Yesterday I biked to Grand Central Station and boarded a commuter train to the Hudson River village of Tarrytown to participate in a forum on carbon taxes. (For readers not from the area, Westchester is the suburban county immediately north of New York City.) My co-panelists were climate organizer Iona Lutey and economist Sara Hsu.

Sara, a professor of economics at the State University of New York, outlined her research and legislative advocacy for a NY State carbon tax, while Iona delivered Citizens’ Climate Lobby’s hopeful message that persistent but collegial citizen engagement can build political will for the group’s “carbon fee and dividend” proposal, even among Republicans. I had a subtle pitch: emissions are falling in the U.S. and flattening in China without the benefit of carbon emissions pricing, yet carbon taxing is essential to accelerate and broaden progress.

I usually make that point with modeling results, but last night I brought something new: a Powerpoint page (shown below) listing a dozen complementary pathways for reducing use of fossil fuels that need the price signal from a carbon tax to. (Download my PPT here.)

All three presentations seemed to hit home with our audience of 40 or so folks, most of whom haled from nearby towns and villages. (The local paper Hudson Independent has a fine summary.) The Q&A was unusually lively. A resident of nearby Croton-on-Hudson had perhaps the most provocative question of all: why trade away the right to sue the fossil fuel purveyors and extractors, as the Climate Leadership Council is proposing in its Republican-branded carbon tax deal, when successful litigation could deliver a double-barreled victory: bankrupting the carbon barons while providing financing for the energy transition to efficiency and renewables?

The question was in response to the support I voiced for the Climate Leadership Council’s deal in my talk and in my previous post here. My primary answer then and now was that there seems to be little chance that oil, coal and gas companies could ever be made to pay more than token amounts for the ruin their products cause. But the question deserves further thought, which I kicked off this morning with this thought experiment:

What if we took all U.S. CO2 from burning fossil fuels over the past century and split “responsibility” for it 50-50, with half of the costs written off as the “fault” of consumers (who weren’t entirely innocent buyers and burners of all that gasoline and fuel-based electricity), and the other half charged to the fossil fuel producers? What magnitude of damages and reparations would that entail?

A molecule of carbon dioxide remains in the atmosphere for roughly a century, so we need to consider 100 years of fossil fuel combustion. The historical magnitude of U.S. CO2 is more or less known, but for this exploratory calculation we might rough-estimate the century’s total as 60 years worth of last year’s emissions of roughly 5 billion metric tons. To each metric ton we now apply a $50 “social cost of carbon,” though that’s almost certainly far too low, as I wrote here recently.

With these rough assumptions, the producers’ “debt” is then one-half of 60 years x 5 billion metric tons x $50 per ton, which equals $7.5 trillion. Paying that out as damages over, say 20 years implies an annual charge to the producers of $350-$400 billion. Interestingly, that’s the same as the annual revenue from a $75/ton carbon tax.

Let’s now say, improbably but hypothetically, that Congress enacted, and the courts approved, award of those damages to Americans (setting aside, for now, damage claims from the other 7 billion of the world’s people). Where would the money come from? It seems implausible that it could be clawed back from shareholders of the fossil fuel corporations. Could it come from raising the prices of the fuels over the next several decades, in which case it could function as a de facto carbon tax? But if so, why not just enact a carbon tax in the first place?

As you can see, I’m trying to wrestle with this issue. I welcome comments and suggestions.

Meanwhile, Sustainable Westchester and Westchester Power, organizers of last night’s forum, are hosting two more evening panels: Wednesday, July 19 in New Rochelle, and Wednesday, July 26 in Bedford Hills. Details here. I’ll be speaking at both.

The Climate Leadership Council today announced that it has won support for its carbon dividends plan from ExxonMobil and other major corporations, as well as prominent individuals including physicist Stephen Hawking. The news, reported in op-ed pieces, news stories and a full-page ad in the Wall Street Journal’s Washington, DC edition, comes just four days after release of a new poll suggesting that climate concern among U.S. voters is surging to new heights.

Let’s start with the poll, released last Friday by the widely respected National Opinion Research Center – Associated Press polling collaborative. While the June 16 NORC-AP press release led with Pres. Trump’s abysmal (64%) disapproval rating, the more momentous result was the one highlighted in the graphic.

Fifty-three percent of people polled called climate change “extremely or very important” to them personally, perhaps the first time a majority of U.S. respondents assigned climate change such a high level of concern. Indeed, climate is often viewed in political circles as a “low-salience” issue, one that people profess to care about but don’t act on politically.

The 53% figure belies that idea, though the response might have been heightened somewhat because respondents were asked to specifically rate climate (and other issues) rather than to name, say, “the three most critical issues to you and your family.” (The full poll may be downloaded here. See graphic below for a breakout of the climate responses.)

The apparent broadening of public concern could translate into repudiation of climate-denying and ignoring candidates in the 2018 Congressional primaries and elections. It may also provoke more members of Congress to endorse the Citizens’ Climate Lobby’s Republican Climate Resolution or take seriously the Climate Leadership Council’s Republican-branded carbon dividends plan.

That plan was formally endorsed today by ExxonMobil, along with fellow oil behemoths BP, Royal Dutch Shell and Total S.A.; industrial giants General Motors, Pepsico and Unilever; and prominent individuals like former NYC mayor Michael Bloomberg, former Obama Treasury Secretary and Harvard University ex-president Larry Summers, renowned physicist Stephen Hawking, and Nobel Laureate and Obama Energy Secretary Steven Chu.

The broadening of support, orchestrated by Climate Leadership Council executive director Ted Halstead, constitutes an effort to move simultaneously to the left and right: leftward with a relatively high starting carbon tax rate ($40 a ton) and the income-progressive “dividending” of tax revenues rather than cuts to corporate taxes; and rightward with the backing of ExonMobil, which many climate activists hold in contempt for its decades of funding a network of climate denialists who have helped paralyze climate action in the U.S.

