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A Convenient Tax — Issue #3

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Welcome to the latest issue of CTC’s newsletter, A Convenient Tax, summarizing the Carbon Tax Center’s progress in advancing carbon taxes in the United States. (For Issue #2, click here.)

These are heady times for CTC. Each week, and sometimes every day, brings a major development in carbon pricing. Sometimes it has our fingerprints, and sometimes it’s a product of our work to establish a carbon tax as "the gold standard" way to put a price on carbon (as The New York Times quoted us last week).

In Just the Past Two Weeks …

New York’s Mayor Bloomberg delivered a powerful plea for a revenue-neutral carbon tax in a speech to the U.S. Conference of Mayors last Friday. Here’s the lede of The Times’ on-line account:

Mayor Michael R. Bloomberg announced today his support for a national carbon tax. In what his aides called one of the most significant policy addresses of his second and final term, the mayor argued that directly taxing emissions of carbon dioxide and other greenhouse gases that contribute to climate change will slow global warming, promote economic growth and stimulate technological innovation — even if it results in higher gasoline prices in the short term.

Echoing the Tax vs. Cap page on our Web site: Bloomberg noted that cap-and-trade is at risk from gaming, profiteering and volatility, while a straightforward carbon tax offers the essential attribute of price certainty. What is more, Bloomberg spoke as the former businessman he is:

Having spent 15 years on Wall Street and 20 years running my own company, the 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. I think it’s time we stopped listening to the skeptics who say, "But for the politics" and start being honest about costs and benefits. Politicians tend to prefer cap-and-trade because it obscures the costs. Some even pretend that it will lower costs in the short run. That’s nonsense. The costs will be the same under either plan — and if anything, they will be higher under cap-and-trade, because middlemen will be making money off the trades. A direct fee will generate more long-term savings for consumers, and greater carbon reductions for the environment.

By 10 a.m. last Friday, CTC’s blog had a link to the Times’ story, framing Bloomberg’s speech in terms of swelling political support for carbon taxing. Since then, AP, Reuters and Newsweek (in a cover story this week) have reported on Bloomberg’s carbon-tax call.

We can’t say whether the mayor took his cue from us, or the center-right American Enterprise Institute (which issued its own report in June backing carbon taxes), or from his own internal compass. But back in July, in a piece on Gristmill, we linked Bloomberg’s NYC congestion pricing initiative with carbon taxing. We also drew Rep. John Dingell’s attention to the parallels, during a conversation with him last month (see below).

The big development the previous week was President Nikolai Sarkozy’s promise to consider a French revenue-neutral carbon tax and his urging that Europe examine the option of a European levy on imports from non-carbon-taxing countries. Sarkozy’s pledge puts pressure on the United States to do the same, a point made by New York Times columnist Roger Cohen as President Sarkozy arrived in the U.S. this week for meetings with President Bush.

Next Week

Special Invitation to NYC-area readers: CTC co-director Dan Rosenblum will be featured at a NYC Bar Association "Tax vs. Cap" debate in mid-Manhattan next Tuesday morning, Nov. 13. Go here for location, time and registration.

Congressional Support Grows for a Carbon Tax

In our last newsletter we reported on carbon tax bills introduced by Representatives Stark (D-CA) and Larson (D-CT). The two have now joined forces, with Rep. Stark and eight other members co-sponsoring the Larson bill. (Our Bills page has a list of the 10 sponsors and a summary of both bills.)

We stopped by Rep. Larson’s office recently in Washington and were deeply impressed with his staff’s and Mr. Larson’s commitment to a carbon tax. The news that Rep. Larson, the fifth highest member of the Democratic House leadership, will be participating in the United Nations Climate Change Conference in Bali next month is also heartening.

Eclipsing this, however, is the hybrid carbon tax proposal floated by the venerable John Dingell, a member of the House of Representatives since 1955 and long-time chair of its Commerce & Energy Committee. Rep. Dingell’s staff reached out to us in late June for help estimating the carbon, petroleum and revenue impacts of a carbon tax that also included a surcharge on gasoline and jet fuel. Over the ensuing three months we refined our tax impact model (see below) and ran at least a dozen scenarios, which we discussed with his staff in a stream of telephone discussions and e-mails.

When Mr. Dingell released his proposal on the evening of Sept. 26, we were ready with a blog post on both our Web site and Gristmill, branding the idea a "hybrid carbon tax," praising Dingell’s vision, and quantifying the impacts. We’ve also taken the fight to those of our fellow environmentalists who have let their battles with Dingell over car mileage standards blind them to what Dingell calls The Power in the Carbon Tax. (For the record, we strongly support tougher CAFÉ standards but we regard the hybrid carbon tax as an even bigger breakthrough.) Mr. Dingell expressed his gratitude in a phone call last month. (Click here to participate in a public poll on Dingell’s hybrid carbon tax on his Web site.)

Needless to say, a carbon tax bill won’t pass Congress until 2009 at the earliest — public education is needed non-stop until the White House and Congress resolve to make carbon pricing a central element in climate policy. CTC is laying the intellectual and political foundation now for action in 2009.

