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Carbon Taxes First. Charles Komanoff & Dan Rosenblum Carbon Tax Center www.carbontax.org April 24, 2007. Global Warming Is …. - PowerPoint PPT Presentation
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CarbonCarbonTaxes FirstTaxes First
Charles KomanoffCharles Komanoff& Dan Rosenblum& Dan Rosenblum
Carbon Tax CenterCarbon Tax Centerwww.carbontax.orgwww.carbontax.org
April 24, 2007April 24, 2007
Global Warming Is …Global Warming Is … Triggering a Triggering a climate crisisclimate crisis that threatens that threatens
massive and irreversible damage to our global massive and irreversible damage to our global environment, public health, world peace, environment, public health, world peace, national security and economic well-being.national security and economic well-being.
No longer seriously contested by anybody No longer seriously contested by anybody other than vested interests, their hired other than vested interests, their hired “experts” and indebted politicians. “experts” and indebted politicians.
See See An Inconvenient Truth An Inconvenient Truth andand IPCC Fourth IPCC Fourth Assessment.Assessment.
Warmer Winters: 4.3ºF, 1971-2002
38
39
40
41
42
43
29 30 31 32 33 34 35 36 37
Latit
ude
(o N)
o
Boston
New York
Philadelphia
Washington, DC
Winter (Dec-Jan-Feb) Mean Temp (ºF) Cameron Wake, UNH
Boston is the new Philly; NYC is the new D.C. (winter temps.)
More Extreme WeatherMore Extreme Weather
Cameron Wake, UNH
Extreme Precipitation Events,% Increase 1949-2002
The Problem:The Problem:Unsustainable COUnsustainable CO22
Emissions WorldwideEmissions Worldwide World must reduce emissions ~80% by 2050, with big World must reduce emissions ~80% by 2050, with big
cuts starting cuts starting nownow.. Americans are emitting many times our share of COAmericans are emitting many times our share of CO2 2 (next (next
slide).slide). Americans must reduce by >80%.Americans must reduce by >80%.
Americans Emit in a Day Americans Emit in a Day What Others Emit in a WorkweekWhat Others Emit in a Workweek
0
4
8
12
16
20
CO2 metric tons per capita (2002)
USAnon-USA
What about China?What about China?““In an alliance ofIn an alliance ofdenial, China anddenial, China andthe United Statesthe United Statesare using eachare using eachother’s inaction asother’s inaction asan excuse to doan excuse to donothing.” nothing.” – – NewNewYork TimesYork Timeseditorial, 4-20-07editorial, 4-20-07
U.S.
China
X
Chemistry Chemistry → → ResponsibilityResponsibility
Because CO2 staysBecause CO2 stays““resident” in theresident” in theatmosphere for atatmosphere for atleast a century, oneleast a century, onehundred years ofhundred years offossil-fuel use drivefossil-fuel use driveclimate responsi-climate responsi-bility. bility. U.S. still hasU.S. still hasa 40-50-year lead.a 40-50-year lead.
U.S. China
X
No More Free DumpingNo More Free Dumping ““Since the dawn of the industrial revolution, Since the dawn of the industrial revolution,
the atmosphere has served as a free dumping the atmosphere has served as a free dumping ground for carbon gases. If people and ground for carbon gases. If people and industries are made to pay heavily for the industries are made to pay heavily for the privilege, they will inevitably be driven to privilege, they will inevitably be driven to develop cleaner fuels, cars and factories.”develop cleaner fuels, cars and factories.”— — Avoiding Calamity on the CheapAvoiding Calamity on the Cheap, Nov. 3, 2006, Nov. 3, 2006
New York Times editorialNew York Times editorial
Putting a Price on COPutting a Price on CO22 Emissions Emissions
High taxes on carbon emissions from High taxes on carbon emissions from coal, oil and natural gas willcoal, oil and natural gas will::
Reduce fossil fuel use and COReduce fossil fuel use and CO22 emissions emissions Substitution of clean fuels and technologySubstitution of clean fuels and technology More efficient use of energyMore efficient use of energy
Provide a revenue stream to enableProvide a revenue stream to enable Progressive tax-shifting, orProgressive tax-shifting, or Rebate to all U.S. residentsRebate to all U.S. residents
Additional BenefitsAdditional Benefits of a Carbon Tax of a Carbon Tax
Carbon tax receipts may also be used to financeCarbon tax receipts may also be used to finance Energy efficiency, further reducing use of fossil fuels and Energy efficiency, further reducing use of fossil fuels and
related emissions.related emissions. Energy R&D.Energy R&D.
