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USCAP “Blueprint” Chorus Sings Complex Tune to Half-Empty Caucus Room

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Reported by CTC Washington representative James Handley. Watch this space (and see postscript below) for CTC’s analysis of the USCAP "Blueprint." Meanwhile, read these parallel critiques of USCAP:

The U.S. Climate Action Partnership unveiled its cap-and-trade-based Blueprint for Legislative Action to a half-empty House Cannon Caucus Room Thursday morning. Arriving at the 9 a.m. event, attendees viewed a podium in front of an array of 18 chairs (each with bottled water) marked with names of CEOs and heads of EDF, NRDC, Pew Center, Nature Conservancy and WRI.

At 9:20, the suited “chorus” filed in, taking their assigned places. General Electric CEO Jeffrey Immelt introduced what he described as a “diverse panel” of CEOs and NGO heads. (All but Ursula Burns of Xerox is white; all but three are male. All seemed past the half-century mark.)

EmptyCongress.jpgEach had a brief speaking role. Jonathan Lash of the World Resources Institute stressed cap-and-trade’s “flexibility and predictability,” saying the blueprint addresses impacts on consumers and includes provisions for emissions offsets to “limit volatility.”

According to the Environmental Defense Fund’s Fred Krupp, “A mandatory cap is the backbone” of USCAP’s proposal to reduce US greenhouse gas emissions from 2005 levels by 80% by 2050, with half the reductions occurring by 2030.  Charles Holliday of DuPont said the plan would maintain competitiveness of U.S. firms. David Crane of NRG Energy touted its “fairness” in “spreading costs through the economy.”  “All components of the plan are linked,” Pew’s Eileen Claussen proclaimed. To “manage price spikes” she pointed to provisions for “banking of emissions allowances,” availability of “strategic verifiable offsets” and a “reserve pool.”

John Deere’s Robert Lane stressed offsets -– credits for 1.5 billion tons of CO2 reduction activities that would not otherwise be undertaken in sectors not subject to the cap. He noted that USCAP’s blueprint allocates “free permits initially… phasing them out.”  John Rowe of nuclear giant Exelon trumpeted renewable portfolio standards for utilities to encourage building “the lowest carbon energy” — nuclear. He said 40% of the free allowances would go to electric utilities at the distribution level — where, he asserted, cost savings would be passed to consumers.

Burns described Xerox’s early GHG emissions reductions and pointed out the blueprint’s rewards for early actions. Frances Beinecke of the Natural Resources Defense Council called the blueprint a way to “help solve both the economic crisis and the climate crisis” by “regulating all major sources, while funding energy technology research and deployment,” a “stimulus,” she said, along with clean fuel vehicle regulations.

Jim Rogers of Duke Energy, the third largest U.S. coal-burner, asserted that “We must find a way to remove CO2 emissions from coal,” noting accelerating construction of coal fired power plants in China. He touted the blueprint’s use of auction revenue to fund Carbon Capture and Sequestration research, funding “not subject to the whims of Congress.” He said the blueprint would “require” all new coal fired power plants after 2015 to capture at least 50% of carbon.

Peter Darbee of Pacific Gas & Electric noted that energy-efficiency is the most cost-effective energy “source” and the cheapest way to reduce GHG emissions, costing about 2 cents per kilowatt-hour. The blueprint urges Congress and states to enact regulatory standards, expand rebates for buildings that outperform codes, and enact tax and regulatory incentives for consumers to improve efficiency. Darbee urged “decoupling” of utility earnings from power generated to encourage them to help customers conserve. James Mulva of Conoco-Phillips explained that the USCAP blueprint makes fuel providers “responsible” for reductions in the transportation sector and that it includes performance measures for vehicles.

Noting that forest destruction generates 20% of global GHG emissions, Mark Tercek of Nature Conservancy applauded the blueprint’s “verifiable” offsets to credit forestry projects to capture CO2. George Noland of Siemens pointed to the plan’s goal of 40-45% reduction of GHG emissions from commercial buildings through design improvements and smarter technology. Jeff Sterba of PNM Resources touted USCAP coalition’s diversity and consensus. Lewis Hay of Florida Power advocated measures to put renewables on a “level playing field,” and Preston Chiaro of mining combine Rio Tinto argued that the plan would motivate other governments to follow.

Reporters asked about the cost of the plan. Claussen contended that its costs can’t be assessed in isolation because the plan would revitalize a new economy — for example, by encouraging building of wind power. I asked the panel why the blueprint didn’t follow President-elect Obama’s pledge of 100% auction of permits and instead sought permit giveaways ("allowances"). Darbee replied that the free permits would go to electricity distribution utilities, which would ensure that consumers benefited from them.   A reporter from Time magazine asked what the target carbon price would be; Claussen said a Carbon Market Board would decide, and that the plan is intended to avoid “a dash for (natural) gas.”

Another reporter asked about EPA authority and federal preemption of state efforts already underway to reduce GHG emissions; Krupp replied that they had not taken a position on EPA or preemption. Asked if coalition members will support the plan jointly or lobby individually, the panel indicated that there will be agreements on some elements and divergences on others.

WRI’s Lash concluded the session: “The economy will recover but without serious steps, the climate will not.” The panel then rushed out to join the first climate legislation hearing of the 111st Congress, before Rep. Waxman’s Energy & Commerce Committee.

Photo: Flickr / James Morrison.

Postscript, after reading USCAP’s vague "blueprint" (few numbers, no graphs):

Does Thirst for Offsets, Allowances Unite "Diverse" USCAP Coalition?

Offsets (1.5 billion tons domestic and 1.5 billion abroad) overwhelm the cap.  When the smoke clears, USCAP’s blueprint amounts to a source of funds for offsets.  Retaining tropical forests as carbon sinks instead of burning them is crucial (and deserves funding), but USCAP would sell "indulgences" for U.S. emissions without "repentance": no reason to reduce.  (See Hill Heat’s graph showing the huge bubble of additional emissions that USCAP’s offsets would accommodate.)

USCAP’s free allowances to downstream electricity distribution utilities would mute (obliterate?) the price signal, reducing incentives for electricity users to conserve and upgrade.

A "cap with free allowances" worked for the acid rain SO2 cap-and-trade program by pressing utilities to install scrubbers and shift to low sulfur coal without passing SO2 permit costs through to consumers.  CO2 is different– we don’t have a way to burn coal without producing CO2.  (Yes, we might someday, but even DOE’s rosy estimates say capture and sequestration would require ~ 1/3 more fuel.) 

Conservation is the cheapest "source" of energy and GHG reductions.  Gradually-rising prices, via a tightening cap without free allowances, or better yet a rising carbon tax, would push all levels of the economy to become the laboratory for efficiency and low-carbon innovation.  For a strong enough price signal without crippling the economy, an offsetting tax shift or "dividend" is needed to dampen the "income effect" (but not the incentive to conserve or substitute) of that price hike.  That’s where auction money (or carbon tax revenue) should go: all the way downstream to households.