Carbon Tax Research — National and State

Seeking out and advancing knowledge about carbon taxes is a big part of our mission. To analyze Rep. Dingell’s draft proposals, we scaled up our state-level carbon tax spreadsheet into a national 4-Sector Model — so-called because it disaggregates the U.S. carbon economy into four discrete pieces (electricity, automobiles, airlines and "other"). The model now encompasses the entire U.S. and includes the capability to model a supplemental tax on petroleum products (gasoline and jet fuel, in this case). Advocates and legislative staff in Colorado, Washington State, Oregon, California and Minnesota are currently using it to estimate impacts of state-level carbon taxes.

Much is still to be done on the modeling front. Our next steps are to incorporate "upstream" carbon costs in fuel prices and to reconcile our more-conservative model results with the "bigger bang" predicted by carbon tax supporters at the American Enterprise Institute and several resource think-tanks. We’re also stepping up our cataloging of carbon pricing research. Work at universities and think tanks is proliferating, and we want to establish CTC as the foremost English-language clearinghouse.

Media Continue to Rely on the Carbon Tax Center

Maybe it’s our revamped Web site. Or maybe carbon taxing is moving into the mainstream. Or both. CTC has been in the news a lot lately. Some recent highlights: mentions in two separate on-line New York Times articles on the same day (Friday, Nov. 2), in the news story reporting on Mayor Bloomberg’s carbon-tax address in Seattle, and in an analytical piece, The Real Climate Debate: To Cap or to Tax? • publication of a feature story on carbon taxes in Tikkun magazine • mentions in Conde Nast’s Portfolio.com, Forbes.com, the Minneapolis Star-Tribune and literally hundreds of environmental and climate blogs. • We maintained our standing as the leading site on Google for those searching "carbon tax." • Our Web site continues to receive over 500 visits each week.

Going Forward

The next eighteen months are shaping up as the period in which competing policies to reduce carbon emissions will be examined for their effectiveness, cost and political viability.

CTC’s strategic goal continues to be to shape that debate and properly frame the issues by working with environmental organizations and other allies to solidify support for the concept of putting a price on carbon, while educating and inspiring opinion leaders, grassroots organizations and decision-makers to go for the "gold standard" of carbon taxes rather than settling for the less predictable, less transparent, less universal and less equitable cap-and-trade approach.

As The Times noted last week:

"Making the price predictable is the most significant move you can make to control global warming," says Charles Komanoff, a long-time environmental economist who [with Dan Rosenblum] has recently started the Carbon Tax Center as an advocacy group. "It would tilt literally billions of energy critical decisions toward using less carbon."

If you agree, please help us as we develop the intellectual ammunition, provide technical assistance, assist local, state and federal carbon tax initiatives, energize a broad coalition of interest groups, and mobilize public support for fair and effective carbon taxes.

CTC is proving its effectiveness daily. To continue playing our essential role, we need your financial help. We gratefully thank all of you who have already donated to CTC. We ask carbon tax supporters who are not yet CTC contributors to become so today.

You can contribute to CTC in three ways, of which two are tax-deductible:

  • Tax-deductible:

Write a check or money order to ELPC (Environmental Law & Policy Center), writing Carbon Tax Center in the memo line; mail it to ELPC at 35 East Wacker Drive, Suite 1300, Chicago, IL 60601. ELPC is CTC’s fiscal sponsor.

  • Tax-deductible:

Make an on-line contribution via Groundspring by clicking on the DONATE NOW box on our website, www.carbontax.org.

  • Not deductible:

Write a check or money order to Carbon Tax Center and send it to our New York City mailing address: CTC, 636 Broadway, Room 602, New York, NY 10012.

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

Sincerely,

Charles Komanoff
Daniel W. Rosenblum

Business Think-Tank Slams Cap, Tilts toward Tax

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"A significant portion of the business community would prefer a carbon tax" to a carbon cap-and-trade system, an official of a leading pro-business lobby group declared today.

In an interview on E&E TV, Margo Thorning, senior vice president and chief economist at the American Council for Capital Formation, honed in on one of the key advantages of carbon taxes over the competing cap-and-trade approach — price certainty:

An advantage of a carbon tax … is that an investor knows, given the projected … set of increases in carbon prices from one year to the next, he knows what the carbon price will be and he can factor that in to what kind of capital equipment he buys, what sort of transport fleet he puts in place, and it provides more certainty.

spewing.jpgACCF’s board has been called "a who’s-who in big business," with past or present directors from the American Petroleum Institute, American Forest & Paper Association, Edison Electric Institute and other pro-industry trade associations, thus lending corporate gravitas to Thorning’s remarks, excerpted (and slightly edited) here (Note: subscription probably required):

E&E TV: One of the bill’s ideas is to set
up a financial board of sorts that would oversee the new greenhouse gas market. What’s your take on setting up a board of regulators?

