, a carbon tax by itself has proven to be unpopular and a political dead end. The answer is to return all the money raised directly to citizens, in the form of equal monthly dividends. This would transform an unpopular carbon tax into a popular and populist solution, and it would also solve the underlying psychological barrier that we discussed, by giving everyone a concrete benefit in the here and now.

According to the US Treasury Department, the bottom 70 percent of Americans would receive more in dividends than they would pay in increased energy prices. That means 223 million Americans would win economically from solving climate change. And that is revolutionary, and could fundamentally alter climate politics.

2. But there’s another revolutionary element here. The amount of the dividend would grow as the carbon tax rate increases. The more we protect our climate, the more our citizens benefit. This creates a positive feedback loop, which is crucial, because the only way we will reach our long-term emission-reduction goals is if the carbon tax rate goes up every year.

3. The third pillar of our program is eliminating regulations that are no longer needed once a carbon dividends plan is enacted. This is a key selling point to Republicans and business leaders. So why should we trade climate regulations for a price on carbon?  Our plan would achieve nearly twice the emissions reductions of all Obama-era climate regulations combined, and nearly three times the new baseline after President Trump repeals all of those regulations. Our plan by itself would meet the high end of America’s commitment under the Paris Climate Agreement, and the emissions reductions would continue over time. We would end up with less regulation and far less pollution at the same time, while helping working-class Americans get ahead. Doesn’t that sound like something we could all support?

4. The fourth and final pillar of our program is a new climate domino effect, based on border carbon adjustments. Now that may sound complicated, but it, too, is revolutionary, because it provides us a whole new strategy to reach a global price on carbon, which is ultimately what we need. Once one major country or region adopts carbon dividends with border carbon adjustments, other countries are compelled to follow suit [to prevent paying border adjustments to countries with carbon taxes]. One by one the dominoes fall. And this domino effect could start anywhere.

Let’s take China as an example. China is committed to reducing greenhouse gas emissions, but what its leaders care even more about is transitioning their economy to consumer-led economic development. Well, nothing could do more to hasten that transition than giving every Chinese citizen a monthly dividend. In fact, this is the only policy solution that would enable China to meet its environmental and economic goals at the same time.

That’s why this is the killer app of climate policy, because it would enable us to overcome each of the barriers we discussed earlier: the psychological barrier, the partisan barrier, and, as we’ve just seen, the geopolitical barrier. All we need is a country to lead the way. And one method of finding what you’re looking for is to take out an ad. So let’s read this (shown at left) one together.

 

 

Was it really just a month ago that the “Access Hollywood” tape was sending the Trump candidacy into its death throes, the Republican Party was melting down, and the first-ever Congressional debate over carbon taxing seemed in store for 2017?

It sure looked like it, as I wrote in this space on October 9:

Democratic control of both the White House and Congress clears a path for a federal carbon tax without having to somehow vault over GOP denialists. Which could make next month’s ballot referendum in Washington state, Initiative 732, even more momentous. Enacting the country’s first carbon tax wouldn’t just produce a template for other states; it could spark national legislation establishing a U.S. tax on carbon emissions, perhaps as early as 2017.

Sad to say, I-732 went down to defeat Tuesday, resoundingly, 59% to 41% (those figures, updated Nov 11, supersede the 58-42 Election Night result). But that loss is but a charred matchstick in the burnt landscape we awoke to Wednesday morning: a Trump presidency, a continued GOP lock on Congress, and a hard-right Supreme Court.

Where do climate campaigners, and carbon tax proponents in particular, go from here? As I search for answers, I’m bearing these points in mind:

1. Solar, efficiency and wind will keep advancing — Yes, R&D will be cut, maybe also tax credits for wind turbines and solar PV. And some states’ rules and regulations affecting siting and financial treatment for renewables and efficiency could turn for the worse. But clean energy’s rapid growth isn’t going to stop. Tech progress, plummeting costs, and the advent of business models to handle logistics and financing remain powerful forces. As clean energy spreads, so will the constituency for aggressive climate policy — perhaps even carbon taxes, a possible scenario laid out last year by David Roberts of Vox (he called it “strategic sequencing of climate policies”) that is especially pertinent today.

2. Americans may be less averse to carbon taxes than you think — It’s a shame I-732 didn’t win, not least because the heroic activists at Carbon Washington worked their butts off for it. But let’s not write off carbon taxing. The defeat of the Washington referendum owes a lot to the unfortunate split within the green movement. Carbon taxes that prioritize equity and protect low and moderate-income families can be politically popular, as suggested by a 2015 poll by Stanford and Resources for the Future — the only national polling to date of explicitly revenue-neutral carbon taxing.