In short: Huge offsets mean USCAP’s plan wouldn’t press U.S. industry to shift to renewables (e.g., by building wind capacity) and its free allowances mean consumers wouldn’t have reason to reduce demand anytime soon.  Pretty close to a "nothing-burger."

Capitol Hill Briefing on Carbon Taxes Draws Overflow Crowd

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Carbon Tax Center
Pricing carbon equitably and efficiently
www.carbontax.org

News Release / For immediate release
Contacts:  Stephen Kent, skent@kentcom.com, 914-589-5988 / Nick Berning, NBerning@foe.org, 703-587-4454

Making the Case for a National Carbon Tax

NASA Lead Climate Scientist, House Democratic Caucus Leader, Senior Economists and Environmental Leaders Urge Revenue-Neutral Carbon Tax as Best Way to Curb US CO2 Emissions and Boost American Low- and Middle-income Families

[Washington DC – December 9, 2008] At a Capitol Hill briefing today, NASA’s lead climate scientist, senior economists and environmental leaders urged Congress to move swiftly to enact a national carbon tax to reduce carbon emissions before they push Earth’s climate system past its “tipping point” into accelerating ecological and social collapse.

After the resounding defeat of the Boxer-Lieberman-Warner cap-and-trade bill last spring, the carbon tax has emerged as a viable competitor to a cap-and-trade system. As Congress begins to ponder climate legislation widely expected in 2009, advocates at today’s briefing made the case for taxing carbon as a more effective and economically viable way to curb emissions while stimulating the economy. They argued the considerable revenues carbon taxes would raise should be revenue-neutral, and be returned to taxpayers either through direct distribution or cutting taxes such as payroll taxes.

Metcalf2_1.jpgThe public briefing for members of Congress and their staffs was sponsored by the Environmental and Energy Study Institute (EESI), the Carbon Tax Center, the Climate Crisis Coalition, Friends Committee on National Legislation and Friends of the Earth.

“A price on emissions that cause harm is essential,” said Dr. James Hansen, Director, Goddard Institute of Space Studies, National Aeronautics and Space Administration and a leading voice on understanding and redressing climate change. He urged “a carbon tax on coal, oil and gas… applied at the first point of sale or port of entry” to encourage fuel conservation and switching to low-carbon alternatives.

“A Carbon tax with 100 percent dividend [direct revenue distribution to individuals] is needed to wean us off fossil fuel addiction,” Hansen argued.

“Tax and dividend allows the marketplace, not politicians, to make investment decisions. It is also non-regressive. Low- and middle-income people will find ways to limit their carbon tax and come out ahead. Demand for low-carbon high-efficiency products will spur innovation, making our products more competitive on international markets. Carbon emissions will plummet as energy efficiency and renewable energies grow rapidly. Black soot, mercury and other fossil fuel emissions will decline.”

Rep. John Larson (D-CT), recently elected as chair of the House Democratic Caucus and the sponsor of a carbon tax bill introduced into the House last year, hosted the briefing. He said, “Climate change is the great challenge of our time. As we in Congress tackle this challenge it is important that we not just pass legislation, but pass the right legislation. What I have proposed is legislation that would tax bad behavior like polluting and return that money to average Americans through a payroll tax reduction. Any legislation will create winners and losers. In this case, the winners should be the American people.”

Economist Gilbert Metcalf of Tufts University, author of A Green Employment Tax Swap: Using A Carbon Tax to Finance Payroll Tax Relief, recommended a carbon tax just under $17/ton of CO2. This would nearly double the average price of coal, the most carbon-intensive fossil fuel, leading to fuel substitution and process improvements that would reduce coal burning by 32%. Petroleum products would increase in price by nearly 13% and natural gas by just under 7%, he estimates. Metcalf advocates dedicating carbon tax revenues to eliminate the payroll tax on the first $3,660 earned by each worker. He calculates that this would equate to an average 11% reduction in payroll taxes, with greater percentage reductions for lower-paid workers. Payroll tax reduction would stimulate job growth, something the economy now urgently needs.

“In general, taxes on labor supply discourage labor and create economic losses to workers over and above any taxes collected,” Metcalf explaned. “Tax reductions can encourage additional labor supply either on the intensive margin (hours worked) or the extensive margin (the decision to enter the labor force). The Green Employment Tax Swap encourages additional labor supply.”

Robert Shapiro, former Undersecretary of Commerce, now head of SonEcon, a Washington, DC consulting firm, and co-chair of the U.S. Climate Task Force, criticized cap-and-trade proposals as clumsy, complex, volatile and ineffectual ways to tax carbon emissions: “The only reason anyone is talking about cap-and-trade now is because the U.S. (at Al Gore’s urging) insisted on cap-and-trade in Kyoto [in 1997]. Mr. Gore has since abandoned cap-and-trade and is now calling for a carbon tax to replace other taxes. Caps just aren’t working.”

Under the European Union’s carbon cap, CO2 reductions have been “negligible and very costly,” Dr. Shapiro said. Exemptions (e.g., for coal-fired power plants in Germany) “overwhelm the cap.” China and India have strongly rejected cap-and-trade. In contrast, he argued, a U.S. carbon tax would encourage our trading partners to tax carbon themselves to avoid forfeiting revenues on their exports to us (WTO rules would otherwise permit the US to tax imports for carbon).

Like most economists, Shapiro said he strongly prefers price-based policies such as carbon taxes, to quantity-based carbon caps, because the taxes are simple and predictable as well as difficult to evade. A cap on quantity necessarily makes energy prices more volatile, and the resulting price spikes are economically disruptive, harming productivity and undermining support for the system. For example, Shapiro noted that Southern California’s “RECLAIM” cap-and-trade system for smog emissions crashed due to price spikes during the state’s electricity crisis.

James Hoggan, a public policy specialist from British Columbia who chairs Canada’s Suzuki Foundation, outlined the steps leading to British Columbia’s successful implementation of its carbon tax in July, and explained the national dimensions of the carbon tax in Canada. “The Canadian experience with carbon taxes is politically daunting: a federal party that proposed such a tax just lost a fall election, and a provincial party that introduced a carbon levy last summer faces potential defeat next May. But close analysis shows these politicians got in trouble not for what they did, but for how they did it.”

From Canada’s experience, Hoggan drew the lesson that emphasizing “revenue recycling” or the revenue-neutral configuration of the carbon tax helps distinguish it from conventional taxes and garners more public support. He cited polling data suggesting that a majority of Canadians support a transparent revenue-neutral carbon tax as evidence that carbon taxation could be popular with voters.

The Carbon Tax Center was launched in January 2007 to give voice to Americans who believe that taxing emissions of carbon dioxide — the primary greenhouse gas — is imperative to reduce global warming.

The Environmental and Energy Study Institute is a non-profit organization established in 1984 by a bipartisan, bicameral group of members of Congress to provide timely information and develop innovative policy solutions that set us on a cleaner, more secure and sustainable energy path.

The Climate Crisis Coalition was founded in 2004 to create awareness and convey a sense of urgency about the climate crisis and broaden the constituency of the climate action movement. Its approach to climate change links issues of environmental, social and economic equity.