Margo Thorning: I think the idea of expecting regulators to know what the price of carbon should be is probably not very well grounded. It does serve as a backstop in that if prices got so high that producers and households were experiencing severe economic pain they could say, well, just go ahead and emit. But it creates uncertainty, because for someone trying to invest in new equipment, if they don’t know what the price of carbon will be, that adds to the risk of the investment. That’s the problem with a cap-and-trade system and that’s what’s happening in Europe. Investors don’t know what the price of carbon will be from one month to the next or one year to the next and it’s been very volatile. So that makes the
cost of capital higher, investment more uncertain, and produces less investment. An advantage of a carbon tax, if you want to impose some sort of penalty on carbon use, is that an investor knows, given the projected set of increases in carbon prices from one year to the next, he knows what the carbon price will be and he can factor that in to what kind of capital equipment he buys, what sort of transport fleet he puts in place, and it provides more certainty. And a carbon tax provides a stream of revenue for the government to spend on new technology or to pay for offsetting the burden on low income
individuals of higher energy prices.

E&E TV: So, if you were given the opportunity to write your own proposal of how the U.S. should
reduce emissions and not hurt itself economically, you’d go with the carbon tax?

Margo Thorning: I would go with the carbon tax and more incentives for new technology development.

E&E TV: So, if a cap and trade is not the way to go as you’re saying, why has the business community come out in support of a cap and trade?

Margo Thorning: Well, a significant portion of the business community would prefer a carbon tax and there’s beginning to be more discussion about that. I think one reason some in the business community have supported a cap and trade is they expect to make money on it. They’ve maybe made emission reductions or expect to be able to make emission reductions. They expect to be winners. On the other hand, new companies or companies that are expanding that need more credits will be losers. So the winners under a cap-and-trade system, for example in Europe, the big electric utilities have been winners because they’ve been able to pass forward to consumers the price of the carbon credit even though they were given those credits by the government. So people who expect to make money on it naturally are supportive.

*    *    * 

ACCF’s clear acknowledgment of the price-certainty advantage of a carbon tax, coupled with its outspoken criticism of carbon cap-and-trade, follows the contours of the American Enterprise Institute’s June report contrasting the two approaches. The myth that business unanimously favors carbon cap-and-trade over carbon taxes (or monolithically opposes carbon pricing in the first place) is crumbling.

Photo: le_rez / Flickr.

Sarkozy backs carbon tax, EU levy on non-Kyoto imports

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French President Nicolas Sarkozy, appearing alongside Al Gore at an environmental forum in Paris, today called for a national
"carbon tax" on global-warming pollutants and a European levy on imports from countries outside the Kyoto Protocol, according to Agence France-Presse.

Following are excerpts from AFP’s report posted on the Web in the last hour:

Wrapping up a four-month forum on the environment that brought together the government, industry and the green lobby, Sarkozy said he would consider shifting part of France’s tax burden from labour to pollutants, a key demand of environmentalists.

Versailles.jpg"We need to profoundly revise all of our taxes… to tax pollution more, including fossil fuels, and to tax labour less."

Addressing European Commission head Jose Manuel Barroso, who had taken the podium before him, Sarkozy urged Europe to "examine the option of taxing products imported from countries that do not respect the Kyoto Protocol."

As Europe was setting tough standards on its producers for the benefit of the global climate, it was unfair for their competitors to be exempted, he argued.

"I suggest to you that in the next six months, the European Union discuss the implications of this unfair competition," he said.

Guest of honour at the ceremony, the Nobel-winning former US vice president Al Gore paid a powerful tribute to the forum — pledged by Sarkozy before his election in May — saying it was a "tremendous boost" for global efforts to fight climate change.

"Today you become known as a great friend of the people of this planet," said Gore , 59, who won the 2007 Nobel Peace Prize for his efforts to raise awareness about climate change. The Kenyan green advocate Wangari Maathai, Nobel winner in 2004, was also present.

Sarkozy endorsed a raft of measures to slash
France’s greenhouse-gas emissions, cut pollution and foster biodiversity, hammered out at a series of round tables over the last
two days of the forum.

"Your ideas, I make them my own. I will support them and I will carry them out," Sarkozy told participants.

Pledges ranged from a freeze on the building of new highways and airports, to a
vast plan to shift freight traffic from road to rail, to a commitment to try to slash pesticide use by half within 10 years in Europe’s
biggest farm producer.

Tramway and TGV high-speed train networks are to be extended, and drivers coaxed into buying cleaner cars through bonuses and penalties.

Sarkozy promised a nationwide push to improve the energy efficiency of all new and existing buildings.

Asked to rule on the divisive issue of a carbon tax, Sarkozy pledged to study the creation of a "climate-energy tax", "in exchange for an alleviation of labour taxes", but was careful to reassure French business leaders there would be no increase in overall taxation.

Environmentalists suggest such a tax, calculated from the greenhouse gases emitted to produce and market goods, would be "painless" for consumers and business, starting at a few cents per litre of fuel.

France’s star environmentalist Nicolas Hulot, who pushed green issues to the top of the agenda of the last presidential campaign, said he was "happy and confident" following
Sarkozy’s speech.

Arnaud Gossement, spokesman for France Nature Environment, an umbrella group of 3,000 associations, also reacted positively.

"For the first time, we have a president who does not pit economy, growth and ecology against each other… even though he was elected on a pro-growth platform," he said.

