This speaks to what I have been advocating for years: It’s Time for a Carbon Tax : The New Yorker Icarus
I would say this it not the right way to go about it. It really is talking in terms of sin taxes. Alcohol and cigarettes are sins so people using them should pay more for their sins. The guy drinking moderately at home really is not in need of a bigger government with more police. This morality does appeal to some on the right and the left, but let us not justify a bigger tax bill on the idea that using gas and electricity is a sin. What is the matter with the sin tax idea when it comes to carbon. Clinton found out. His carbon tax gave loopholes many of the good utilities even though they were the biggest contributors to pollution, because they were big contributors to politicians. Give congress a chance and they will hand out pork to their friends in any sin tax scheme. A different argument that is similar is a pure economic one. Coal pollution causes health care costs to rise. Oil consumption increases the trade deficit and makes the economy less competitive. If we tax electricity pollution more, more will shift to healthier sources. If we tax oil more, people will stop using it for home heating and will switch to more efficient vehicles. If we price federal insurance competitively, fewer will build expensive building and move into harms way. Now because of the balance of trade issue, and the national security issues, oil should be taxed at a higher level than its carbon output. Currently its not even paying for federal highway funds. Take it out of the equation and add a higher tax. Exports of refined products could be exempt, and imports of refined products taxed. That would eliminate competitive pressures. This will hurt farming and trucking disproportionately, but it should be about what is good for the country, not special interest groups. Part of the tax should pay for natural gas pipelines to get rid of oil heat in the north east, it is time to subsubsidiszing things that hurt us. On electricity pollution this can include ghg, but should definitely tax SO2, NOx, particulates, and mercury higher. It can be in the form of cap and trade or a tax. Remove all the grandfathering of old most polluting coal plants. One problem is competitiveness on imports. In electricity heavy industries this may hurt manufacturing, and care must be taken to either impose tarrifs, or provide tax credits for these. Otherwise we will just be exporting our pollution. If new taxes are used to say, help fix medicare and medicade it may work. If the taxes are earmarked for companies like solyndra it will be a fail. Unfortunately looking at the sunday morning shows, there do not appear to be many adults in congress. I don't think a carbon tax will get passed without big giveaways to certain companies. Carbon Tax Center » Brief History
No way it will get passed. After-all this do-nothing congress is many factors worst then the actual "do nothing congress" many decades ago. I don't really see a problem with sin taxes. And we know they work. Even the current tiered electrical system in use in many states is essentially a "sin tax" as you put it. It doesn't actually cost more to give you that 1 extra KW between tiers, it just makes you think twice about using enough to get you in that tier. Or our water supply here in CO. We have been in drought for many years, snow is bad, population is rising. At first they just told people, use less water... That didn't do anything. Then they told people you should only water your lawn 4 times a week at most... 3 times a week... 2 times a week... Some people listened, some didn't. My neighbour watered every day still as did most people with automatic sprinklers. It was too much hassle to push those little buttons in to change the cycle! So they introduced a 4 tier system. If you just took showers, laundry, and dishes a normal household would pay no more. If you took a bath every day, or watered your lawn religiously, you would get stuck in a higher tier and pay a boatload more water. Shortly after this was introduced, my neighbour started watering every other day. A 50% reduction in watering thanks to the tax. I mention the water and drought because it is the same thing. It is a finite resource, that people are disconnected from the gathering and processing, and only see the final stage of distribution. Except it happens faster and at worse levels. Here you actually see water levels in reservoirs so low that the dock had to be extended. A couple bad seasons of snow fall in ski country. Forcing to use less through financial arm twisting. It starts to click, "hey maybe we don't have unlimited water". And it does work. Yeah people were pissed off a lot in the beginning. Some people are still pissed off now. But you learn to live with it, and when you drive down to the lakes and they are near empty, hopefully you realize it is for the greater good. And I know people love to pick on "the greater good". But it is what it is, and there are reasons when sometimes you shouldn't be selfish. The great thing about a "sin tax" is that you can pay to play. If you want to water your lawn every day, and it is worth it to you to pay that extra, then go ahead. Nobody is stopping you. If you want to smoke 2 packs of cigarettes a day, go ahead. Nobody is stopping you. It restricts no freedom, it just makes it more expensive to do stupid things. Ordinary people aren't effected.