3. The Clean Power Plan is in the rear-view mirror — Don’t fret too long over the likely dismantling of the Obama administration’s Clean Power Plan. Events have largely overtaken it, with U.S. coal-fired power generation cut in half in just a decade. Calculations we’re finalizing at the Carbon Tax Center will show that by year’s end the U.S. electricity sector will have already made nearly all of the carbon reductions the CPP demanded for it by 2030. And while much of that progress was sparked by EPA’s Mercury and Air Toxics rule that helped precipitate coal plant shutdowns, Americans’ long-standing support for clean air will make it hard for even a President Trump to dial back those standards.

4. The Law of Reaction (“Pride Goeth Before a Fall”) — We’ve seen it time and again: over-reaching that precedes a disastrous stumble: A nuclear industry spokesman publicly inviting a prominent TV news anchor to “come see the safety features at our new flagship reactor at Three Mile Island,” just before the infamous meltdown in 1979. The bombshell that seismic attenuators were installed backwards at one of the Diablo Canyon reactors just as the new Reagan administration was rushing to water down atomic safety regs in 1981. This syndrome isn’t mere coincidence; the media crave counter-narratives. With the Republican Party now “owning” climate change, extreme weather will give us many opportunities to put them on the defensive.

5. Uniting Our Movement — The split in the green movement over I-732 laid bare genuine divisions among climate activists, over leadership and inclusion as well as policy. We can use the new enforced policy hiatus to get better at listening to each other. Carbon tax advocates, myself included, need to commit to sharing and even ceding leadership to more diverse voices. We can also do better at conveying why we place carbon taxes at the center of climate policy, and why we believe they are the best policy complement to divestment and keep-it-in-the-ground campaigns.

Am I “whistling past the graveyard” here? I don’t know, frankly. Trump’s victory is traumatic, and it’s really hard to face the future. But face it we must and will. There’s too much at stake. Fighting for a livable planet and a humane society is what I’ve done my whole life. I’m not stopping now, and I know neither are you.

The following passages, transmitted by the New York Times via Twitter (@nytimes), capture Pope Francis’s call this morning to world leaders and humanity to place ourselves within, not above, the natural world; to care for Earth rather than destroy it; and to recognize for all living things a “Right of the Environment.”

 

 

Mexico Weighs Tax on Soft Drinks’ Sugar Content (NYT)

This post is a response to a set of five questions we received from Paula Swedeen, an ecological economist from Olympia, WA. Paula graciously granted permission to reprint her e-mail; our answers follow each of her five questions.

Hello Mr. Komanoff — I recently downloaded and read through your updated carbon tax model. Thanks for making this publicly available — it’s an extremely useful tool for thinking through how a carbon tax might work and potential optimal designs. I also read the exchange that you and your colleague James Handley had with Dave Roberts at Grist last November-December which laid out some interesting questions about how to spend revenue from a carbon tax. I have a few questions about the policy implications of the results of your default case, and about some of the assumptions in the model.

My background is in ecological economics and biology, and I work quite a bit at the intersection of forests and climate change. I consult for non-profit environmental groups and Tribes on conservation policy for forests and aquatic ecosystems. While I have worked on the portion of California’s climate policy that impacts forests, I am not wedded to using cap-and-trade for addressing climate change, and think a carbon tax has some important advantages at the national level.

Here are my questions.

1) Your default case of starting a tax at $15/ton of CO2 and increasing it by $12.50 a year results in an average rate of emission reductions of 2% per year between 2014 and 2036 (amount of average annual reductions compared to emission levels in 2013, the year before the tax starts). While this results in substantial reductions compared to what we are doing today, much research, as you are no doubt aware, points to the need for global emissions to decline at rates in excess of 5-6% per year, starting now, in order to meet even a 50% chance of staying below a 2 degree C temperature rise (a frighteningly weak goal to start with). From a global equity perspective, the U.S. ought to at least meet that average requirement, if not exceed it given our historical emissions. See for example, Anderson and Bows, 2011 (http://rsta.royalsocietypublishing.org/content/369/1934/20.full.pdf+html).

What other policies, in addition to the already robust carbon tax you propose, do you see as being available to accomplish the other 3-4% annual rate of emission declines we should be achieving?