The Friends Committee on National Legislation is the largest peace lobby in Washington, DC. Founded in 1943 by members of the Religious Society of Friends (Quakers), FCNL staff and volunteers work with a nationwide network of tens of thousands of people from many different races, religions, and cultures to advocate social and economic justice, peace, and good government. FCNL is nonpartisan.

Friends of the Earth is the U.S. voice of the world’s largest grassroots environmental network, with member groups in 77 countries. Since 1969, Friends of the Earth has fought to create a more healthy, just world.

NOTE TO EDITORS AND PRODUCERS: Experts quoted in this press release are also available for phone or in-person interviews. Interviews may be requested by contacting Stephen Kent, skent@kentcom.com (914) 589-5988.

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Photo: Nick Berning.
Click here to access Berning’s slide show of the briefing.

Could Palin Pick Spotlight "Alaska Dividend" Solution to Climate Crisis?

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Note: On Oct. 15, the Alaska Permanent Fund Corporation wrote CTC with helpful details that clarify and correct some of the representations in our Aug. 29 post. The APFC graciously granted permission for us to print their e-mail in full, which we have done at the foot of this post. — C.K.

John McCain’s pick for vice-president isn’t shaping up as a win for Teddy Roosevelt-style conservation. A list of Alaska Gov. Sarah Palin’s positions on key environmental issues posted by the folks at Grist includes these anti-green stances:

  • Opposed a statewide ballot initiative to prohibit or restrict new mining operations that could affect salmon in the state’s streams and rivers.
  • Has pushed to build a natural-gas pipeline from Alaska’s North Slope
  • Sued the Interior Department over its decision to list the polar bear as a threatened species
  • Has proposed eliminating Alaska’s gas tax
  • Has pushed to open Arctic National Wildlife Refuge to drilling

But the Grist list also includes this:

  • Got the state legislature to pass a bill to provide each Alaskan $1,200 to help with energy costs

Gov. Palin_1.jpgWhich naturally brings to mind the Alaska Permanent Fund, the 49th State’s long-established program that annually sends every Alaska resident an identical check drawn from the state’s North Slope oil royalties.

The $1,200 per capita “resource rebate,” was proposed by Palin in July and enacted by the legislature on Aug. 7 “as a way for the state to share some of its multibillion-dollar oil revenue surplus with Alaska residents,” according to the Anchorage Daily News, effectively making it a hybrid of the Alaska Permanent Fund and the federal economic stimulus package that distributed checks to U.S. families earlier this year.

As we have long pointed out, the Alaska Permanent Fund offers a proven, straightforward model for distributing federal (or state) carbon tax revenues in revenue-neutral and progressive fashion: returning those revenues equally to all U.S. residents.

With carbon tax revenues distributed through pro rata dividends, the vast majority of poorer households, and a majority of middle-income families as well, would get back more in the dividends than they would pay in the tax. (For a federal carbon tax, the dividend checks should be provided at least quarterly and perhaps even monthly to keep households ahead of the budget treadmill.) This would cushion the impact of higher prices from carbon pricing while retaining the incentives for businesses, institutions and individuals to transist rapidly to a low-carbon economy.

This Labor Day weekend and beyond, the media will doubtless focus on Gov. Palin’s impact on McCain’s election chances. Let’s hope that a few enterprising reporters will use the selection of a candidate from the Last Frontier State as an occasion to focus on the “Alaska Dividend” as an equitable and politically palatable way of packaging a revenue-neutral national carbon tax.

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Oct. 15, 2008

Mr. Komanoff –

I saw your post today that you wrote in August mentioning the Alaska Permanent Fund.  I thought you might want to know that the Fund does not send out checks from oil taxes or royalties. The Fund invests 25% of the oil royalties that the State receives (no portion of any oil taxes come to the Permanent Fund) and then sends dividends from the income on investments. This includes rent on commercial real estate, stock dividends and bond interest.

Since 1977 the Fund has received $13.2 billion in oil deposits, which has grown through investments to a current value of $30 billion while paying out $16.7 billion in dividends since 1982.

This year was a little confusing because the dividend was $2,069 per person.  On top of that Governor Palin and the Legislature added an additional $1200 that came straight out of oil revenues (royalties and taxes) in the State’s general fund.

Since you are proposing our model as something that could have a broader US application, I thought you might want to know that it isn’t a straight redistribution of oil revenues. Please let me know if you have any questions.

Laura Achee, Director of Communications, Alaska Permanent Fund Corporation, www.apfc.org

*************************************************************************************************************************

Photo: Flickr / vincentd_indy.

Media Maturity Smoothing Carbon Tax Path

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Match the statement with the "green" source: 

  • Statement 1: Expensive energy is a powerful medicine. It may hurt when taken, but it brings long-term cures for a host of ills.
  • Statement 2: Willingness to advocate an explicit carbon tax is the real test of whether either [presidential] candidate is ready to confront [global warming].
  • Statement 3: Pricey gas is mostly just economic pain. But beyond the agony at the pump, life is getting a little better in ways we may not notice.
  • Source 1: Sierra (Club) magazine
  • Source 2: Al Gore
  • Source 3: Greenpeace

Answer: None. The statements are real, alright (though elided slightly here), but none is from a certified greenie. All three are from articles in mainstream magazines: Business Week (The Real Question: Should Oil Be Cheap), National Journal (How to Get Serious About Energy Policy), and Time (10 Things You Can Like About $4 Gas), respectively. All three appeared in the past month.

Nor were the quotes chosen selectively. Almost any sentence picked at random from the articles would say the same thing: Expensive energy, though painful for a nation built on cheap fuels, is
an absolute necessity for dealing with oil dependence and global warming.

World_Will_End___J.A._Campbell.jpgClearly, a change is in the air. America is growing up, as I argued in an article in Gristmill in May reporting public rejection of the gas-tax "holiday" proposed by Senators Clinton and McCain.

Naturally, not everyone in the media has gone adult. Rush Limbaugh, for one, dismissed the Time article as yet another attempt to "tell you how to live ’cause you’re too stupid to know, by effete-snob Drive-By Media leftists." But a new consensus is emerging among mainstream media: "There’s no faster mechanism than high prices for oil to change behavior… You suddenly are reminded how the economy works." (Time, quoting author Eric Roston) "Expensive energy, in many ways, is good." (Business Week) "A revenue-neutral package of a carbon tax and cuts in other taxes is
surely within the bounds of domestic political salesmanship." (National Journal)

Of course, the recent rise in energy prices is neither sufficient nor optimal. Higher energy prices are best delivered via tax policy so the increased revenues can be socially invested or, better, returned to individuals and families, rather than lining the pockets of obscenely wealthy Saudis, Russians and Texans. A rising trajectory of prices also needs to be locked in. (Business Week: "What really drives behavior is not the actual price, but the perception of where costs will be over the long term.") A host of market barriers still impede energy efficiency. And tackling carbon emissions requires a carbon tax; coal’s abundance ensures that the market can’t manage alone.