I guess its a sin for the farmer to use a tractor for his crop, and to ship food in trucks. Then it must mean its a sin to eat that food. Now go back and read why carbon tax failed last time, and you may get a little more understanding. My link was from the organization that actually wants an effective tax. Carbon Tax Center » Myths A revenue neutral tax that worked with market pressure has much more of a chance to get through without the pork associated with a sin tax. You don't use cigarettes to live, and its not a part of our religions. Alcohol, those taxes have not really worked to reduce alcoholism. Its more of a part of life. When you make farming and driving to work a sin, you really get into dangerous territory. Water conservation practices that are effective are never implemented as a sin tax.
If the farmer want to have a giant farm and ship things miles away, then he has to pay to do so. If he is worried about his tractor, buy a better tractor or an electric. Or put up some wind turbines above his crops to offset it. Not a big deal. Yes it will cost more. Yes consumers will pay more. Cheapest does not mean best.
I don't disagree here, but growing food is not a sin. So Big Ag adds tax breaks for farmers using diesel as an exemption to the sin tax bill. Heating your home is not a sin, so North East politicians give tax money to those with oil heat. Creating it as a sin tax means the congress grants huge loopholes. This as much as anything else killed the btu tax and cap and trade scheme. Huge government giveaways to connected groups, and higher taxes on those sinning. In the EU cap and trade scheme, there was also a huge giveawy of credits to those that politicians favored, giving windfall profits to connected industries. This is justified by the sin tax idea. If you argue on the market idea, you do have to let that farmer take a hit. Perhaps you protect him for 5 years to change crops, but you have to let the tax hit. Otherwise those exempted simply use more (oil,coal, etc) and those not pay a higher price. That is what I am arguing, a market tax, not a sin tax. That changes implementation. I don't really care if richy rich drives his speedboat fast as long as the net impact on oil is reduced with a tax. Richy rich, and Senator Coal are going to pollute no matter what we do. Let's make sure its not a sin tax, so that Senator coal can't write special moneys into his state to keep burning as much coal. Carbon taxes are regressive, and that is not a good thing, but things can be done. For it to work though this must be done is a proper way. Perhaps reducing payroll tax rates, increasing amount of salary affected, and means testing benefits. This is strong medicine that I doubt congress is willing to help fix.
How about a carbon tax on the wealthy making greater that 250K individual or $500K family. I cannot afford to be taxed any more. This lot can afford to pay extra taxes. But if you want to gave a tax break to all Hybrid owners every year I'm all for that.
The author got the economics dead wrong. A Pigouvian tax is not a sin tax. In particular, taxes on alcohol and tobacco in the US are sin taxes, but not Pigouvian taxes, by and large. A Pigouvian tax is intended to cover the cost of the damage that you cause to others. It is there to make up one part of a "missing market", that is, some external effect of consumption that the consumer doesn't pay for. It's just asking for consumption to reflect full cost. It's asking the rational consumer see the full cost of the act of consumption, including the non-market impact on others. It's not punishment, it's not a moral judgment. It's just an attempt to provide a price for items for which there is no market, e.g., additional damage from climate change. By contrast, a "sin tax" as currently implemented in the US is intended to reduce the damage that you do to yourself. While there is some discussion of (e.g.) drunk driving, almost all policy discussion of "sin taxes" centers on public health concerns for the consuming individuals, not for the external costs they impose on others. The policy debates on sin taxes are almost entirely about reducing rates of addiction and disease in the population. Certainly, dollar-weighted, modern US sin taxes are most motivated by public health concerns, not by sin in the religious sense. So, for example, a tax on sugary soft drinks isn't there because the Bible has an injunction against high-fructose corn syrup, it's there because cheap sugary sodas have been implicated in childhood obesity. Similarly, I'm fairly sure there is no direct religious injunction against smoking. The point of a stiff tobacco tax (other than revenue) isn't to reduce (e.g.) second-hand smoke