From time to time ExxonMobil has said that it “supports” carbon taxes, but as we reported late last year, it has never backed actual carbon tax legislation and has limited its expressed interest to carbon taxes in the $20/ton range. ExxonMobil’s endorsement of the council’s plan is a step forward for the company that could portend support from other quarters long considered hostile or passive on carbon pollution pricing.

With a high starting tax rate, a commitment to disbanding most federal carbon regulation and an offer to indemnify carbon polluters from litigation over climate damage, the council’s proposal defines a broad new center that could eventually unite political forces from the left and right. That strategy appeared today to gain important validation from Michael B. Gerrard, the influential director of the Sabin Center for Climate Change Law at Columbia Law School and a widely respected environmental litigator. Gerrard told The New York Times, “If a sufficiently high carbon tax were imposed, it could accomplish a lot more for fighting climate change than liability suits.”

This link goes to the council’s WSJ ad. Treasury Secretaries emeriti Larry Summers and George Shultz have an op-ed in today’s Washington Post, This is the one climate solution that’s best for the environment — and for business. Links to other op-eds and news coverage are at the Climate Leadership Council’s Web site.

As the U.S. president holds the world hostage to his impending decision to accept or repudiate the Paris Climate Agreement, it’s worth noting that the United States could meet its Paris emissions pledge by adopting a Republican-branded carbon tax proposal.

That’s the so-called Baker-Shultz carbon tax devised by the Climate Leadership Council and released in February by a team of Republican luminaries headed by Reagan Secretary of State George Shultz and George H.W. Bush Secretary of State James Baker. The CLC proposal, dubbed “The Conservative Case for Carbon Dividends,” would tax U.S. CO2 emissions from fossil-fuel combustion at $40 per ton and return the revenues in equal shares to American families (thus the “dividends” in the proposal’s name).

As the Associated Press reminded us at the onset of the holiday weekend, “nearly 200 countries are part of the Paris accord and each set their own emissions targets, which are not legally binding. The U.S. pledged to reduce its annual greenhouse gas emissions in 2025 by 26 to 28 percent below 2005 levels, which would be a reduction of about 1.6 billion tons of annual emissions.”

With informed sources such as Inside Climate News and the New Republic insisting that Trump’s rescission of Pres. Obama’s Clean Power Plan puts our Paris target out of reach, we decided to run our carbon-tax spreadsheet model on the CLC proposal. The result was a bullseye: the model calculates that implementing an economy-wide charge of $40/ton of CO2 on U.S. coal, oil and gas combustion in 2018 would, by 2025, result in total CO2 emissions of 4,242 billion metric tons — a figure 27% less than 2005 baseline emissions of 5,812 billion metric tons. That’s smack in the center of our country’s pledge to reduce emissions by 26% to 28%.

Our numerical finding closely matches CLC’s own estimate of a 28 percent drop in emissions in 2025 vs. 2005 from the $40/ton CO2 charge. And while a majority of the forecasted reduction in emissions from today to 2025 would be in the electricity sector, the expected 45 percent share of reductions in the other sectors (passenger auto and air travel, freight movement, oil refining, etc.) is a big increase from those sectors’ 27 percent share of reductions from 2005 to 2015, reflecting the carbon tax’s power to reduce fossil fuels use more broadly than targeted regulations.

A few important details:

One, CLC’s modeling assumes a 2% per year real increase in the carbon tax following the initial startup at $40/ton. We’ve conservatively assumed zero increase, although our graph also shows a steeper reduction predicated on raising the initial charge by $5 per ton per year.

Two, our two curves coincide for the first few years and begin diverging only in 2021. That’s because we’ve built a “brake” into our model that limits the economy’s uptake of the carbon charge to a rate of $12.50 per ton per year; increases beyond that are carried over into future years. Thus, the full impact of the $40 initial charge imposed in 2018 isn’t felt until 2021.

Three,  the U.S. Paris commitment of a 26-28 percent reduction applies to all greenhouse gases, not just CO2. But since non-CO2 GHG’s such as methane are considered to have more low-hanging fruit, on average, being able to achieve a 27% reduction in CO2 by 2025 should virtually guarantee hitting the target of 27% less greenhouse gases.

Note that we label the Baker-Shultz proposal “Republican-branded” rather than “Republican,” preferring to reserve the latter designation for current Republican office-holders. But it’s striking nevertheless that a carbon tax proposal advanced by erstwhile Republican icons — Messrs. Baker and Shultz held many other senior positions even beyond secretary of state — could enable the present Republican administration to meet our country’s Paris climate-protection targets, and to do so in a straightforward, non-regulatory, “market-friendly” fashion that was once considered a bedrock G.O.P. principle.

We’re updating our carbon-tax model to the latest (2016) baseline. Watch this space for its release in June.

 

 

 

 

 

 

Driving in the United States didn’t just inch upward during the past two years, it practically erupted. Total on-road vehicle-miles traveled (VMT) by cars, trucks and buses jumped by 87.5 billion last year, after increasing the year before by 105.2 billion, according to FHWA data. The two-year increase, nearly 193 billion miles — that’s just under 600 miles for every U.S. resident — is the largest in U.S. history (see graph).

Percentage-wise, the increases may not look momentous — 3.5 percent in 2015 and another 2.8 percent last year. But the two-year growth percentage, 6.4 percent, is the highest in almost three decades. And it comes after a spate of articles and reports celebrating (or decrying, depending on one’s point of view) the arrival of “peak driving,” or, at least, peak driving per capita.

So what’s going on?