Laurence Parisot, the head of the French employers federation, MEDEF, said Sarkozy’s speech was "well balanced" but that it was too soon to judge the impact on business.

Photo: Feuillu / Flickr

China Moving Toward Price on Carbon?

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A major new report commissioned by the governments of China and Brazil has called for a carbon tax — or a carbon cap-and-trade system that would also impose a carbon price.

Lighting the Way: Toward a Sustainable Energy Future, authored by leading scientists and
energy experts from 13 countries including Russia, India, Canada,
Kenya, Egypt, Japan, and the U.S., along with Brazil and China, calls for "a wide variety of policy instruments [including] market incentives such as a price or cap on carbon emissions (which can be especially effective in influencing long-term capital investment decisions)." Beijing_cyclists.jpg(The quote is from Section 4, The Role of Government and the Contribution of Science and Technology. Our Quote of the Week is drawn from the final "Conclusion" section, Lighting the Way.)

How high a price? Here’s what the report authors, who were assembled by the InterAcademy Council, a group representing the world’s 150 scientific and engineering academies, and were chaired by Nobel Laureate Stephen Chu, Director, Lawrence Berkeley National Laboratory, and José Goldemberg, Professor, University of São Paulo, Brazil, had to say:

Opinions vary as to the level of price signals that are warranted, but many experts believe that a price on the order of US$100–150 per ton of carbon equivalent emissions (in other widely used units, US$27–41 per ton of carbon dioxide equivalent emissions) may be necessary to overcome current cost differentials for many low- and non-carbon technologies and to stimulate the large-scale changes that will be required to eventually stabilize atmospheric concentrations of greenhouse gases.

It is important … to emphasize … that establishing in every market that there eventually will be an emissions price—in the range of US$100–150 per avoided metric ton of carbon equivalent (US$27–41 per ton of carbon dioxide equivalent)—is more important than establishing exactly the number of years in which such a transition will occur. For many countries, pragmatic considerations are likely to argue for a phased and multi-pronged approach, wherein an initial carbon price signal is gradually increased over time and complemented by other policies to address remaining market barriers and accelerate the commercialization of more efficient,
lower-carbon technologies.

(from Section 4.3 The importance of market signals)

Without indicating a preference, the report states clearly that the carbon price must come about from either a carbon tax or a cap-and-trade system, which it compares clearly and fairly here.

In putting its imprimatur on the report, the Chinese government has taken a major step in dismantling what The New York Times earlier this year called "an alliance of denial [in which] China and the United States are using each other’s inaction as an excuse to do nothing" about the global climate crisis.

Co-chairs of the InterAcademcy Council are Bruce Alberts, Past President, U.S. National Academy of Sciences, and Lu Yongxiang, President, Chinese Academy of Sciences.

Photo: nataliebehring.com / Flickr

Yes, Dingell is Beholden to Detroit, But He's Right about Carbon Taxes

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After being roundly ignored, or worse, by the mainstream environmental groups, Rep. John Dingell’s carbon-tax proposal finally gained a ringing defense last weekend in the Financial Times (U.K.), reprinted below.

While we don’t share Clive Crook’s disdain for CAFE standards — he overplays the "rebound effect," for one thing — we appreciate his clear expression of the need for carbon taxes.

Incidentally, according to ACEEE, the enviro-backed Markey-Platts CAFE bill would save an estimated 2.1-2.8 million barrels of oil a day by 2025, reducing CO2 emissions by roughly a third of a billion metric tons a year. By our estimates (see spreadsheet), Dingell’s hybrid carbon tax would save 4.5 million barrels of petroleum and over 1.5 billion tonnes of CO2 — nearly double the oil and almost five times the carbon — if the 5-year ramp-up in Dingell’s proposed bill is extended to 2025.

Still, regulatory mandates and market-correcting price incentives are complementary, not mutually exclusive. How much more must the climate spin out of control before the environmental community figures that out?

Posturing will not save the planet

By Clive Crook

[Published in the Financial Times (registration required), Oct. 7 2007]

The website of the Sierra Club, the environmental group, says that "the biggest single step" America can take to reduce global warming and save consumers tens of billions of dollars is to adopt a stricter corporate average fuel economy (Cafe) standard. Legislation that would force carmakers to sell more fuel-efficient cars is being debated again on Capitol Hill. A lot of people think the Sierra Club is right.

Last week Thomas Friedman, the trope-injected megapundit of The New York Times, assailed the country’s big three carmakers for resisting. He especially deplored their allies, Toyota – green Toyota, for shame – and the congressional delegation from Michigan, led by John Dingell. In opposing a strict new rule, they are helping Detroit to "commit suicide". America’s car industry got into trouble in the first place only because of its reluctance to be made to innovate, Mr Friedman explains. Washington offers to compel it to make the cars people want (and hence become more profitable) and the idiotic manufacturers, cheered on by Toyota and Mr Dingell, object. This is not pork-barrel politics, Mr Friedman says, but "empty-barrel politics". Empty barrel, you see, as in a barrel of oil.