Will also reduce dependence on foreign oil, with Will also reduce dependence on foreign oil, with major national security benefits.major national security benefits.
Economically, will keep dollars in USA instead of Economically, will keep dollars in USA instead of flowing overseas. flowing overseas.
Rely on “Market Forces”? Rely on “Market Forces”? Here Come SynfuelsHere Come Synfuels
Only a carbon Only a carbon tax can subject tax can subject COCO22-intensive -intensive oil sands, oil sands, oil shale,oil shale,coal-into-oil, etc.coal-into-oil, etc.to a climate-to a climate-appropriate appropriate market test.market test.
Clean-Energy Subsidies:Clean-Energy Subsidies:A Limited AnswerA Limited Answer
Selecting the next best energy technology by Selecting the next best energy technology by fiat has largely benefited lobbyists + special fiat has largely benefited lobbyists + special interestsinterests Oil shale, nuclear power, synfuels, ethanol, etc. Oil shale, nuclear power, synfuels, ethanol, etc.
Many new sources also emit COMany new sources also emit CO22
Renewable Portfolio Standards: helpful Renewable Portfolio Standards: helpful –– but but not enoughnot enough
Efficiency Standards:Efficiency Standards:Vital, but Not EnoughVital, but Not Enough
Too slowToo slow Corporate resistanceCorporate resistance Inherently reactiveInherently reactive
Corporate gaming Corporate gaming (e.g., “CAFE(e.g., “CAFE” loophole that enabled SUV’s)” loophole that enabled SUV’s)
Scattershot – impossible to regulate the Scattershot – impossible to regulate the hundreds of important energy-usage sectorshundreds of important energy-usage sectors
1-dimensional1-dimensional (e.g., CAFE doesn’t affect miles driven)(e.g., CAFE doesn’t affect miles driven)
More than Half of U.S. Oil Use Is Not Gasoline for Cars
CarsFreight
Heat, Power
OtherAir
PavingRV’s
Example - Gas Use DecisionsExample - Gas Use DecisionsGas Tax-Shift impacts:Gas Tax-Shift impacts: How high CAFE is setHow high CAFE is set Mfg’er mpg decisionsMfg’er mpg decisions What car to buyWhat car to buy Which car to driveWhich car to drive How to driveHow to drive VMT (miles traveled)VMT (miles traveled)
Share (carpool)Share (carpool) Chain tripsChain trips TransitTransit Walk/BikeWalk/Bike ProximityProximity
CAFE impacts:CAFE impacts: Mfg’er mpg decisionsMfg’er mpg decisions What car to buyWhat car to buy
Dynamic Capitalism & CO2: IDynamic Capitalism & CO2: I“ … “ … specially equipped,specially equipped,privately owned jumboprivately owned jumbojets – the kind thatjets – the kind thatnormally carry 300-400normally carry 300-400passengers … recon-passengers … recon-figured … for the figured … for the enjoyment of, at most,enjoyment of, at most,a couple of dozen.”a couple of dozen.”
New York Times, 17-Oct-2006: For the Super-Rich, It’s Time to Upgrade the Old Jumbo Jet
Dynamic Capitalism & CO2: IIDynamic Capitalism & CO2: IIBackyard BlizzardsBackyard Blizzards: : ““Snowmaking, since theSnowmaking, since themid-1960s the provenancemid-1960s the provenanceof ski resorts and, moreof ski resorts and, morerecently, some partyrecently, some partyplanners, has goneplanners, has gonedomestic,” with 2-kWdomestic,” with 2-kWplug-in snowmakers thatplug-in snowmakers thatrun ’round-the-clock.run ’round-the-clock.