The prime factor couldn’t have been population growth; it totaled just 1.4 percent from 2014 to 2016. And let’s not over-credit 4.2 percent economic growth over the same period, since the level of driving is more molasses-like than GDP, as we discuss further below. (Also note that GDP subsumes population, so the two factors wouldn’t be additive.) What about pent-up demand from the 2008-2011 economic slowdown? It makes for good anecdotes but probably not enough to move the dial.

My candidate for key cause of the surge in U.S. driving is super-cheap gasoline, or, more precisely, the precipitous drop in U.S. gasoline prices since 2014.

The nationwide average pump price was $3.43 in 2014, the fourth consecutive year in the mid-three dollar range. It dropped nearly a dollar in 2015, to $2.51, and fell again in 2016, to $2.20. Adjusted for general inflation (which is how we economists calibrate these things), the 2014-2015 price drop was 26.8%, and the 2015-2016 drop was 13.3%. The two-year real fall in price, 37%, is the largest over two consecutive years since at least 1950.

A drop in gasoline prices would cause an uptick in driving. If it’s cheaper to drive a mile, or 100 miles, it stands to reason that people will drive more miles. But how much more? How sensitive is the amount of miles driven (VMT) to the price of gasoline? Or, more precisely, how sensitive are changes in VMT to changes in the price of gas?

The answer: the relationship between VMT and gas prices isn’t super-sensitive; but it’s more than zero, and enough to make a big difference in the amount of driving when gas prices take a large turn.

Let’s look at how the math works. The parameter we’re looking for is the gasoline price-elasticity of VMT (driving). Let’s say it’s negative 0.1. (Negative because a lower price means more driving; and just 0.1 because the connection is probably slim.) Now let’s say the price of gasoline drops by one-fourth, or 25%. Based on the assumed -0.1 price-elasticity, we would expect a 3% rise in driving. (Mathematically, that’s because 0.75 raised to the negative 0.1 power, written as 0.75^(-0.1), is 1.029, which denotes a 2.9% increase.)

Does that feel right? Would a one-fourth drop in the price of gas — not just over a single day or month, but over a sustained period — actually lead people to drive 3% more? Would people take more car trips, or longer trips, to that extent? It seems reasonable that they would, though how much is an empirical question. (Which is why the entire vast literature on price-elasticities is based on observed behavior.)

In the table at right I’ve run the actual drops in the price of gas through that calculation, for two possible VMT price-elasticities: (negative) 0.10, and half that value, or 0.05. For the 0.10 value, the drop in the price of gas would have evoked much or most of the observed rise in driving. For the lower 0.05 value, not so much but still a significant portion. (The influence for 2016 should actually have been greater than shown because of the lagged effect from the 2015 price drop.)

What, then, are the best estimates for the price-elasticity in the literature (again, we’re looking for the change in VMT as a function of changes in the price of gasoline)? For the past decade I’ve relied on a seminal 2007 paper by U-C Irvine transportation economists Ken Small and Kurt Van Dender in which they derived a long-run price elasticity of gasoline consumption for the U.S. of -0.38, with 46% of that being due to changes in the amount of vehicle travel. Multiplying those two figures yields a long-run elasticity of VMT with respect to the price of gasoline of -0.175.

(The Small – Van Dender paper is summarized on CTC’s Effectiveness page — drop down to the first bullet point. The paper, “Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect,” is available here. The result just given appears on p.24 (FN 27). Small and Van Dender also remark that the 46% share of gasoline price elasticity accounted for by VMT declined to 27% when recalibrated to prices and driving behavior observed toward the end of their sample period. It’s also true that their elasticity figures are long-run, whereas the VMT behavior we seek to explain here is short-run, implying a still-lower price-elasticity; on the other hand, when the price of gas changes it’s easier to change the amount of driving quickly than to change miles per gallon, which suggests that the short-run elasticity of VMT might not be many times smaller than the long-run figure.)

My takeaway is suggested by the table above: while numerically the gasoline price-elasticity of VMT is small, the fall in gas prices in 2015 and 2016 was so severe that it almost certainly explains a lot of the observed rise in driving. Of course, rising incomes would also have played a role, but likely a small one. The Small – Van Dender income-elasticity of driving is 0.11 in the short run and 0.53 in the long run. Assuming a value of 0.25 for our purposes, the 2.6% increase in real GDP from 2014 to 2015 would have been expected to evoke only a 0.6-0.7% increase in driving (since 1.026 raised to the 0.25 power is 1.0064); for the 1.6% rise in GDP from 2015 to 2016, the effect on driving would have been smaller still.

What does this exercise suggest about carbon taxes? Take it as yet one more demonstration that prices influence the level of usage of just about everything, including fuels, energy, even driving. The price sensitivities (elasticities) may not be enormous, but they are felt nonetheless. In 2015 and 2016 they were enough to power a record two-year rise in total U.S. miles driven. And they’ll also act in reverse, which is how a carbon tax — particularly one with a rising price trajectory that can filter out market volatility — can be so powerful in slashing gasoline use and fossil fuel use generally.

And remember, the price elasticity of gasoline use (and its carbon emissions) is at least twice as great as the elasticity of driving with respect to the price of gas, which is what we’ve explored here. (We explored the price elasticity of gasoline in this Sept 2015 post, which is one of our most-viewed ever.)

So when you see someone parading false facts like this one on the New York Times letters page earlier this month,

[F]act — as documented by the Energy Information Administration and experienced by anyone who must drive regularly regardless of cost — fuel prices have little effect on gas consumption. (The letter, from Food & Water Watch, is the third of five in that link.)

you’ll know how to push back.

(This post was updated and expanded on May 3, 2017.)