Far from being the biggest single step the US can take on this issue, tighter Cafe standards might be the smallest single step – apart that is, from doing nothing, and doing nothing at least has the virtue of being cheap. The endless posturing and counter-
posturing over Cafe is Washington displacement activity in its purest form – something to entertain the voters while failing to confront the actual problem. Support for a stricter Cafe rule is not a sign of being serious about climate change but just the opposite.

Greenhouse-gas emissions from cars and light trucks account for about 20 per cent of the US total and Cafe rules affect only new vehicles. The initial effect of the rules is therefore on the margin of a margin. Yes, the impact would increase over time, but over time other things will change as well. If you make driving cheaper, people will drive more. Some of these savings will be spent on more cars or bigger cars or on sport utility vehicles. New cars get dearer relative to old cars because the regulation adds to costs, so people hang on to older, less efficient cars longer.

All these self-nullifying effects were seen in response to the existing Cafe standard. In the end, a tighter rule would make America burn less gasoline and emit less carbon dioxide than otherwise – but not that much less.

Mr Friedman would put this in terms you can understand. It is not small beer but low-carb beer, in a bigger glass, with a whisky chaser.

Cafe is a kind of tax, of course – but a tax that is hidden. This is both its greatest political attraction and the clearest proof of its supporters’ unseriousness. Put this mandate on the car companies, its advocates say, and they must deal with it: everybody else is better off. The companies themselves would gain, for heaven’s sake, if only they had the wit to see it.

But if this is true, then the tight new standard is surely too loose. Why not tighten it more, and forget about phasing it in? Instant innovation for free. Before you know it the carmakers will be paying pensions again and we shall be getting 500 miles to the gallon. Why not run the whole economy this way?

It is bad that the underlying cost of Cafe is hidden, but worse that its effects are misdirected. The climate does not care whether greenhouse gases come from Hummers or Priuses, or from cooling your house or heating your swimming pool. We can set
stringent fuel-economy rules for all energy-consuming activities, or we can recognise that the problem is carbon emissions, whether they come from tailpipes or power plants, and tax those instead. Make all carbon-based energy dearer and innovation on a wide front will follow, as it must if this problem is to be seriously addressed. If people want SUVs, fine – so long as they pay the full costs of driving them and economise efficiently on other forms of carbon-releasing energy too.

If Americans chose to, of course, they could buy fuel-efficient cars already – no innovation required. While nobody was looking, engineers in Europe and Japan were cunningly designing smaller cars. Yes, you just make them smaller! And drivers there
snap them up because they have to pay two or three times as much for gasoline as Americans. Makes you think.

Switching to a lower-carbon economy has a cost. A high tax on gasoline makes it explicit, and is therefore dismissed as politically impossible. But the idea that the Cafe approach is costless, or that its costs will fall entirely on companies that had it
coming anyway, is infantile. Given a choice between the ambitious and the fatuous, is it not better to press for the first?

And is the carbon-tax approach really so unrealistic?

Its chances are not improved by calling for inferior alternatives. A lot depends on who speaks up for the idea. Mr Dingell, so criticised by Mr Friedman and others on this issue, is trying to drum up support for a gas tax, a carbon tax and a cap on mortgage-interest tax relief for energy-guzzling houses. He has put draft legislation out for comment. Sure, Michigan’s Mr Dingell is in the pocket of America’s car companies. That does not mean he is wrong.

Note: Thanks to Tom Stokes of the Climate Crisis Coalition for posting the FT piece and supplying our headline.

Who is Daniel Sperling and why is he saying bad things about carbon taxes?

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Yesterday’s Los Angeles Times ran an odd op-ed calling carbon taxes an ineffectual antidote to global warming. Unlike other critiques that brand carbon taxes as politically unpalatable, this one argued that they’re simply not up to the job of cutting carbon emissions:

“Carbon taxes — taxes on energy sources that emit carbon dioxide (CO2) — aren’t a bad idea. But they only work in some situations. Specifically, they do not work in the transportation sector, the source of a whopping 40% of California’s greenhouse gas emissions (and a third of U.S. emissions).”

I’ve known Daniel Sperling, the author of the op-ed, for decades. As the long-time director of the Institute of Transportation Studies at UC-Davis, Dan probably knows as much about automotive engineering as anyone in the world. What’s more, he’s conscientious, tireless and concerned.

gas_gauge.jpgSo why do I think he’s wrong about carbon taxes? Actually, Dan is part right, but his message is wrong. Let me explain.

It’s been clear for awhile that carbon taxes won’t make a huge dent in carbon emissions from gasoline — relative to their impact on the biggest source of U.S. carbon dioxide: coal-fired electricity generation. There are three reasons:

  • Gasoline has less carbon per btu than coal.
  • Engines make better use of their btu’s than do power plants.
  • Americans are less behaviorally sensitive to higher prices for gas than for electricity.

When we ran the numbers here at the Carbon Tax Center, we found out just how much gasoline would underperform while electricity overachieved under a level carbon tax. Using Colorado as a test case, we estimate that a statewide carbon tax would draw 60% of all of its carbon reductions from the electricity sector (which is responsible for 42-43% of that state’s CO2), but only 10% from gasoline (which accounts for 20% of emissions).