The National Journal article, by veteran political reporter Clive Cook, is notably upbeat on the last possibility. The subhead reads, "Politicians of both parties take it for granted that the American voter cannot tolerate an explicit tax on carbon," a notion that the article calls into serious question. We close with these excerpts:

The country’s mood on global warming has changed — most people now seem to take the danger seriously — but public opinion on energy policy has two contradictory strands. People are worried about rising temperatures and changing climate; but they are also worried about expensive gas. If you are serious about reducing carbon emissions, expensive gas is not a problem; it is an unavoidable part of the solution.

Politicians of both parties take it for granted that the American voter cannot tolerate an explicit tax on carbon, which would be the best way to curb greenhouse gases. This supposedly immovable resistance is why the presidential candidates advocate a system of tradable emission permits instead. But if cap-and-trade binds tightly enough to make a difference, it will necessarily make carbon-releasing fuels more expensive. The system cannot work any other way: It can succeed only by attaching an implicit tax to carbon.

As it happens, I think the political toxicity of a carbon tax as against cap-and-trade–assuming we are serious about this, and contemplating a cap-and-trade system that makes a difference–is exaggerated. A revenue-neutral package of a carbon tax and cuts in other taxes is surely within the bounds of domestic political salesmanship. But also bear in mind the decisive international advantage of a straightforward carbon tax.

Yes, America should lead on global climate change, but it cannot solve the problem alone. Its efforts will be futile unless other big emitters — especially China and India — join in. Reaching agreement on a global cap-and-trade regime, and coordinating each country’s efforts within it, would be fantastically difficult. Think about Europe’s problems with Kyoto, and multiply by 10. It would be far, far simpler to organize international efforts around a harmonized carbon tax. Why strive to coordinate a million quantities, when you can gradually coordinate a single price?

Photo: Flickr / J.A. Campbell

A Convenient Tax – June 2008

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We launched the Carbon Tax Center seventeen months ago to inform and engage the public about the need for and benefits of revenue-neutral carbon taxation. Coincidentally, that same week the United States Climate Action Partnership, a coalition of mainstream environmental organizations, major electricity generators and giant industrial corporations, announced its formation and legislative agenda: a federal carbon cap-and-trade system. To state the obvious, USCAP has a lot more money and political clout than we do. Not surprisingly, USCAP managed to buy a tremendous amount of press and political support for its cap-and-trade program.

Our strategy at CTC has been simple. We provide an objective source of carbon tax and cap-and-trade related facts, economic arguments and news. We let the public know about the broad support for a carbon tax from economists and opinion leaders across the political spectrum. We were confident the public and Congress would eventually recognize that a revenue-neutral carbon tax is far superior to cap-and-trade for a variety of efficiency and equity reasons that we set forth in an issue paper on our Web site and in a variety of debates and other forums. We expected that Americans would see that the cap-and-trade scheme proposed in bills such as Lieberman-Warner is essentially a tax, with the revenue doled out to special interests. We were betting that once cap-and-trade was revealed as a hidden tax proposal, its putative political advantage over a straightforward carbon tax would vanish.

Events are proving us right. Cap-and-trade’s aura of inevitability evaporated in the U.S. Senate this month. Why? Because, just as we predicted, Senators balked at the cap-and-trade bill’s complexity, its windfall profits for carbon polluters and the feeding frenzy to distribute the revenues in classic pork-barrel fashion.

We don’t buy the notion that in rejecting cap-and-trade, the Senate is defying the public outcry for an effective response to global warming. As John Tierney wrote in his New York Times science blog, “Maybe a better deal — and a better policy — will emerge from this failure.” Tierney emphasized that James Hansen, the NASA climate scientist who has been so outspoken on the imminence of global warming, now backs a “tax-and-dividend approach” with carbon revenues “divided equally, so that people who use less energy than average — like lower-income people — would get back more than they spend.” As Tierney pointed out, “Refunding money directly removes the temptation for Congress to treat … carbon-reduction revenues as a chance to dispense trillions of dollars worth of favors — as proposed in last week’s bill, which was aptly dubbed ‘pork-and-trade.’”

Sound familiar? It should. Hansen’s proposal is the same revenue-neutral carbon tax the Carbon Tax Center has been urging all along. In fact, if you’ve been keeping up with our posts you may have noticed that CTC adopted the tax-and-dividend terminology several weeks ago, a switch we picked up from Peter Barnes’ excellent work on cap-and-dividend.

Meanwhile, as readers of our posts and our “Latest News” headlines surely know, the real action on revenue-neutral carbon pricing is in Canada. Liberal Party Leader Stéphane Dion has transformed the climate debate in Canada with his proposal for a $15.4 billion, 4-year “Green Shift.” Read our post on the subject for a quick summary, the Green Shift Handbook for the details and our “Latest News” for reaction to the Green Shift in Canada and around the world. And on Tuesday (July 1), British Columbia inaugurates the Western Hemisphere’s first substantial and comprehensive carbon tax — a day after it distributes dividend checks from the revenue-neutral tax to households and businesses.

A tremendous opportunity awaits. The failure of the Lieberman-Warner cap-and-trade scheme has created a huge opening for a better and more workable method for putting a price on carbon. Splits within USCAP have re-emerged. In a powerful speech on June 25, Lewis Hays, III, Chairman and CEO of FPL Group (a member of USCAP), reiterated his support for a carbon fee stating, “[T]he simplest and most effective way to price carbon is with a continuously escalating fee – or a ‘tax’ as the big carbon emitters like to call it. Under a carbon fee that starts modestly and rises steadily over time, companies will find it more and more expensive to use dirty fuels.”

To take advantage of the opportunity and to capitalize on the post-election window in which new policy ideas can command serious attention, the Carbon Tax Center is organizing a conference in Washington, D.C. this November. Our goals are to:

  • increase public awareness of the environmental and economic advantages of a carbon tax over other policies to reduce greenhouse gas emissions;
  • place carbon taxes higher on the U.S. Congressional agenda;
  • enable carbon tax advocates to forge connections with one another:
  • address obstacles (political, economic, and scientific) to enacting a U.S. carbon tax, and to discuss the ideal form of such a tax;
  • recognize leaders who have publicly advocated a U.S. carbon tax; and
  • discuss lessons learned from the Green Shift proposal in Canada.

We are assembling a terrific roster of speakers and participants. James Hansen has already agreed to speak, and we anticipate many more leading voices on climate change and carbon pricing.

We need your financial help to make our conference happen and to continue our essential work. Please click here to find out how to contribute to CTC. [Note: the foregoing link replaces the original instructions for contributing in this post, which no longer apply.]

Please be as generous as you can, and please donate today. Thank you.

Sincerely,

Charles Komanoff
Dan Rosenblum

We Explain Gasoline Demand (including why it’s sticky)

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Note added April, 2017: A more current and in-depth treatment of the price-elasticity of U.S. gasoline usage may be found in our Sept 2015 blog post, What an Energy-Efficiency Hero Gets Wrong about Carbon Taxes. — editor.