With the C.E.O. of Exxon Mobil now officially nominated for Secretary of State, the oil and gas giant is being cast as a kinder and gentler fossil fuel behemoth. Here’s the New York Times editorial board’s weekend take:

[Rex] Tillerson assumed the role of chairman and chief executive of Exxon Mobil in January 2006, and during his tenure the company acknowledged, for the first time, the science underlying climate change. It has said it supports the creation of a carbon tax, which most Republicans have opposed, and it also supported the Paris climate agreement, a major focus of Mr. Kerry’s time in office. Mr. Trump has vowed to abandon the climate pact. In May, Mr. Tillerson told shareholders that “we believe that addressing the risk of climate change is a global issue,” adding that it would require the cooperation of governments, businesses and individuals. (Rex Tillerson, Exxon Chief, Is Expected to be Pick for Secretary of State, Dec. 10, emphasis added)

Missing in this creampuff thumbnail, of course, is #ExxonKnew — the revelations from Inside Climate News and others that Exxon executives suppressed company scientists’ findings in the late 1970s warning of possible catastrophes from the greenhouse effect, and then led a propaganda campaign to block solutions. The editorial also sets an absurdly low bar, in effect giving Tillerson and Exxon credit for “acknowledging” (though not resoundingly endorsing) the scientific consensus on anthropogenic climate change.

Also missing — and the primary subject of this post — are any specifics as to the carbon tax level Exxon supposedly endorses.

A modest carbon tax, say $20 to $40 per ton of carbon dioxide emissions, would aid lower-carbon natural gas in substituting for high-carbon coal, an outcome that would dovetail with Exxon’s gas-heavy but coal-light resource base. Whereas a robust carbon tax, one that would ramp up briskly and reach triple digits within a decade, would not only kayo coal but also deal a heavy blow to oil and gas by giving a big lift to carbon-free renewables and shrinking overall energy demand.

Needless to say, there’s zero evidence that Tillerson or anyone associated with Exxon has ever voiced support for a robust carbon tax.

Indeed, it’s nearly impossible to find even a single Exxon statement specifying the amount of a carbon tax the company would support. This morning we combed a bunch of stories reporting on Exxon’s support for carbon taxing:

• Guardian, Exxon Chief Backs Carbon Tax  Jan. 10, 2009
• Wall Street Journal, Exxon Touts Carbon Tax to Oil Industry, June 30, 2016
• Fortune, Why ExxonMobil Is Supporting a Carbon Tax Now, July 10, 2016
• Dallas Morning News, As Exxon ramps up support of carbon tax, imagine the possibilities, July 6, 2016, editorial
• Dallas Morning News, Exxon proud of its role in climate change dialogue, May 24, 2016, op-ed by Suzanne McCarron, Exxon Mobil v-p of public and government affairs

None of these news stories or opinion pieces mentioned a tax level. To model the Exxon carbon tax shown in our graphic, we went back in time to a 2009 D.C. meeting at which a couple of Exxon “governmental relations” officials sat down with carbon tax advocates. The off-the-record session was short on specifics, but the Exxon reps floated a $20 a ton figure. I’ve raised that to $25, more than capturing seven years of inflation, but have kept the tax level flat in real terms over time.

The graph makes apparent how little such a modest tax would reduce carbon emissions. The “robust” carbon tax shown — modeled after the McDermott carbon tax that would start at $11.34 per ton of CO2 and increase by $11.34/ton annually — would, by 2040, be eliminating 4-5 times as much CO2 from U.S. smokestacks and tailpipes as the “Exxon carbon tax.”

In carbon taxing, as elsewhere, the devil truly is in the details. Exxon’s rebuttal, if we can call it that, is a Dec. 2015 blog post by v-p Ken Cohen, ExxonMobil and the Carbon Tax, which is long on the company’s business practices (it uses a “proxy carbon price” in its planning) but woefully short on actual policy support for carbon taxes, for the very good reason that such support has been effectively non-existent.

U.S. Senator (and climate stalwart) Sheldon Whitehouse (D-RI) said this more pointedly in a Jan. 2017 Washington Post op-ed: “Take no comfort in Tillerson’s statements that climate change is real and that Exxon supports a carbon tax; that message was never delivered to the fossil-fuel industry’s political gun decks and is a perhaps a deliberate false flag.”

But the last word — missing words, actually — goes to Tillerson himself, as shown in this May 2017 tweet from Inside Climate News’ Jack Cushman:

Rex outlined his world view to State Department employees today, and said not one word about global climate change. https://t.co/Tv4UZhI4fG

— John Cushman (@jackcushmanjr) May 3, 2017

Original graphic has been revised to include two different “Exxon carbon taxes.” Model them, or your own, using CTC’s carbon-tax spreadsheet (Excel file).

Last night I spoke at a forum on carbon taxes organized by NYC350. The venue was the Ethical Culture Society building on Manhattan’s Upper West Side. Coming of age politically in the early sixties in a New York suburb, I was greatly influenced by the humanist perspective I heard in weekly radio broadcasts by the society’s leader, Algernon D. Black.

I shared the podium with two prominent climate advocates – renowned climate scientist James Hansen and Cecil Corbin-Mark of WE ACT for Environmental Justice. Here are my remarks.

I want to thank 350NYC and the NYC Grassroots Alliance for convening us and inviting me. Because my time is limited – as it should be, to allow for discussion – let me dive right in.

Since not all of you know me, I brought a display of books I wrote or helped write, along with my contact information.

The Price of Power (1972) was an exposé – the first – of rampant pollution from U.S. fossil-fuel generating stations. Power Plant Cost Escalation (1981) quantified the skyrocketing costs to build nuclear power plants. Then I turned to what we now call livable-streets activism. With books, organizing and direct action and, yes, arrests.

This work had great impact. Less successful, I admit, has been my campaigning over the past decade for congestion pricing to rationalize and improve transportation in New York City, and for carbon taxes nationwide to slash climate-destroying emissions.