So we agree with Dan on some key facts. But we think he’s let his natural pessimism about price incentives (he’s an engineer, after all) run a bit amok.

For one thing, the low (10% or less) price-sensitivity for gasoline Dan cites (from his own UC-Davis study) is short-run only. The long-run price-elasticity of gasoline demand is invariably much higher since it can reflect long-term investment decisions — by households in buying more efficient vehicles, by automakers in designing and producing them, and by everyone in making location decisions that reduce driving.

Two widely respected transportation economists at UC Irvine, Ken Small and Kurt Van Dender, looked at pretty much the same gasoline data as Dan and observed the same low (under 10%) short-run price-elasticity. Unsurprisingly but importantly, Small and Van Dender found gasoline’s long-run price-elasticity to be much higher, approximately 40%.

Using that figure, and making assumptions similar to Sperling’s about the potential for substituting lower-carbon fuels, we find that a ramped-up carbon tax that increased the price of gas 10 cents a gallon every year for a decade would reduce CO2 emissions from motor vehicles further and faster than the Low-Carbon Fuels Standard Sperling touts in his op-ed.

Again using Colorado as a test case, the same carbon tax would eliminate more than five times as much CO2 in the electricity sector and almost three times as much in “other” sectors (trucking, space heating, aviation, etc.). Indeed, that tax, which in carbon terms tacks on a charge of $37 per ton (or $10 per ton of CO2) each year for 10 years, would lop off almost 40% from that state’s carbon emissions by 2020. And the revenue stream would be enormous — enough to permit the legislature to zero out the widely disliked state Sales Tax and Business Personal Property Tax by the fifth year, even while providing generous per-resident and per-employee rebates, supplementing the federal Earned Income Tax Credit to assist low-income families, and financing targeted investment in energy efficiency and renewable energy.

We’ll grant the point made by Dan (or the Times’ editors) at the top of his piece: Taxes on CO2 emissions alone won’t get us where we need to go. We’ll need judicious and creative incentives and regulations in addition to a carbon tax, and the Low-Carbon Fuel Standard that Dan is helping advance in California fits that bill. But let’s stop the nay-saying over carbon taxes. They’re the powerful tailwind America needs to get our carbon emissions down equitably, efficiently and immediately.

Photo: Tony.Gonzalez’s photostream (Flickr)

A Convenient Tax — Issue #2

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Welcome to the second issue of A Convenient Tax, the Carbon Tax Center’s newsletter, summarizing our progress in April and May. (For Issue #1, click here.)

The big carbon-tax developments this spring have been (i) the first overt expressions of Congressional support for a carbon tax, (ii) a torrent of criticism of the competing “cap-and-trade” approach by editorial writers and other opinion leaders, and (iii) a significant increase in CTC’s visibility on the national stage.

Congressional Support for a Carbon Tax

Two milestones were reached in the national political arena in April.

First, California Democrat Fortney “Pete” Stark, the second-most senior member of the House Ways & Means Committee, introduced the first carbon-tax bill in Congress in a generation. The Save Our Climate Act, filed on April 26 and co-sponsored by Rep. Jim McDermott (D-Wash.), would impose a $10 per ton (of carbon) charge on coal, petroleum and natural gas when the fuel is either extracted or imported. The charge would increase by $10 every year until U.S. carbon dioxide emissions have dropped 80 percent from 1990.

Prior to introducing the Save Our Climate Act, Rep. Stark’s staff reached out to CTC for guidance on carbon tax administrative and technical issues, as well as the optimal tax level, While the tax rate in the bill is several times less than what CTC is urging, we support it as an essential first step in the long legislative process, especially since the ramped-up tax in future years would tip millions of future carbon-critical decisions in land use, manufacturing and household purchasing toward carbon-conserving alternatives.

How quickly the Stark bill receives a hearing will depend on both the national political climate and the interest shown by other Ways & Means members. CTC has met with staff for other Committee members, as well as for Reps. McDermott and Stark, to review fine points and to convey the message that support for carbon taxing is growing in the grass roots.

In the other political milestone, Sen. Chris Dodd has built a strong carbon tax plank into his presidential election platform. Sen. Dodd, a Democrat who has represented Connecticut in the Senate since 1980, is making a Corporate Carbon Tax the centerpiece of his plan to eliminate 80% of U.S. greenhouse gas emissions by 2050.

“I don’t know how we can possibly talk about honestly getting to the [carbon] number we need to get to if you’re going to just dance around [the tax],” Dodd said as he campaigned in New Hampshire in April. “Price is the last real barrier.” Sen. Dodd has forthrightly put a carbon tax on the home page of his campaign Web site. In fact, on May 31 Sen. Dodd released a new television ad to run in Iowa and New Hampshire that promotes what he refers to as “a courageous corporate carbon tax to transform American industry.” CTC regards the senator’s corporate carbon tax as a lead-in to a universal carbon tax that can propagate incentives for carbon reductions throughout our economy.