With gas at $3.50 a gallon in April, the U.S. mainstream media is replete with stories of drivers abandoning SUV’s, hopping on mass transit, and otherwise cutting back on gasoline. Yet a year or two ago, when pump prices were approaching and even passing the $3.00 “barrier,” the media mantra was that demand for gasoline was so inelastic that high prices were barely making a dent in usage.

Which story is correct? We lean toward the more “elastic” view, and here we’d like to share some of the data that inform our belief.

Volatility_Chart_Crop_1.jpgI’ve been tracking official monthly data on U.S. gasoline consumption for the past five years, and compiling the numbers in this spreadsheet. You’ll find that it parses the data in several different ways: year-on-year monthly comparisons (say, March 2008 vs. March 2007); three-month moving averages that smooth out most of the random variations in reporting; and full-year comparisons that allow a bird’s-eye view.

Here’s what we see in the data:

  1. Gasoline demand is trending downward, though only slightly. In the 49 year-on-year comparisons, monthly gasoline use dipped below the year-earlier level only eight times, but these include each of the last five months (see Moving Avgs worksheet in the cited spreadsheet).
  2. Gasoline’s short-run price-elasticity is rising. After a low of -0.04 in 2004, the short-run price-elasticity increased to -0.08 in 2005, -0.12 in 2006 and -0.16 in 2007. (I assume an “income-elasticity” of two-thirds in calculating price-elasticity; again, see Full Years worksheet.)
  3. A big reason that gasoline use kept rising until recently was the growing economy. Demand is heavily affected by economic activity. The minimum year-on-year GDP growth for any month in all four years was plus 1.7% (see Moving Avgs worksheet).
  4. Another reason gasoline demand was slow to drop is that the price signal, while significant, was less than advertised. Adjusted for general inflation, the average 2007 pump price was only 54% higher than the 2003 price. Amid all the talk of a doubling or even tripling in gas prices, it’s sobering to learn that you have to go all the way back to 1998 to find the last year that the real price was just half the 2007 price.
  5. The biggest market barrier of all may have been gasoline price volatility. The spreadsheet spans 63 months, allowing 62 month-to-month comparisons. In 29 of these, the price went down (see 1-yr comparison worksheet). That’s right: the average gasoline price was less than the prior month’s an astounding 47 percent of the time (see graph). Pump prices have been so volatile that consumers didn’t know whether the price three months later would be up or down. The result? American families and automakers alike found it hard to justify long-term investments in more-efficient cars. And allied policies like de-subsidizing sprawl didn’t get taken seriously.
  6. Nevertheless, gas prices have now risen five years in a row and are virtually certain this year to chalk up a sixth. There hasn’t been a comparable period of sustained increases since the late 1970s.

The big takeaway for carbon taxes is that the short-run price-elasticity of gasoline demand is rising (Point #2). (The long-run price-elasticity is probably around minus 0.4, as we discuss here.) While a rising elasticity contradicts the standard economic model in which price-sensitivities don’t change much over time, Point #5 provides a reasonable explanation: gasoline prices (and energy prices in general) had fluctuated so wildly for decades, and a sense of entitlement to cheap gasoline had become so ingrained in American society, that it took a long time for households and businesses to internalize the rise in pump prices — to regard it as real.

Perhaps now, however, a line has been crossed. Maybe the trigger was the price of crude breaching $100 a barrel, or the unspooling credit crisis signaling a fundamental change in the U.S. economy. Or it may simply have been the accumulating weight of price increases noted in Point #6. Whatever the reason(s), Americans seem, finally, to be getting the message that higher gas prices are here to stay.

That’s good news for the climate, national security, and green jobs. But bitter medicine for hard-pressed families as well as business and jobs that aren’t oil-intensive but are being pulled under by gasoline-caused belt-tightening. Imagine if the price rises had been delivered not by a rapacious market but via socially determined ramped-up increases in the gasoline tax (as some commentators have proposed since the 1970s, including, with renewed urgency, after 9/11).

Americans would have had time to adapt, along with real choices such as truly fuel-efficient cars and smaller houses in more-compact developments. And the extra revenues from the higher-priced gasoline would have belonged to all of us rather than just the owners of oil reserves. Those revenues could have been returned to households and businesses via tax-shifts or dividends, and not skimmed off for private enrichment.

The analogy to a revenue-neutral carbon tax couldn’t be more clear.

NYC "Congestion" Failure Provokes Questions on Carbon Pricing

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Aerial Traffic Manhattan_1.jpgThe year-long effort to enact congestion pricing in New York City had a lot going for it:

  • Traffic congestion is roundly despised. Gridlock has few defenders.
  • NYC’s mass transit system, the asserted beneficiary of revenues from the traffic fee, is riding a 25-year upswing and is understood to be the linchpin of the city’s prosperity.
  • A broad coalition of business, labor and environmental groups supported and actively campaigned for congestion pricing.

The demise of the pricing plan — it passed the City Council last week but wasn’t brought up for a vote in the State Legislature yesterday — is prompting much hand-wringing in the City. The New York Times today decried the powerful Speaker of the State Assembly for failing to throw his weight behind the proposal. The blogs, from the estimable Streetsblog ("covering the Livable Streets Movement") to the Times’ dot Earth, are asking what pricing’s defeat says about the fate of other, larger issues, from livable urban streets to the campaign to stop climate change.

There’s soul-searching at the Carbon Tax Center as well. Having argued last year that congestion pricing and carbon taxing were thematically linked — both entail valuing the commons to preserve it; both appear income-regressive but can be made strongly progressive by fairly and effectively allocating the revenues — we’re obliged to ponder what the failure of congestion pricing portends for carbon taxes in America.

We’ve already posted a Top 10 Reasons piece to Grist. It’s a bit on the lite side, but it makes some salient points, such as this:

Misplaced emphasis on climate: Hitching congestion
pricing to climate protection, even in part, was disingenuous. The anticipated traffic reductions would have eliminated no more than 1% of NYC’s CO2. The emphasis should have been on cutting the scourge of traffic, whose theft of time, sanity, and safety from New Yorkers outweighs the climate damage from CBD-bound tailpipes by a couple of orders of magnitude.

(That was reason #10; it would probably rank higher on this blog.)

Our Grist post elicited a number of candid, private replies. Here are three worth pondering (edited, and with the names redacted):

A chemical engineer and policy analyst who worked with congestion pricing theorist and Nobel Laureate Bill Vickrey, honed in on the winners/losers conundrum:

The central problem policy problem, both here and around the world, continues to be that the losers from any policy change know who they are and are always far better organized than are the winners. Indeed, some winners are bamboozled into thinking that they will be losers. Nowhere is this more true than with congestion pricing — invariably this has been opposed by a majority before introduction but is warmly welcomed by a majority afterwards.

This is why political leadership is so important. Such leadership emerges in New York only very rarely if ever and is one of the reasons New York continues to decline relative to other states.  History tells us that this has long been true however; consider how T.R. got on the national ticket with McKinley in 1900.