I have something heretical to say about the Standing Rock occupation: For all its rightness in asserting the sovereignty of Native Americans and protecting native people’s water, for all its courage in standing up to militarized assault, for all its importance in building the climate movement, and for all its audacity in winning the first big direct-action victory of the Trump Era, yesterday’s stirring triumph by the Standing Rock resistance will do nothing to slow carbon emissions — by itself.

Oil that doesn’t flow to refineries through the Dakota Access Pipeline will instead come from somewhere else – Kuwait or Texas or a hundred other places – to be burned in cars, trucks and planes, as The Onion reminded us last month.

The last part of that Q&A tells us what we need: demand destruction. Massive demand destruction. And key to demand destruction is carbon taxing. Not a token tax, like Exxon or an occasional Republican supports, or says they do; but a robust, briskly rising carbon tax that, over time, will transform the entire economic and social structure that locks people and communities into fossil fuels. A tax that rewards any and every behavior and investment that uses less coal, oil or gas, not more.

A carbon tax of that magnitude will generate enormous revenue – an issue I’ll come back to. But first I want to explain why demand destruction on the scale we need won’t come from other policies and campaigns unless they’re backed by a robust carbon tax.

De-subsidize Fossil Fuels? By all means. But when U.S. taxpayer subsidies to fossil fuels are expressed per gallon, they’re actually pretty small. Most of the IMF’s $5 trillion annual figure for worldwide fuel subsidies is “externalities”: air pollution and especially climate damage. De-subsidizing fossil fuels means taxing them. (More here.)

Clean-Energy Subsidies? They’ve done wonders for renewables. But as wind and solar grow – and they’re on track this year to provide nearly 7 percent of U.S. electricity – subsidizing them is going to get unaffordable. And 7 percent of electricity is only a few percent of energy. Renewables have a long way to go. (More here.)

Efficiency Standards? These are also doing wonders, forcing design changes in appliances, vehicles and buildings that “market forces” alone would not have brought. But these savings too aren’t enough. Standards are reactive, they’re slow and shot through with loopholes. Standards are also piecemeal and scattershot, forever trying to catch up with evolving technology. (More here.)

Most important, standards alone can’t motivate the changes in behavioral patterns that maximize energy savings. Consider mileage (CAFÉ) standards. Yes, they’re valuable, but at best they affect only half of the gasoline-usage equation.

We’re not going to get deep cuts with half-measures. A carbon tax – a robust one – is no half-measure. It’s the one policy that can elicit the billions of carbon-reducing decisions and behaviors that a swift full-scale transition to clean energy requires.

On an individual level, a carbon tax will motivate switches from disposable plastic bottles to refillable ones. Carbon taxes will motivate businesses to produce goods domestically, retaining and growing jobs, as shipping prices rise. Now multiply those examples across the board. Everything will “pencil out” more toward low-carbon and zero-carbon sustainability.

Those changes will add up. The higher the tax, the bigger and faster the reductions. (More here.)

This enormous tantalizing potential is what the Carbon Tax Center fights for. It’s also why the fracturing of the climate movement that contributed to the defeat of the carbon tax referendum last month in Washington State is so distressing.

Because my time is limited, I’ll make just a few points about that campaign.

First, the “sales-tax swap” in the Washington carbon tax – lowering the state sales tax to cushion the bite from the carbon tax – was the only available ironclad way to protect low and moderate-income families from the higher-priced energy. Castigating it as a right-wing “tax cut” was misleading and wrong.

Second, the tax proponents kept the price relatively low – $25/ton though rising over time – because any one state is limited in how it can go. The point of the measure was not to make Washington state carbon-free but to break the national logjam and start a stampede leading to a U.S. carbon tax. And the experience of British Columbia shows that even a modest carbon tax has a noticeable impact.

Third, the “Left Greens” who opposed the Washington initiative because it didn’t invest the revenues in communities never came up with an actual plan to do so. The opponents were also unpersuaded that a carbon tax would cut emissions across-the-board, including in frontline communities. To me, it’s axiomatic that it will.

We have to do better next time. The Keep It In The Ground movement needs to embrace carbon taxes. Not as a “good idea” but as a central demand. And, while we can and should debate details of carbon tax design, including revenue treatment, we need to get behind any and every carbon tax that keeps low and moderate-income families whole.

There aren’t many “next times” left. We need to bring our movements together.

A new report by Harvard economist Joe Aldy is getting some play in climate policy circles. Long-Term Carbon Policy: The Great Swap argues that the incoming administration might support a national carbon tax if it were made part of a deal to lower tax rates and jettison carbon regulations.

Aldy explains:

A smart deal to tackle climate change could abet tax and regulatory reform — which most Republicans support — by swapping a market-based carbon tax for sectoral regulatory policies — which most Republicans oppose. Such an approach could make even greater reductions in tax rates politically feasible and demonstrate that Republicans are in favor of smarter environmental policy, not simply opposed to all climate change policies.

To say we’re skeptical is putting it mildly. Why would a President Trump and an emboldened and still-Republican Congress take on a carbon tax to get stuff (gutted CO2 regs, lower taxes) they can almost certainly win straight up? But rather than point yet again to Republican denialism, we’re inviting you — fellow carbon tax proponents — to address Aldy’s carbon tax rate.

Aldy’s carbon tax would start in 2018 at $25 per ton of CO2 and increase by 5% a year above the rate of general inflation. By 2025, he writes, it would reduce total U.S. carbon emissions by 26 percent.

Is that a lot or a little? A 26 percent reduction would be a lot if it were relative to 2016 emissions, or to 2025 emissions without a carbon tax. Unfortunately, the projected reduction is vis-a-vis levels in 2005 (the year used as a baseline in many climate-policy discussions).