Editorial Writers Back Tax, Take Whacks at Cap-and-Trade

When we two (Charles & Dan) resolved last fall to form the Carbon Tax Center, we looked forward to tangling with anti-tax ideologues on the Right and advocates of state intervention on the Left, not to mention Flat-Earthers who deny climate change altogether. We never anticipated that we would be debating with our friends and allies in the environmental community, but that became inevitable when, just before we launched announced the CTC, four large environmental organizations teamed up with major corporations to back carbon cap-and-trade regimes through the U.S. Climate Action Partnership.

CTC has no quarrel with the notion of tradeable emission allowances. In fact we credit the sulfur dioxide permit program enacted as part of the 1990 Clean Air Act Amendments with helping drive down acid rain emissions from power generation. But the scale and complexity of the carbon problem positively dwarf those of sulfur. (Block That Metaphor Department? We have likened the disparity to the difference between a French mud hut and the Palace of Versailles, in an article in Gristmill; and to the difference between a Mozart sonata and a Wagnerian opera, in an invited
post on the on-line Portfolio magazine.) Our fear is that with so many billions at stake, any carbon cap-and-trade program will necessarily be beset by crippling delays, inside-dealing and favoritism run wild. The result will be to disgust and disillusion the American public so that it turns against putting a price on carbon emissions altogether.

On this score, CTC finds itself in fine company. In just the past two months, outspoken criticisms of carbon cap-and-trade proposals have been published in Reason magazine, the Financial Times (U.K.), the Los Angeles Times, and the New York Times Science Section “TierneyLab” blog, to name just a handful. Of critical importance, each piece has been effusive in its support of a carbon tax. As we were posting this newsletter, the right-of-center American Enterprise Institute weighed in with an extraordinarily cogent report comparing a carbon tax with cap-and-trade that unambiguously backs carbon taxing as “the superior policy option.”

These testimonials are collected on our Supporters and Tax vs. Cap pages. The L.A. Times editorial is especially noteworthy. The sole editorial in the May 28 (Sunday) edition, the 1,600-word Time To Tax Carbon made as resounding a case for a carbon tax – both in preference to cap-and-trade and for its capacity to stimulate carbon-reducing investment and innovation – as we’ve seen. Here’s one passage:

A carbon tax simply imposes a tax for polluting based on the amount emitted, thus encouraging polluters to clean up and entrepreneurs to come up with alternatives. The tax is constant and predictable. It doesn’t require the creation of a new energy trading market, and it can be collected by existing state and federal agencies. It’s straightforward and much harder to manipulate by special interests than the politicized process of allocating carbon credits.

Reading manifestos like this, it’s hard to resist the feeling that a shift is underway from cap-and-trade to a carbon tax. Indeed, a few days after the L.A. Times ran its editorial, an editor at a popular environmental blog wrote to say:

It’s been a slow process of education for me. What brought me around to my pro-tax position is, ironically, my libertarian streak. The essential libertarian insight is that complexity and bureaucracy are invitations to corruption. Big business will try their best to game the system. We know that. Politicians will be subject to lobbying and financial support. We know that. So the best route is the one that minimizes complexity and bureaucracy.

Since the biggest rap against a carbon tax has been its lack of popular support, “conversions” to the carbon tax camp such as that above could have a snowball effect, as each new adherent makes success more plausible. Part of our job at the Carbon Tax Center is to help the world see how rapidly the snowball is growing. We hope to have more to report in future newsletters.

CTC’s Visibility Continues to Grow

  • CTC co-director Dan Rosenblum appeared on the Newshour with Jim Lehrer – a substantive interview enabling Dan to make the case for a carbon tax to an aware nationwide audience. Click here to see the interview.
  • Articles by CTC co-director Charles Komanoff in Gristmill,
    Common Dreams, and Conde Nast’s Portfolio.com,
    along with quotes in the New York Times and the Detroit Free Press.
  • We surpassed Wikipedia to become the leading site on Google for those searching “carbon tax.” CTC’s Web site, www.carbontax.org continues to
    receive almost 1,000 visits each week from across the USA as well as Canada, Europe, Asia and Australia.

Other CTC Highlights from April and May:

We are continuing to provide technical and logistical support to advocates organizing for state-level carbon taxes in Colorado, Washington State, New York State and California. We have greatly improved our state-level spreadsheet model for estimating the CO2 reductions and revenue generation from different levels of carbon taxes. The model now allows for time lags in demand response, and it reflects supply-side incentives (toward lower-carbon fuels and power generation) as well as demand-side conservation. We hope to “grow” the model to the national level and post it on our Web site soon.

Going Forward

The next two years
will be the crucial period during which competing policies to reduce carbon emissions will be examined for their effectiveness, cost and political viability. CTC’s strategic goals focus on shaping that debate and properly framing the issues by:

  • Working with environmental organizations and other allies to solidify support for the concept of “putting a price on carbon.”
  • Educating opinion leaders, grassroots organizations and decision-makers that while cap-and-trade is also a vehicle to put a price on carbon, carbon taxes are far superior because they provide a more predictable and less volatile price and are transparent, immediate, universal and equitable.