A writer on transportation and public spaces blamed congestion pricing’s messenger:

Appalling though this setback is, I think it has its up-side — Bloomberg
is not really the champion you want for this kind of fundamental
change.  He (your reason #3) never really "got it" in anything other than a
gaudy, intellectualized fashion and, as you say, certainly never put in the work needed to make this
real. The plan was
never properly linked to specific, pre-visualized, and fully explained transit
and other benefits (your reason #2); and for all of Bloomberg’s newly-donned, enviro-conning
green robes he is planning a Manhattan top-heavy with the swaggerers
(your #6 reason). So I think your 10 reasons actually boil down to 1: the
Mayor.

Another writer on public policy was more pessimistic:

Your article suffers from a logical flaw. It’s fine to point out certain errors that were made. But the important issue, which you don’t address, is whether the congestion pricing plan would have passed even if such mistakes had been avoided. To me, the answer can be summed up in just three words: nein, nyet, no. After all, U.S. politicians have been talking about energy and related issues for more than three decades, and yet not one meaningful action has been taken. So why
would you expect the congestion plan to fare any better? I know I’ve said it before, but the U.S. system is in a state of rigor
mortis.

But a Bronx-born mathematician contributed this upbeat closing:

The amazing thing is that it went as far as it did in terms of being taken seriously — you and your colleagues should congratulate yourselves on that. After all the automobile is the holy icon of U.S. culture and the NY State Legislature has been notorious for being so ineffectual (how long did it take them to bring the divorcelaws into the 20th century?). So you at least had a very respectable showing and can try again.

OK, readers, what do you think about the defeat of congestion pricing in New York and its implications for taxing carbon emissions? Please post.

Photo: Flickr / dogseat.

Guest Column: Behind the Cap-and-Trade "Safety Valve"

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This post reprints in its entirety a column today by veteran Washington reporter Darren Samuelsohn of ClimateWire, a new on-line news service published by E&E News. Samuelsohn’s column focuses on the controversial “safety valve” mechanism that would release additional CO2 permits whenever the price of carbon emissions overshot some set limit. The column, while lengthy, is essential reading for anyone seeking to understand the “devilish details” in carbon cap-and-trade proposals. Note that links to documents in the article are available only to ClimateWire subscribers. — CTC

Behind ‘safety valve’ debate resides 30+ years of history
Tuesday, March 11, 2008

By Darren Samuelsohn, ClimateWire senior reporter

Congress’ effort to pass passing global warming legislation faces many sticking points, but few are as sticky — or as wonky — as the battle over whether a cap-and-trade system for greenhouse gas emissions should include what is called a “safety valve.”

What started as an obscure, almost monastic dispute among economists three decades ago has now emerged as a potential make-or-break point for the proposed legislation. Tracking its tangled history may now be essential to outsiders who want to understand this issue — and the huge economic stakes involved — as champions on both sides of the political arena saddle up to do battle over it.

Safety_Valve_Wheel.jpgIn recent years, New Mexico Democratic Sen. Jeff Bingaman has become the lawmaker most linked to this cause. His version of the safety valve emerged in 2005 in a legislative proposal that created a price cap on carbon. It would guarantee that American companies pay no more than $12 for every ton of carbon dioxide they release into the atmosphere. This rate would go up five percent annually beyond inflation.

Rallying against him are environmental groups and commodity traders who are concerned his plan would stifle investment in new low- and zero- carbon energy technologies. Meanwhile industry and labor unions are forming up their ranks behind Bingaman.

Finding a compromise to settle this feud won’t be easy. It has been brewing since 1974 when Martin Weitzman, then an economist at Massachusetts Institute of Technology, lit the fuse for the first salvo. An expert on how socialist governments distributed goods, Weitzman published “Prices vs. Quantities.” In it, he examined the best way to set a government policy where there is considerable uncertainty over a potential regulation’s costs and benefits.

Weitzman’s work didn’t have global warming specifically in mind. In fact, it touched only tangentially on environmental issues. But as many other academics have since noted, his findings helped to trigger the debate over how to minimize costs while reducing heat-trapping emissions.

Essentially, Weitzman found that government is best positioned to regulate by stepping in to manipulate prices when there is uncertainty about the net environmental benefits of taking action. But when the chances for an environmental catastrophe are high, Weitzman said, it’s better to tackle a problem with a quantity-based target.

“It’s without a doubt one of the most heavily cited papers in environmental economics,” said Joseph Aldy, a former White House economist now working as a fellow at the Washington-based Resources for the Future think tank. “And one of the most widely cited in economics.”

Engaging President Clinton

Building off Weitzman’s work, Mark Roberts and Michael Spence, who would go on to win a Nobel prize in 2001 for his work on information flows and market development, came up in 1976 with a “hybrid” system for reducing pollution. The Harvard economists premised their paper on the concept that a government could set up a cap-and-trade program to control pollution in the most cost-effective manner.

But because of uncertainty over those costs, Roberts and Spence suggested regulators could withhold some of the credits in this system and only release them if compliance prices exceeded a fixed trigger point.

Several more economists followed with their own complex formulas, but it wasn’t until the 1990s that the safety valve idea blossomed in government policy circles. In this case, it was the Clinton administration preparing for the 1997 United Nations climate negotiations in Kyoto, Japan.

Australian economist Warwick McKibbin and Peter Wilcoxen, then based at the University of Texas-Austin, published a paper in 1997 suggesting a ceiling price on carbon dioxide emissions permits.

Their work was followed by Billy Pizer, Raymond Kopp and Richard Morgenstern of RFF. The trio argued a few months later that climate change can’t be regulated with any specificity to prevent damage to the environment. Building off Weitzman’s work, they suggested a “safety valve” that provides a price guarantee for industry.

Among some members of the Clinton administration, the RFF paper sounded like a perfect fit. Clinton was still bruised from Congress’ rejection of his proposed energy tax on the carbon content of fossil fuels. Officials from the Treasury Department and Clinton’s own Council on Economic Advisers pushed for the cost containment measure. They said it was the best method for dealing with climate change absent an outright tax on carbon emissions.

Others in the administration urged Clinton not to meddle with future carbon prices. They insisted there would be an “announcement effect”: once the government revealed its climate plans, companies would undertake new technological innovations.

This debate entered the public arena two months before the Kyoto negotiations, when Vice President Al Gore asked about the price ceilings during a daylong forum that Clinton hosted at Georgetown University.

Alarmed by Gore’s question, environmental groups quickly pounced. Seventeen nonprofit groups, led by Environmental Defense Fund and the Sierra Club, sent Clinton a letter warning him against using what they dubbed a “relief mechanism.”

“This proposal would weaken, if not eliminate, any incentive for private sector innovation and investment in clean technologies that … is the key to successfully addressing the global warming problem,” they wrote.

Clinton decided to leave the safety valve out of the U.S. position going into Kyoto.

“The ED letter had a big effect,” recalled Rafe Pomerance, a top State Department official at the time. “It was basically dropped.”

Joseph Romm, a safety valve opponent who ran the Energy Department’s renewable lab office during the Clinton administration, said Aldy, then working for the White House, handed him a note after one high-level meeting following Clinton’s decision. It read: “Economists 0, Romm 1.”