Aldy isn’t perfectly clear on that point. He states in his report:

This carbon tax would lower U.S. carbon dioxide emissions 26 percent by 2025 — consistent with our nation’s pledge at the Paris climate summit last year –and more than 30 percent by 2030.

No 2005 baseline there, though we’re sure Aldy intended it. Clarity is critical because carbon emissions have already fallen a great deal. Compared to 2005, U.S. emissions last year were already 12 percent less, which is nearly half the distance to 26 percent. And emissions are set to fall further this year, as reductions from coal’s continued plunge in the electricity sector outweigh the increase in gas-guzzling caused by cheap gasoline.

Moreover, according to CTC’s carbon-tax model, which perfectly matches Aldy’s estimate of the impact of his carbon tax (our model says the reduction from 2005 would be 25.7 percent), U.S. emissions in 2025 without a carbon tax will be nearly 15 percent below the 2005 baseline. The Aldy carbon tax would cut emissions by only another 13 percent.

Is that a lot or a little? I guess it depends. It’s precious little in an Obama or Clinton world, not to mention a Sanders world. It’s not so small, perhaps, in a Trump world. Still, maybe Aldy — or another expert or advocate — could get more aggressive with the tax rate? The same tax increasing at 10% a year (above inflation) rather than 5% would reduce 2025 emissions by 29% (relative to 2005), with reductions accelerating and reaching 40% by 2033. Why not start the conversation there?

We invite readers to download CTC’s carbon tax model to see for themselves how fast Joe Aldy’s tax, or different ones, would drive down U.S. carbon emissions. Dust off your copy of Excel and click here. Our Web page Carbon Tax Effectiveness goes behind the model curtain to reveal what / why / how.

On this last day before the elections, the afternoon light was waning in my Manhattan office and I thought I could be done fending off attacks on I-732, the Washington state carbon tax initiative.

Not so fast. A CTC supporter wrote me, cryptically, “Naomi Klein should know better by now, no?” I checked Klein’s Twitter feed, @NaomiAKlein, and, uh oh, there it was: a piece by Klein in The Nation, The Carbon Tax on the Ballot in Washington State Is Not the Right Way to Deal With Global Warming.

I read her piece. It’s mercifully brief, just ten paragraphs, so I thought I would let it go. But Klein, author most recently of This Changes Everything: Capitalism vs. The Climate, is charismatic, fluent and highly visible in the climate movement. And just about everything she said in her Nation piece is so misinformed or short-sighted that it feels important to respond. So here goes, in point-counterpoint.

Klein Paragraph 1: The imperatives of the climate crisis and the logic of economic austerity are at war—and Washington State is on the front lines.

CTC: Powerful lede, but is Klein actually tagging I-732 with the dreaded “austerity” label? What exactly does she mean? (Spoiler alert: she never says.)

Klein Paragraph 2: So-called “revenue-neutral” carbon pricing — whereby the proceeds are used to fund tax cuts — has long been a cherished hobbyhorse of free-market economists and the odd Republican who favors climate action. It’s also the policy of choice for big polluters like ExxonMobil. And now this right-wing friendly model is being pushed in Washington State, thanks to Initiative 732.

CTC: “Tax cuts.” A percentage point cut in Washington’s state sales tax — the principal means by which I-732 ensures that raising energy prices through a carbon tax won’t injure low- and middle-income families — is dismissed as a mere “tax cut,” a phrase that of course conjures giveaways to the hedge-fund class. What Klein labels right-wing is actually friendly to and designed for the very groups she purports to care about: families below or near the poverty line; undocumented immigrants; over-leveraged folks struggling to stay middle-class.

Klein Paragraph 3, abridged: [If I-732] is approved by voters, it would be a disastrous precedent that could set back the climate justice movement for a decade  — time that we simply can’t afford to lose.

CTC: Klein turns logic on its head. Following a decade of nearly total legislative silence on carbon taxes — a silence imposed not just by Republican denialists but by a myopic U.S. green movement — Klein frets that enacting an actual carbon tax in the USA and blowing open the door to a possible national carbon tax will set back climate action for another ten years?

Klein Paragraph 4: Some have accepted the logic that something is better than nothing, even arguing that a “tax swap” could substitute for a just transition to a low-carbon economy. The evidence proves otherwise. In British Columbia, two-thirds of the tax cuts have ended up in corporate pockets, while carbon emissions have been rising in recent years and the fracking industry has boomed.

CTC: By design, most of the BC carbon tax revenues end up in taxpayers’ pockets through personal income tax cuts as well as a low-income tax credit. A 2015 study by University of Ottawa graduate students found BC’s carbon tax “highly progressive” distributionally. In any case, I-732 is explicitly and intentionally structured differently, to apply 75 percent of carbon tax revenues to cut the Washington sales tax.

Yes, CO2 emissions in British Columbia are up slightly since 2012, but that’s because the BC tax level has stayed fixed. In contrast, the Washington carbon tax would rise 3.5% a year faster than the general inflation rate. And If fracking has boomed in BC, don’t blame the province’s carbon tax for its lack of a keep-it-in-the-ground movement.

Klein Paragraph 5: By some estimates, I-732 would raise gasoline and electricity prices less than 15 percent by 2040 in Washington State—hardly enough to jumpstart an urgent, sweeping phase-out of fossil fuels. Meanwhile, it would offset carbon revenues by cutting taxes for big corporations, including major polluters. (According to the Seattle Times, Boeing could see windfalls of tens of millions annually.)

CTC: Klein’s math is off; by 2040, the tax-caused rise in gasoline prices would be 25 percent. But the bigger point she ignores is that a carbon tax in any one state like Washington (or a lone province like British Columbia) can’t be set high because of interstate competitive pressures — which is also why I-732 sets aside 10-15 percent of its revenues for tax reductions for businesses like Boeing. The whole point of the Washington state initiative is to establish a template for other states or, if control of Congress can be flipped, for a national carbon tax that can rise briskly and deliver massive carbon reductions, as we noted in a blog post last month.