We anticipate engaging in these activities during 2007-2008:

  • Continuing to develop intellectual ammunition on key issues including revenue recycling, tax equity, “co-benefits” of a carbon tax (e.g., for national security), and the potential “bang” for each carbon tax “buck.”
  • Providing technical assistance to opinion leaders, grassroots organizations and decision-makers, including
    responding to requests for technical information from political campaigns.
  • Assisting local and state-level carbon tax initiatives.
  • Spearheading a sign-on statement by economists and other experts calling a tax on carbon emissions more effective, transparent and equitable than a carbon cap-and-trade regime.
  • Working with a broad coalition of interest groups (labor, environmental, economic justice, national security, etc.) to support carbon taxes through a national sign-on statement and other actions.

It’s clear that CTC is proving its effectiveness every day. But we can’t continue to play our essential role without your financial help. We heartily thank those of you who have already donated to CTC. We ask carbon tax supporters who are not yet
CTC contributors to become so today.

You can contribute to CTC in three ways, of which two are tax-deductible:

  • Tax-deductible:
    Write a check or money order to ELPC (Environmental Law & Policy Center), writing Carbon Tax Center in the memo line; mail it to ELPC at 35 East Wacker Drive, Suite 1300, Chicago, IL 60601. ELPC is CTC’s fiscal sponsor.
  • Tax-deductible :
    Make an on-line contribution via Groundspring by clicking on the DONATE NOW box on our website, www.carbontax.org.
  • Not deductible:
    Write a check or money order to Carbon Tax Center and send it to our New York City mailing address: CTC,
    636 Broadway, Room 602, New York, NY 10012.

Just as a carbon tax now will send climate-appropriate price signals to businesses and individuals and help lock in low-carbon investment for the long haul, your financial support today will enable CTC to build on our current successes and
chart a growth trajectory. Please be as generous as you can, and please donate today. Thank you.

Sincerely,

Charles Komanoff
Daniel W. Rosenblum

Industry Caught in Carbon Trading Smokescreen

By

Here’s the full text of this fascinating and timely story from the Financial Times. — C.K.

Industry Caught in Carbon ‘Smokescreen’ (Financial Times)

By Fiona Harvey and Stephen Fidler in London

Published: April 25 2007 22:07

Companies and individuals rushing to go green have been spending millions on ‘carbon credit’ projects that yield few if any environmental benefits.

A Financial Times investigation has uncovered widespread failings in the new markets for greenhouse gases, suggesting some organisations are paying for emissions reductions that do not take place.

Others are meanwhile making big profits from carbon trading for very small expenditure and in some cases for clean-ups that they would have made anyway.

The growing political salience of environmental politics has sparked a ‘green gold rush’, which has seen a dramatic expansion in the number of businesses offering both companies and individuals the chance to go ‘carbon neutral’, offsetting their own energy use by buying carbon credits that cancel out their contribution to global warming.

The burgeoning regulated market for carbon credits is expected to more than double in size to about $68.2bn by 2010, with the unregulated voluntary sector rising to $4bn in the same period.

The FT investigation found:

? Widespread instances of people and organisations buying worthless credits that do not yield any reductions in carbon emissions.

? Industrial companies profiting from doing very little – or from gaining carbon credits on the basis of efficiency gains from which they have already benefited substantially.

? Brokers providing services of questionable or no value.

? A shortage of verification, making it difficult for buyers to assess the true value of carbon credits.

? Companies and individuals being charged over the odds for the private purchase of European Union carbon permits that have plummeted in value because they do not result in emissions cuts.

Francis Sullivan, environment adviser at HSBC, the UK’s biggest bank that went carbon-neutral in 2005, said he found ‘serious credibility concerns’ in the offsetting market after evaluating it for several months.

‘The police, the fraud squad and trading standards need to be looking into this. Otherwise people will lose faith in it,’ he said.

These concerns led the bank to ignore the market and fund its own carbon reduction projects directly.

Some companies are benefiting by asking ‘green’ consumers to pay them for cleaning up their own pollution. For instance, DuPont, the chemicals company, invites consumers to pay $4 to eliminate a tonne of carbon dioxide from its plant in Kentucky that produces a potent greenhouse gas called HFC-23. But the equipment required to reduce such gases is relatively cheap. DuPont refused to comment and declined to specify its earnings from the project, saying it was at too early a stage to discuss.

The FT has also found examples of companies setting up as carbon offsetters without appearing to have a clear idea of how the markets operate. In response to FT inquiries about its sourcing of carbon credits, one company, carbonvoucher.com, said it had not taken payments for offsets.

Blue Source, a US offsetting company, invites consumers to offset carbon emissions by investing in enhanced oil recovery, which pumps carbon dioxide into depleted oil wells to bring up the remaining oil. However, Blue Source said that because of the high price of oil, this process was often profitable in itself, meaning operators were making extra revenues from selling ‘carbon credits’ for burying the carbon.

There is nothing illegal in these practices. However, some companies that are offsetting their emissions have avoided such projects because customers may find them controversial.

BP said it would not buy credits resulting from
improvements in industrial efficiency or from most renewable energy projects in developed countries.

Additional reporting by Rebecca Bream

Copyright The Financial Times Limited 2007