But neither side could claim victory. John “Skip” Laitner, a top U.S. EPA economist from 1996-2006, explained: “They didn’t take the safety valve, but we didn’t win either. Because to win meant we had to come in with some really good domestic policies that would allow the market to be given a clear signal about the slow transition needed and to give the market greater capacity to respond.” Laitner is now director of economic analysis at the American Council for an Energy-Efficient Economy.

Courting Bush, McCain, Bingaman

Proponents of the safety valve pushed on. As President Bush arrived in Washington, Pizer shifted to the White House Council of Economic Advisers, where he served as a fellow under Chairman Glenn Hubbard. “He had a significant insider role,” said Pomerance.

There, Pizer recommended Bush use a safety valve as he advanced a campaign pledge to regulate carbon dioxide emissions from power plants. Bush, however, soon backed away from his pledge.

Attention turned next to Sens. John McCain (R-Ariz.) and Joe Lieberman (I-Conn.), who emerged in the fall of 2001 as lead authors of an economy-wide bill to cap U.S. greenhouse gas emissions.

After he left the Bush administration for a job on the Columbia University faculty, Hubbard sent McCain a letter urging him to consider the safety valve in his climate legislation. He was joined by fellow Columbia colleague Joseph Stiglitz, a top Clinton administration economist who had also won the Nobel Prize with Spence.

“Our support for the safety valve stems from the underlying science and economics surrounding the problem of global climate change, and is something that virtually all economists — even two with as politically diverse views as ourselves — can agree upon,” they wrote in their 2003 letter. “The climate change problem is a marathon, not a sprint, and there is little environmental justification for heroic efforts to meet a short-term target.”

McCain, no fan of Hubbard, threw the brief in his waste basket.

But ideas are hard to kill. The safety valve idea emerged again in a widely publicized 2004 report from the bipartisan National Commission on Energy Policy. The commission, a collection of industry officials, politicians and environmentalists, was asked to offer solutions that could help end the stalemate over U.S. energy and environmental policy. Their study recommended Congress pass legislation with a cap-and-trade system and a safety valve that didn’t allow CO2 prices in the first year to go beyond $7 per ton.

Such a price “reflects a judgment about the political feasibility of establishing a federal framework for reducing greenhouse gas emissions in the near term,” the NCEP report said.

A year later, Bingaman, then the ranking member of the Senate Energy and Natural Resources Committee, floated draft legislation with the safety valve as a centerpiece. Last summer, Bingaman introduced a formal version of his bill with a trio of high-profile Republican cosponsors: Pennsylvania Sen. Arlen Specter and Alaska Sens. Ted Stevens and Lisa Murkowski.

The legislation captured attention because he had won over three GOP senators who previously had not supported mandatory limits on greenhouse gas emissions. Major labor groups and the chairmen and CEOs of PNM Resources, Exelon, American Electric Power and Duke Energy Corp. also appeared at Bingaman’s press conference when he introduced the bill.

‘The worst case is X’

Safety valve advocates base their argument on one of Weitzman’s principal theories: that a price mechanism is best when there’s uncertainty over environmental benefits. Global warming is a byproduct of greenhouse gas concentrations built up over decades and centuries, and any one year’s emissions won’t push the climate over the tipping point.

Also, they claim a price limit will guarantee the new U.S. climate program won’t lead to a volatile market in the short-term. They also like being able to tell cost-conscious senators and congressmen exactly what the bottom line is.

“Ph.D.s, all of them, can make very reasoned-sounding presentations that reach shockingly different conclusions,” said Jason Grumet, executive director of the National Commission on Energy Policy. “Legislators don’t have the ability to differentiate among those.”

If he’s asked the worst-case scenario for energy or coal prices, Grumet said he can turn to the safety valve for a simple answer. “We didn’t have to start our response with, ‘Well, we think’ or ‘Our models project.’ We could simply say, ‘The worst case is X.'”

Labor groups, including the AFL-CIO, see the safety valve as a must have, though they’ve recently signalled a willingness to negotiate. So too do many industries.

“The way [Bingaman’s] come at it is the only way you can do this,” said Fred Palmer, senior vice president for governmental affairs at Peabody Coal. “There’s a big group in Congress who thinks we’re paying enough for energy now.”

“If you think that cap-and-trade is the best way to go, then the safety valve is your insurance policy,” said Aldy. “The reason you buy insurance is because the future is uncertain. We want to protect against the things we can’t currently imagine. This is a way to do it.”

Weitzman, who moved to Harvard in 1990, said he would prefer Congress impose a carbon tax of $50 per ton on the fossil-fuel content of energy sources.

But he also acknowledged that the political reality suggests lawmakers will go with cap-and-trade legislation. He’s open to that too, but said it must include a safety valve. “A very strong safety valve is equal to a tax,” he said. “If you don’t allow the price to vary very much, it’s the equivalent to taxing it.”

Counterattacks

Opponents say a safety valve would undermine the very nature of a cap-and-trade program. “Those who have taken global warming seriously have never supported something like a safety valve,” said Romm, now a senior fellow at the liberal Center for American Progress.

Indeed, the safety valve’s critics have lined up a number of political players to reject the idea, including Clinton, Gore, 2004 Democratic presidential nominee Sen. John Kerry and Sen. Barbara Boxer (D-Calif.), the chairwoman of the Senate Environment and Public Works Committee.

“There are a number of no-gos and poison pills, and safety valve would be among those,” explains Brent Blackwelder, president of Friends of the Earth. He added that any effort to add a safety valve would lead sponsors of the Lieberman-Warner bill to pull it off the floor.

Jonathan Pershing, director of the Climate, Energy and Pollution Program at the World Resources Institute, cautioned that none of the major U.S. environmental trading programs — for nitrogen oxides and sulfur dioxide — include a safety valve. The European system for greenhouse gases also avoided it.

Pershing said the safety valve doesn’t fit with the growing scientific warnings associated with global warming that call for near-term actions.

Europeans are weighing in too. “You can also pretty much forget about a global carbon market,” said Damien Meadows, a top climate official from the European Commission. “If Europe linked to America, and the price cap was reached, and we were just sending money across to the U.S. Treasury, that would be a major issue just as if American companies were paying Europe to do nothing because you reached our price cap.”

Meadows added, “Nobody has actually explained to me how that is overcome. And when people tend to think about, they tend to go ‘Oh yeah, I see.'”

Several proponents of the safety valve envision Europe adopting a cost ceiling to match up with the United States. “A cap sends the message that you really are prepared to wimp out of this,” counters Romm. “It sends the message to all the businesses that if they just whine enough that you can stop whatever it is you’re doing.”

A ‘Fed’ compromise?

A bill from Lieberman and Sen. John Warner headed for the Senate floor doesn’t include Bingaman’s safety valve. But it has several provisions designed to dampen the costs to the economy. One piece supported by environmental groups would allow companies to bank away extra emission credits they haven’t used. Another lets them borrow against future years, with interest.

Duke University’s Nicholas School for Environmental Policy Solutions also came up with a program added to the Lieberman-Warner bill that establishes a Carbon Market Efficiency Board. It would monitor the new U.S. climate market and release carbon credits when the cost gets too high, much as the Federal Reserve uses its powers to influence interest rates.