Klein has five more paragraphs, but in the interest of time let’s cut to the chase:

Klein Paragraph 9: A paltry, revenue-neutral carbon tax simply cannot deliver the massive green energy investments and community-driven solutions we all need. Science-based climate action means an unprecedented, rapid, and decisive shift to renewables; a truly equitable carbon tax can play an important role in spurring the transition, but it won’t work unless we make the polluters pay, and put their immoral profits to work repairing the damage they have knowingly created. The way to do that is to mobilize the broadest possible coalition—led by the front-line communities who stand to benefit most from building a cleaner and fairer economy.

CTC: Talk about “making polluters pay” is great rhetoric, but in our society as currently configured that includes all of us who flip on switches, turn on ignitions and buy stuff. And since the society we live in (to echo another post of mine last month) doesn’t appear to favor massive green energy investments and community-driven solutions, we have to rely even more heavily on robust carbon taxes; and these need to be largely revenue-neutral if they’re going to (i) not drive low-income families further into poverty and push middle-income families deeper into debt, and (ii) be politically acceptable.

Klein’s call to put fossil fuel company profits to work repairing damages is more of the same empty rhetoric. The task before us is to shrink, shame and strangle the fossil fuel companies. If Klein can offer a way to do that more quickly and effectively than a briskly rising U.S. carbon tax — one that I-732 can start paving the way for — I’m all ears.

Until then, could she please turn down the volume?

Addendum: CTC contributor Dan Lazare presciently dissected Klein’s limited comprehension of the power of carbon taxing almost two years ago, in this space, with Why Is Naomi Klein So Cool on a Carbon Tax? It’s a great read.

A charitable way to view Food and Water Watch’s intemperate and misguided attacks this week on carbon taxing is that these energetic activists are so consumed with fighting fracking, pipelines and mines that they haven’t had time to absorb how carbon taxes can help dry up the “need” for new fossil fuel infrastructure.

An alternative take on their screeds in Yes Magazine and AlterNet is that FWW inhabits an ideological blind corner that sees carbon taxing as a neoliberal plot to undermine the climate movement rather than as a policy tool that can play a decisive part in keeping fossil fuels in the ground, forever.

Whichever, FWW’s case is toxic, simplistic and wrong. Toxic because its emergence in the home stretch of the carbon tax campaign in Washington state threatens to move critical Yes votes into the No camp on Nov. 8. Simplistic because the arguments suggest that FWW hasn’t grasped the ABC’s of carbon taxes. And wrong because the group’s criticisms of the British Columbia carbon tax — the Washington referendum’s political and policy template just across the border — are rife with errors.

Just look at the headlines of FWW’s op-eds.

“Here’s Why a Carbon Tax Helps Fossil Fuel Companies, Not the Environment” (FWW’s op-ed in AlterNet)

A carbon tax helps fossil fuel companies? Sure, like cigarette taxes help tobacco companies and sugary drink taxes help soda companies. Or taxes on bullets would help the makers of assault rifles. In real life, carbon taxes are a mortal threat to fossil fuel companies because they destroy demand for fossil fuels — both by shrinking end-user demand (as people drive less, businesses adopt energy-efficiency measures, etc.) and by helping renewables out-compete them.

“Why Exxon Loves the Carbon Tax—and Voters Should Not” (FWW’s op-ed in Yes! magazine)

Yes, from time to time Exxon CEO Rex Tillerson utters a positive word about carbon taxes — token ones that make for good p.r. but are 5-10 times smaller than those for which CTC and other carbon tax advocates campaign. Indeed, we’ve wondered if Exxon’s reputed support is a maneuver to turn naïve climate advocates against carbon taxing — “if Exxon wants it, it must be bad.” Fact is, Exxon doesn’t want robust carbon taxing; and even if it did, a policy should be judged on its merits, not by one of its putative supporters.

Left-leaning economists like Robert Reich, Joseph Stiglitz and Robert Frank support carbon taxes. So does Ralph Nader. So did Bernie Sanders, in his outspoken, unvarnished, way, throughout the Democratic Party primaries. How much is Exxon paying them?

Both FWW op-eds draw from the group’s new report, The British Columbia Carbon Tax: A Failed Experiment in Market-Based Solutions to Climate Change. The report is wrong from the title, down. (Hint: a carbon tax isn’t a market-based policy; see below.)

FWW tips its hand in its thumbnail for the report on its home page (you’ll need to page down 5-6 times). The “tag” for the report is “Pollution Trading.” FWW could have written “Potato Chip” and been more on point. Carbon taxes are direct charges on fossil fuels according to their carbon pollution content, period. They’re simple and transparent. Nothing is traded, which means no market.

Pollution trading, or cap-and-trade, “puts a price on carbon” via the back door — hiding the price, if you will, in carbon “permits” that are traded on pollution “markets.” CTC and other carbon tax advocates spent countless hours in 2007-2010 explaining why pollution trading was ill-suited for internalizing climate costs into the prices of fossil fuels, and exhorting big green groups like NRDC and EDF to back straight-up carbon taxes instead. (Our Web page delineating cap-and-trade’s drawbacks actually has “dead ends” in its URL.)

We’re well acquainted with emissions progress in British Columbia, from our December 2015 report, British Columbia’s Carbon Tax: By The Numbers. Sadly, the analytical criticisms of the British Columbia carbon tax in Food & Water Watch’s report don’t hold up any better than the rhetorical ones. Here’s a sampling.

Claim: “Taxed greenhouse gas emissions rose by a total of 4.3 percent between 2009 (the first full year that the tax was in place) and 2014. (FWW report, p. 4).”