New York Times (Home Section) 15-Feb-2007: Not Enough Snow For You? Talk to Your Father
Example - ElectricityExample - Electricity Utilities and other generators willUtilities and other generators will
Respond to price signal by substituting lower-Respond to price signal by substituting lower-carbon fuelscarbon fuels RenewablesRenewables Natural GasNatural Gas
Invest in efficiency on demand- and supply-Invest in efficiency on demand- and supply-sideside
Consumers willConsumers will Respond by using lessRespond by using less Substituting low- or non-carbon energySubstituting low- or non-carbon energy
Carbon Tax ProportionsCarbon Tax Proportions
0
1
2
Relative taxrate per btu
GasOilCoal
Fuels are Fuels are taxed by taxed by their their carbon carbon content content per btuper btu
A “Starter” Carbon Tax-ShiftA “Starter” Carbon Tax-Shift
$37 / ton of carbon =$37 / ton of carbon =
1010¢ / gallon of gasoline, jet fuel, etc. =¢ / gallon of gasoline, jet fuel, etc. =
0.72 ¢ / kWh (U.S. retail average)0.72 ¢ / kWh (U.S. retail average)
Reduces U.S. COReduces U.S. CO22 emissions ~ 4% emissions ~ 4%
Repeat 10 XRepeat 10 X (while standards and incentives (while standards and incentives also cut emissions)also cut emissions)
Energy Use: Energy Use: NotNot Inelastic Inelastic Gasoline usage grew only 3.5% from 2003 to Gasoline usage grew only 3.5% from 2003 to
2006, while the economy grew 11%.2006, while the economy grew 11%. Pump prices have risen < 50% since 2003 Pump prices have risen < 50% since 2003
(adjusted for inflation) – not the doubling (adjusted for inflation) – not the doubling commonly believed.commonly believed.
The modest growth in demand points to a “short-The modest growth in demand points to a “short-term price elasticity” of around 0.1, and 0.4 in the term price elasticity” of around 0.1, and 0.4 in the long term.long term.
Finding: Demand for gasoline (and other fuels) is Finding: Demand for gasoline (and other fuels) is at least somewhat price-sensitive.at least somewhat price-sensitive.
Elasticity (long-run) AssumptionsElasticity (long-run) Assumptions
Gasoline: Gasoline: 0.4 0.4 Electricity Electricity
Residential (37%) Residential (37%) - 0.5- 0.5 Commercial / Industrial Commercial / Industrial
(63%) (63%) - 1.0- 1.0 Fuel-switching Fuel-switching
Leverage: Leverage: 1.2 x1.2 x ““Other” – midway Other” – midway
bet. Gasoline/Elect.bet. Gasoline/Elect.
ElectricityGasolineOther
ElectricityGasolineOther
U.S. CO2
Reductions
Starter Tax Starter Tax – Why Ramp Up?– Why Ramp Up?
Win broad consensusWin broad consensus Implement ASAPImplement ASAP Help people and businesses adaptHelp people and businesses adapt Empirical validation of efficacyEmpirical validation of efficacy Mid-course correctionsMid-course corrections Establish long-term price trajectoryEstablish long-term price trajectory Complement w/ investment in EE and renewablesComplement w/ investment in EE and renewables
USA After “Starter Tax x 10”USA After “Starter Tax x 10” COCO22 emissions down by a third emissions down by a third Oil use down by ~5 million barrels/dayOil use down by ~5 million barrels/day EnergyEnergy
Coal-fired generation reducedCoal-fired generation reduced Wind and other renewable generation increasedWind and other renewable generation increased Incandescents / halogens Incandescents / halogens outout, CFL’s + LED’s , CFL’s + LED’s inin
Transportation and Land-UseTransportation and Land-Use SUVs SUVs outout, sedans , sedans inin Costlier air and highway travel creates market pull Costlier air and highway travel creates market pull
for 300-mph intercity railfor 300-mph intercity rail Urban trips by bicycle up 10x, to 10%Urban trips by bicycle up 10x, to 10% Urban revitalizationUrban revitalization
The Wealthy Will Pay More
““Progressive” Use ofProgressive” Use of Carbon Tax Revenues Carbon Tax Revenues
EITHEREITHER DistributeDistribute pro rata to 320 pro rata to 320
million Americans (~ million Americans (~ $1,500 each, per year)$1,500 each, per year)
OROR Tax ShiftTax Shift out of regressive out of regressive