Under the Lieberman-Warner bill, the president appoints the board’s seven members to 14-year terms. Tim Profeta, a former Lieberman aide and the Duke school’s director, acknowledged that the concept falls distinctly on one end of Weitzman’s equation. “I think the Fed itself is a middle ground,” he said.

Harvard economist Robert Stavins disputes any correlation between this plan and the Federal Reserve, which, he notes, carries “a tradition of political independence,” a research board staffed by 200 Ph.D.s in Washington and reserve banks across the country.

Sponsors of the Lieberman-Warner bill are now on the hunt for additional compromises — and House members are only beginning to grasp this slippery subject. To find a middle ground will require movement from all sides. Grumet thinks that’s not impossible. “I’ve never seen a number in Congress that’s non-negotiable,” he said.

Photo: Monceau / Flickr.

Bloomberg Out, Nader In U.S. Presidential Race

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Michael Bloomberg has made it official. “I am not — and will not be — a candidate for president,” New York City’s mayor said in an op-ed in today’s New York Times.

bloomberg_hires.jpgThe article ends months of speculation that Bloomberg, a self-made billionaire who has emphasized a managerial, non-partisan approach to governing, would enter the race as an independent.

Bloomberg’s announcement robs the U.S. election campaign of an outspoken supporter of a national carbon tax. In a highly publicized speech to the U.S. Conference of Mayors last November, which we reported here, Bloomberg proclaimed his strong preference for a carbon tax over a carbon cap-and-trade scheme:

[T]he certainty of a pollution fee — coupled with a tax cut for all Americans — is a much better deal. It would be better for the economy, better for taxpayers and — given the experiences so far in Europe — it would be better for the environment… [W]hy not simplify matters … by charging a direct pollution fee? … a direct fee will generate more long-term savings for consumers, and greater carbon reductions for the environment.

[A carbon tax is] like making one right turn instead of three left turns. You end up going in the same direction, but without going around in a circle first.

Bloomberg made similar remarks favoring carbon taxes over cap-and-trade at the UN Framework Conference on Climate Change in Bali in December.

For carbon tax advocates, the potential silver lining is that Bloomberg might now refocus on gaining city and state legislative approval for his plan to cut traffic and fund transit through a congestion fee to drive into Manhattan.

The conceptual and political parallels are strong between municipal congestion pricing and national carbon taxing. Both entail ending free exploitation of “the commons”; both demand a clear commitment to invest or return the revenues progressively; and both require mobilizing the multitude of citizens, who often don’t grasp that they stand to benefit, to clamor more loudly than the polluting minority whose entitlement is threatened. A congestion pricing win in New York City could undercut the notion
that a carbon tax is politically impossible.

Meanwhile, another prominent American who supports carbon taxes declared his presidential candidacy. Ralph Nader, the consumer advocate and  anti-corporate crusader who turned 74 yesterday, entered the race last weekend as an independent candidate.

Nader_at_BYU_Alt_Commencement.jpgWhile Nader has been roundly criticized and even ridiculed as a spoiler and perennial candidate (Nader was the Green Party candidate for president in 1996 and 2000, and he ran as an independent in 2004), his campaign platform includes unambiguous support for a carbon tax. “Adopt a carbon pollution tax” is Issue #6 on Nader’s campaign issues page, Twelve Issues That Matter for 2008.

As a non-profit organization, CTC can’t endorse candidates for elective office. We are non-partisan by temperament as well. We anticipate that Nader’s candidacy could become a double-edged sword with respect to carbon taxes, elevating carbon taxing’s visibility but also hurting its credibility among Americans who have grown disaffected with him.

What do you think?

A Carbon Tax When Oil Approaches $100/Barrel?

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Rising Global Demand for Oil Provoking New Energy Crisis according to today’s New York Times. Yesterday’s front page of the Wall Street Journal headlined As Energy Prices Soar, U.S. Industries Collide.

Why not just rely upon high gasoline prices to bring down demand instead of “adding insult to injury” with a carbon tax?

One reason is that high gasoline prices alone are not enough to reduce consumption of gasoline and the resulting carbon dioxide emissions. Consumers, whether businesses or households, need a clear price signal that future prices are going to remain high before they are motivated to make the investment decisions necessary to reduce consumption. The volatile gas prices of the last few years just don’t provide that kind of signal. The rising global demand for oil headlined in the Times story is faster in developing countries, but as the Times correctly noted, “Americans’ appetite for big cars and large houses has pushed up oil demand steadily in this country, too.” The problem is that while it may be a rational economic decision to invest in a more efficient car, house, truck or airplane if gas prices are expected to remain at or above current levels, the economic decision-making is very different if consumers believe prices may plummet in two months. Europe has had considerably higher gasoline prices for many years and, not coincidentally, Europeans generally drive much smaller and more efficient vehicles.

While volatile prices do not encourage investment in efficiency, a clear and certain trajectory of increasing carbon taxes would do so. The revenue-neutral carbon tax proposed by the Carbon Tax Center provides that clear price signal. And, the gradual trajectory of increased prices that we propose gives consumers time to adjust to the higher prices by both investing in efficiency and making behavioral changes that will further reduce energy use. For more on how consumer demand for gasoline responds to price, see our issue paper by clicking here.

Another important reason why a carbon tax continues to be essential even with high oil prices is that the goal of a carbon tax is to reduce carbon dioxide emissions, not just to reduce consumption of gasoline. Generation of electricity accounts for approximately 40% of carbon dioxide emissions , compared to about 21% from gasoline and 4% from aviation. Two-thirds of the emissions reductions from a carbon tax are expected to come from the electricity sector, 11% from gasoline and only 1% from aviation. Coal use is increasing and will continue to increase without a price signal that reflects the harm caused by carbon dioxide emissions from coal-fired electric generating plants.

In addition, high oil prices encourage the development of new sources of energy with huge carbon dioxide emissions such as the Alberta oil sands projects. Tar sands development is the single largest contributor to the increase in climate change in Canada according to Greenpeace Canada. Even worse, according to a study by the Sage Centre and World Wildlife Fund-Canada, "voracious water consumption by Alberta’s oilsands threatens the quality and quantity of water available to Saskatchewan and the Northwest Territories through the Mackenzie River system." In fact, today’s New York Times cites a new study finding that "[h]igh levels of carcinogens have been found in fish, water and sediment downstream from Alberta’s huge oil sands projects." A carbon tax would reduce the economic incentive for such projects by holding down the price of oil. A carbon tax actually applied to such projects would destroy their economics.

Finally, right now the high oil prices are enriching oil producing countries and oil companies and causing severe damage to the United States economy. A revenue-neutral carbon tax will reduce demand and lead to reduced prices for the oil itself. The results? Reduced carbon dioxide emissions, less money going overseas and to big oil companies, carbon tax revenues returned to all Americans and strengthening our economy, and increased national security as we reduce our dependence on foreign oil. Win-win-win-win!

[To see a summary of recent Carbon Tax Center activities, see A Convenient Tax – Issue #3 immediately below.]