Answer: Our default tax is based on the 2009 Larson bill. I calculate a slightly stronger reduction rate for it than you did: 2.5% a year from 2012 to 2036. (Here I’m comparing projected 2036 emissions of 2,860 million metric tons of CO2 with actual 2012 emissions of 5,243, and of course I’m compounding the average.) But your point stands.

To some extent, that disturbingly small average is an artifact of the diminished “bite” built into any additive tax that increments by a constant annual amount: the tenth $12.50/ton tax increment has less salience to households and industry than the first. At some point, the additive rises would need to give way to constant-percentage-increase rises, unless the rate had already achieved market-clearing levels — a scenario we critiqued in this space several years ago as over-optimistic.

Any model tends to have greater predictive value in the near term than the far, and thus we’re more heartened by the 3.1% average decline rate predicted for the first dozen years than we are discouraged by the 1.9% average rate for the second dozen. But even a 3% annual decline rate is wanting, as you noted.

The ideal carbon tax is, thus, steeper even than Larson’s “aggressive” bill. But we have to begin somewhere. As for complementary policies, we’re impressed with the 100% Wind-Water-Sunlight vision propounded by Stanford professor Mark Z. Jacobson and his team. His new paper in Energy Policy, “Examining the feasibility of converting New York State’s all-purpose energy infrastructure to one using wind, water, and sunlight,” is a good place to start.

2) In your exchange with Dave Roberts, you acknowledge that there are barriers to clean technology deployment, but state that the strength of your tax compared to the proposals coming out of Brookings or MIT would exert more technology pull to overcome these barriers. However, given that this pull looks to result in about half or less of the rate of emission reductions needed, does this influence your perspective on whether spending some of the revenue from a carbon tax on deployment and R&D would be worthwhile?

Answer: We’re all for basic energy research, but less enamored of government-funded development and deployment. In any event, we believe that dedicating “incremental carbon-tax revenue” to transparent and progressive federal tax-shifting or per-household dividends will do more to cut carbon than spending it on RD&D. It will do so by preserving the political bargain that makes possible next year’s carbon-tax increment, and the increment after that, and so on (as evidenced in British Columbia, where 100% revenue return preserved political support for the yearly tax rise), and thus creates powerful price signals that can drive investment, not to mention research and development.

3) The equity argument of needing to refund the tax to consumers, especially low income households, is very important. Using the revenue numbers from your default case, and U.S. Census Bureau numbers for household income distribution, it looks like over $500 billion in dividends would go to households making more than $200,000 a year over the 22 years you modeled out the tax. This is a substantial sum of money going to people that could arguably afford higher energy prices, and whose carbon consumption behavior may not change all that much based on the size of the refund compared to their incomes. What do you think about directing that money to clean energy deployment and other emission reduction efforts instead? I understand the political reasons for giving a refund to everyone. However, are there other technical or economic arguments for not having an upper income cut-off and instead using the revenue for direct emission reduction projects?

I am very interested in your perspective on this point, because it seems that given how late we are in the race to avoid an irreversible threshold to a largely uninhabitable planet, we should be throwing everything we have at the problem. I have a hard time seeing how we can afford to refund such large sums of money to high income households when it could be used to important effect elsewhere. Would it not be worthwhile to vastly expand public transportation, and/or put as many solar arrays on available roof-tops as could be purchased, or keep forests standing rather than recycling revenue to those who likely don’t need it? A $200,000 annual income cut-off for a refund would still shield low and middle income families from energy price increases. Obviously, other income cut-offs could be used, but you get the idea.

I definitely get the idea, and I thank you for the calculation (which I confirmed , probably using the same Census income table as you; it puts 4.2% of U.S. households at or above your cutoff, which I multiplied by the projected $14.8 trillion in cumulative “available” carbon-tax revenue to 2036, to calculate $620 billion.)

My response parallels my answer to Question #2: for me, the value of preserving the structure of the overall arrangement (in which equal per-household dividends of the tax revenue engender public and political support for the tax to keep rising) overrides both my strong personal feelings about economic inequality and my awareness (which I share with you) of the potential payoff from allocating the $620 billion to infrastructure and energy projects that could push down CO2 emissions further. Here I’m particularly concerned with the perceived arbitrariness of an income cutoff. Consider that in just the tenth year of the tax (2023 if it starts in 2014) the per-household dividend will exceed $4,000; in which case a household with an income of $199,000 will make more money, with the dividend, than one with an income of $201,000. Yes, sliding scales could be devised, but these threaten to make the distribution so complex that it becomes vulnerable to other carve-outs which then cascade to a point where it loses its public appeal.