taxes (green bar at right taxes (green bar at right assumes 2.5%/yr drops in assumes 2.5%/yr drops in emissions (net of +1.5%/y emissions (net of +1.5%/y income, - 4%/y price)income, - 4%/y price)
0
100
200
300
400
500
Tax Revenues$Billions (2004)
SalestaxesSoc Sec(workers)Carbon(10 yrs)
Two Fossil Fuel SubsidiesTwo Fossil Fuel SubsidiesBy Taxpayers: Relatively SmallBy Taxpayers: Relatively Small
By Climate: EnormousBy Climate: Enormous
0
100
200
300
400
500
600
Annual U.S. Subsidies, $ billions
FF Industry TaxBreaks (taxpreferences,agency support,lease discounts)
CO2 Damages toClimate, est'd @$1/gallon of gas($370 per ton ofcarbon)
Existing Carbon TaxesExisting Carbon Taxes(1(1stst-year Starter Tax shown for comparison)-year Starter Tax shown for comparison)
$0
$10
$20
$30
$40
$50
Sweden EU #1 EU #2 Boulder "Starter"
Per tonof car-bon
Politics?Politics? Concerns about carbon tax-shiftingConcerns about carbon tax-shifting
Contrary to Americans’ sense of Contrary to Americans’ sense of entitlement to “cheap energy”entitlement to “cheap energy”
Anti-tax ideology of past 25 yearsAnti-tax ideology of past 25 years Elected officials wary of another Elected officials wary of another
defeatdefeatClinton’s 1993 Btu taxClinton’s 1993 Btu taxRep. John Anderson’s “50-50” Rep. John Anderson’s “50-50”
program (1980 presidential campaign)program (1980 presidential campaign)
But: Growing Support for But: Growing Support for Taxing Carbon EmissionsTaxing Carbon Emissions
Opinion leadersOpinion leaders Al GoreAl Gore Scientists such as James Hansen (NASA)Scientists such as James Hansen (NASA) NY Times op-ed columnists Brooks, NY Times op-ed columnists Brooks,
Friedman, Kristof, Krugman & TierneyFriedman, Kristof, Krugman & Tierney Conservatives including Gregory Mankiw, Conservatives including Gregory Mankiw,
Bush chief Economic Advisor, 2003-2005Bush chief Economic Advisor, 2003-2005 CEO’s of Dynegy & FPL GroupCEO’s of Dynegy & FPL Group
Some Support in Opinion PollsSome Support in Opinion Polls Feb. 2006 New York Times pollFeb. 2006 New York Times poll
55% would support increased tax on gasoline if 55% would support increased tax on gasoline if it reduced dependence on foreign oil.it reduced dependence on foreign oil.
59% would support if the increased tax would 59% would support if the increased tax would curb energy consumption and global warming.curb energy consumption and global warming.
Oct. 2006 M.I.T. surveyOct. 2006 M.I.T. survey Over three years, 50% increase in respondents’ Over three years, 50% increase in respondents’
willingness to pay more for electricity to willingness to pay more for electricity to reduce global warming.reduce global warming.
Carbon Tax v. Cap-and-TradeCarbon Tax v. Cap-and-Trade Cap-and-trade is alternative vehicle for “putting a Cap-and-trade is alternative vehicle for “putting a
price” on carbonprice” on carbon Proposed by US CAP Proposed by US CAP –– coalition of large coalition of large
environmental groups and large corporationsenvironmental groups and large corporations Emissions are capped at a level determined through Emissions are capped at a level determined through
the political processthe political process Allowances/permits to emit COAllowances/permits to emit CO22 up to the cap are up to the cap are
distributed or auctioneddistributed or auctioned Market participants can buy or sell as necessaryMarket participants can buy or sell as necessary
Cap v. Tax: Predictable PricesCap v. Tax: Predictable Prices
Carbon taxes provide predictable prices Carbon taxes provide predictable prices necessary to encourage investment innecessary to encourage investment in less carbon-intensive technologyless carbon-intensive technology carbon-reducing energy efficiencycarbon-reducing energy efficiency carbon-replacing renewable energycarbon-replacing renewable energy
Cap-and-trade aggravates price volatility Cap-and-trade aggravates price volatility that discourages beneficial investmentsthat discourages beneficial investments
Are We Over-Valuing Cap-and-Are We Over-Valuing Cap-and-Trade’s “Emissions Certainty”?Trade’s “Emissions Certainty”?