Fact: A proper comparison must start in 2007, the last pre-tax year, or 2008, when the carbon tax took effect, on July 1. Using 2009 as a baseline is nonsensical since the tax had already gone into effect; it’s also biased on account of the 2009 recession (which FWW mistakenly located in 2008, see p. 2). For the record, BC 2014 emissions from fossil fuel combustion of 43,940 kilotonnes of CO2 were 1 percent less than emissions of 44,363 kT in 2007 and 44,244 kT in 2008. (See methodological note at end.)

British Columbia’s GDP has grown considerably from 2008, creating the emissions pull that tends to accompany economic activity. Normalized per unit of GDP, 2014 emissions were down by 12% from 2008 and by 11% from 2009. While that’s not enough, it’s around what one would expect from a “starter” carbon tax such as BC’s.

Claim: “British Columbia’s carbon tax failed to reach the reduction targets necessary to ensure a sustainable climate, demonstrating that carbon taxes are not a viable policy solution to climate change.” (FWW report, p. 2)

Fact: Straw-man alert! It’s true that BC’s carbon tax is too low by an order of magnitude to get “80 by 50” or similar deep cuts. Its value, and that of the similarly designed (though more aggressive) Washington state carbon tax proposal, is to establish the template of carbon taxes, particularly revenue-neutral ones, so that not just provinces or states but entire nations can put robust, briskly rising carbon taxes in place. Indeed, earlier this month PM Trudeau announced that all of Canada will take precisely that step, starting in 2018.

Claim: “A carbon tax is theoretically designed to raise the cost of greenhouse gas emissions, but if those costs are refunded it almost defeats the purpose. The price of climate change is only included at the point of emissions, but since it ultimately is returned to the companies and individuals, over time it may create little disincentive to pollute.” (FWW report, p. 3)

Fact: No, the revenues from the British Columbia carbon tax aren’t “refunded” or “returned,” they’re recycled on an economy-wide basis via tax cuts that are distributed to companies and individuals without regard to the amount of carbon tax they may have paid. This separation of revenue distributions (benefits) from carbon tax incidence (payments or costs) is fundamental to any “revenue-neutral” carbon tax, whether it’s one that primarily uses tax swaps such as BC’s or Washington’s proposed tax, or the “fee-and-dividend” model advocated by Citizens Climate Lobby. FWW’s miscomprehension on this basic point speaks volumes.

Fact: “Individuals ultimately shoulder the majority of the costs of the British Columbia carbon tax, and lower-income individuals . . . bear a disproportionate burden.” (FWW report, p. 8)

Comment: We labeled this point a fact because the first part is true. Individuals, as final consumers of virtually everything our economies produce, do bear the costs of carbon taxes. That’s unavoidable, and it’s also the point, as we’ve written countless times. That’s why it’s important that carbon taxes such as BC’s and Washington’s be revenue-neutral; it ensures that low-income families receive disproportionate shares of the tax reductions or dividend distributions and thus are kept whole despite higher energy prices.

Claim: “Despite significant volatility in U.S. gasoline prices in recent years, the total number of vehicle miles traveled and household car travel demand changed very little in response to price fluctuations. Without sufficient alternative transportation options, people will continue to drive their cars regardless of significant changes in gasoline prices.” (FWW report, p. 6)

Fact: The supposed price-inelasticity of energy demand has become an article of faith for many on the political left — though whether it preceded or post-rationalized a distaste for energy taxes is hard to say. I’ve studied the price sensitivity of energy demand for decades and written about it extensively, most recently here. I can report that while gasoline is the least price-elastic of fuels, it’s far from inelastic (in my linked post I report a U.S. gasoline price-elasticity of around -0.35). This shouldn’t be surprising, insofar as most automobile use in both the U.S. and Canada is for non-work trips, which on average have a high discretionary component.

There’s more, but you get the point. Lest my criticisms appear harsh, I note that I sought to engage FWW director Wenonah Hauter in a dialogue on carbon taxes last winter, after she published a letter in the New York Times disparaging the tax in British Columbia.

After one back-and-forth, I wrote again and closed as follows:

Wenonah, like you, I’ve been in the trenches fighting fossil fuels for a long time. We may have different ideas about how to get to the same goal, but I hope we can both pursue that goal without running at cross-purposes.

She never replied.

Addendum (Jan. 5, 2017): Several CTC supporters have drawn our attention to the assertion in FWW’s Failed Experiment report that from 2005 to 2013 emissions fell further in Ontario, which didn’t have a carbon-pricing system, than in British Columbia, which did. According to FWW, this shows that “mandatory replacement of fossil fuel energy plants with renewable, carbon-free forms of energy can rapidly and permanently reverse emissions trends.” Not quite. Ontario had low-hanging fruit that BC lacked: coal-fired electricity generation. And what allowed Ontario to eliminate coal-fired generation and put up impressive carbon-reduction numbers was increased output from its nuclear power plants: from 2003 to 2013, coal-fired electricity generation fell by 38 billion kWh while nuclear output rose by 30 billion as the nukes were expensively “refurbished.” Carbon-free, yes, but not the “renewable” energy FWW would like to credit.

Methodological note: our calculations here, which add 2014 to the data in our year-ago report, exclude emissions from Public Electricity and Heat Production. This category — essentially electricity generation from burning fossil fuels — accounts for just 2 percent of BC emissions from fuel combustion but for nearly 20 percent in the rest of Canada. More importantly, that sector constitutes most of the “low-hanging fruit” for reducing carbon emissions, since electricity generation affords more opportunities for quickly and easily substituting low-carbon supply than any other major sector. Eliminating this category enabled us to compare changes in emissions over time — the heart of our analysis — on an equal basis between BC and the rest of Canada.

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.

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.