4) Forest loss is a large source of carbon emissions globally. Most of the emissions come from tropical deforestation, but conversion of forests to housing and commercial real estate in the U.S. (and some other management changes) is projected to make domestic forests a net source of emissions by 2030. Allocating a very modest portion of carbon tax revenues to both the U.S. contribution to financing an end to tropical deforestation, and to preventing forest conversion domestically directly reduces CO2 emissions, and has numerous ecological and social co-benefits. Having worked in this particular field for over 20 years, I know that coming by adequate funding for forest conservation is a huge challenge – this is another race we are losing to disastrous consequences. Carbon taxes are being used by other nations, like Norway, to address emissions from tropical deforestation. And Waxman-Markey allocated some auction revenue for forest conservation. Using carbon tax revenue to reduce forest-based emissions, or even increase biological sequestration, also has the advantage of not trading off forest emission reductions for a portion of fossil fuel emission reductions, as occurs under an offset system with cap and trade. I am concerned that if no portion of carbon tax revenue goes to this purpose, there will be few other sources of revenue adequate to the task. Do you have any thoughts on this topic?

Answer: We advocate briskly-rising carbon taxes as a needed corrective to spur low-carbon energy innovation and to encourage renewables and efficiency in a price system that lets them compete fairly. But the same logic that points to the need for a carbon tax to “internalize” the social cost of carbon pollution in fossil fuel prices suggests that payments are needed to assure the continued social benefit of carbon sequestration services by forests and aquatic ecosystems. As you point out, these ecosystems are being diverted to more financially lucrative uses because their climate and other ecological benefits are unpriced. Under “the polluter pays” principle, those who benefit from dumping carbon into the atmosphere should pay for the service of sequestering it safely. And yes, that’s a lot more direct and clear than using offsets under cap-and-trade to fund ecological services.

As noted, we recommend returning carbon tax revenue (either as a tax shift or a direct payment) primarily as a way to mitigate regressive effects and to build the kind of long-term political support we’ve seen for British Columbia’s revenue-neutral carbon tax. But the argument for using at least a portion of the revenue stream to fund carbon sequestration services strikes us as compelling. Several carbon tax proposals suggest allocating funds from harmonizing border tax adjustments (essentially tariffs) on carbon-intensive imports to finance international forestry projects. Under that structure, carbon tax revenue from domestic goods would be “recycled” to households, while the import tariff would fund preservation and restoration of forests and perhaps aquatic ecosystems’ capacity to sequester carbon.

5) Can you briefly describe your confidence in your price elasticity assumptions? I noticed when ramping up the tax in your model, for example to start at $40/ton and increasing it by $20/year, the average rate of emission decline does not respond that dramatically — it goes from 2% up to 2.6% per year. Do you have any sense of the chances that your model might either over or underestimate individual and business reaction to carbon price increases?

Answer: My math yields a somewhat different result. Comparing projected 2036 emissions with actual 2012, and again using compound averages, I calculate a 2.5% annual average decline with the default $15.00/$12.50 tax, and a 3.7% decline rate with “your” $40.00/$20.00. Your tax is roughly two-thirds higher than mine in 2036 and has achieved a roughly one-half greater decline rate, which seems plausible.

Again, though, your broader point is well-taken: the elasticities in the model are merely estimates, not “facts,” and they are particularly uncertain on the supply side, which is the anticipated locus of the decarbonization process under a carbon tax. (In three of the model’s six sectors, a majority of the CO2 reductions come from fuel decarbonization, whereas in only one, air travel, does a majority come from reduced usage; one sector is split 50-50 and reductions in the sixth, natural gas usage in industry and heating, are necessarily all via less usage because natural gas can’t be decarbonized further.)

It does appear that our model is conservative (predicting lower CO2 reductions) than most other models. Perhaps it needs to be more attuned to the extent to which strong, clear price signals will encourage development and deployment of low- and zero-carbon technologies. We hope to explore and explain these differences via further analysis.

Thanks for any time you have to address these questions.

Best,

Paula Swedeen

Thank you for your collegial and thought-provoking questions!

Nader Channels Gore: “Tax What You Burn” (Common Dreams)

Economic Insecurity Impedes Climate Progress (Jason Scorse in Progressive Fix)

Pembina Institute Calls for Fairer, Higher British Columbia Carbon Tax (The Hook, A Tyee Blog, British Columbia)

Fee-and-Dividend Is Superior to Cap-and-Trade for Effective Carbon Emissions Reductions (Brave New Climate)

Graham: Carbon Tax is Fairer (Wonk Room)