““Safety-valve” would authorize auctioning Safety-valve” would authorize auctioning additional allowances if allowance prices additional allowances if allowance prices exceed predetermined levelexceed predetermined level
Emissions cap could be politically fragile Emissions cap could be politically fragile without public support without public support
No magic emissions level (except as low as No magic emissions level (except as low as possible)possible)
Tax v. Cap: TimingTax v. Cap: Timing C&T design and implementation: complicated, C&T design and implementation: complicated,
contentious, prolongedcontentious, prolonged Level of capLevel of cap TimingTiming Allowance allocationsAllowance allocations Certification proceduresCertification procedures OffsetsOffsets PenaltiesPenalties Permit bankingPermit banking Inevitable requests for exemptionsInevitable requests for exemptions
Tax can be in place promptly with quick resultsTax can be in place promptly with quick results
Tax v. Cap: EquityTax v. Cap: Equity Cap-and-tradeCap-and-trade
Practice has been to allocate based on past usePractice has been to allocate based on past use Rewards polluters with windfallRewards polluters with windfall Perverse incentive to pollute more now to increase base Perverse incentive to pollute more now to increase base
for allocations for allocations Allowances can be auctioned off to highest biddersAllowances can be auctioned off to highest bidders
Proposed in RGGI programProposed in RGGI program Proceeds used to provide public benefitsProceeds used to provide public benefits
Lawyers and consultants are other big winnersLawyers and consultants are other big winners Carbon tax would be revenue-neutralCarbon tax would be revenue-neutral
Tax v. Cap: UnderstandabilityTax v. Cap: Understandability
Carbon taxes provide direct, transparent and Carbon taxes provide direct, transparent and understandable price signals to consumersunderstandable price signals to consumers Perceived political liability, but essential to Perceived political liability, but essential to
transform societal climate-awarenesstransform societal climate-awareness
Cap-and-trade is complicated and opaqueCap-and-trade is complicated and opaque Perceived political asset, but limits public Perceived political asset, but limits public
participation and could backfireparticipation and could backfire
Tax v. Cap: ComprehensivenessTax v. Cap: Comprehensiveness Carbon taxes address emissions from every Carbon taxes address emissions from every
sectorsector All users must respond to price of carbonAll users must respond to price of carbon
Most current cap-and-trade programs, as Most current cap-and-trade programs, as proposed, only target the electricity industryproposed, only target the electricity industry Only 40% of emissionsOnly 40% of emissions If allowances are allocated, polluters with If allowances are allocated, polluters with
sufficient allowances have less incentive to sufficient allowances have less incentive to reduce emissionsreduce emissions
Keys to Political SuccessKeys to Political Success Progressive Tax-ShiftingProgressive Tax-Shifting
Not a tax increaseNot a tax increase Carbon tax revenues used to reduce regressive Carbon tax revenues used to reduce regressive
payroll and sales taxespayroll and sales taxes Provisions to Protect Low-Income FamiliesProvisions to Protect Low-Income Families
Reductions in payroll/sales taxes will offset all or Reductions in payroll/sales taxes will offset all or a portion of the carbon taxa portion of the carbon tax
Other measures to reduce low-income energy useOther measures to reduce low-income energy use Message: Taxing pollution instead of Message: Taxing pollution instead of
productive work productive work
SummarySummary PrinciplesPrinciples
Tax-shifting Tax-shifting – – notnot a tax a tax increaseincrease
Full-cost pricingFull-cost pricing Polluter paysPolluter pays
Responds to concerns aboutResponds to concerns about Climate crisisClimate crisis Inequitable taxesInequitable taxes Security / Oil dependenceSecurity / Oil dependence Basing economy on Basing economy on
vulnerable energyvulnerable energy www.carbontax.org