damage, or to promote virtuous behavior, but largely to deter teenage addiction and to encourage adult addicts to quit. In a nutshell, you impose a Pigouvian tax if what you are doing is bad for others, you impose a "sin tax" if what you are doing is bad for you. The problem with a Pigouvian tax is that it's only half the equation. It doesn't stop the damage, you typically don't even shift the money around to try to pay for the damage. Its only purpose is to make the consumer see a higher price, so that the consumer is not consuming a more-than-optimal amount. So, it's like charging a tax on disposable containers under the pretext that disposables generate litter -- then not using the money to pick up the litter. It's like the former CEO of Shell Oil said, this isn't a moral issue, it's a waste disposal problem, and should be treated as such. I think this guy downplays the severity of the issue, but treating this as a waste disposal cost is the heart of what the debate ought to be about. And he gets it: It's not enough to make carbon emissions pay for the damage they cause, you actually have to dispose of them as waste. Former Shell Oil president: Global warming debate is over - CSMonitor.com I guess as an afterthought I should point out that this point of view can be quite different from a Pigouvian tax. For a Pigouvian tax, you figure out the cost of the damages, you make the user pay that ... then you let the world go to hell. Or not. What you do with the money isn't really the issue. As long as the rational consumer is paying the appropriate cost. Under a waste disposal approach, you charge for the cost of disposing of the waste, then you actually dispose of the waste. You pay to keep the world the way it is now, even if the cost of that exceeds the cost of the damages from doing nothing. So the "waste disposal" framework is more in tune with the eco-purist -- damn the cost, don't trash the planet. Other than total costs, and the actual physical state of the planet, they have very different implications for redistribution, or, vaguely, "fairness". To the extent that the damages likely fall equally on all, or disproportionately on the 3rd world, while the CO2 emissions are largely from the 1st world, the 3rd world is unambiguously better off under a "waste disposal" framework than under a simple Pigouvian tax. Another way to think of it is elasticity of demand. A Pigouvian tax results in less climate change only to the extent of the elasticity of demand for fossil fuels. If demand is inelastic -- if nobody reduces use when you raise the price modestly, say -- then a Pigouvian tax does nothing to reduce climate change. By contrast, a "waste disposal" framework guarantees no change, but at a potentially large cost. For a lot of reasons, I think a classic Pigouvian tax isn't going to cut it here. Inelastic demand for fossil fuels is just one of them. But this post is already way too long. Let me just leave that as an opinion, not an argument, and be done.
I accept the possible semantic diffence, and indeed understand that most actions (including taxes) have unintended consequences, on a strict benefit basis, a carbon tax makes much sense, IMHO. A properly designed, administered and levied tax makes even more sense. A transparent carbon tax, where people can see and understnd the costs of thier choices (if not the all the reasons for those choices) and the revenue stream is generally directed to mitigate the costs of carbon, the net result is likely to be, a reduction in carbon emissions, because, after all people vote with thier wallets to a great extent. Icarus
Right, I kind of agree with that. But when you see "deficit reduction" in the article, and discussion of lowering other taxes, that means they are talking about using the money for something else, not for repairing the damage. And from what I read, that's typical. Discussion of a US carbon tax isn't about a tax, scaled to be large enough to clean up the mess, whose revenues are devoted to cleaning up the mess. It's about a tax, scaled to equal the cost of the damage (or some arbitrary revenue target), devoted to (in the US) a combination of lowering the deficit and lowering other taxes. The "scaled to equal the cost of the damage" is what makes it a Pigouvian tax. Maybe some sliver of the money will get devoted to mitigation. But mostly it's earmarked for deficit reduction or reduction of income taxes. So I wasn't just being picky about semantics. To a close approximation, the only climate benefit from the taxes currently on the table is via reducing fossil fuel demand with higher prices. There's no plan to devote all or a substantial portion toward mitigation. And I think that's a mistake. And I think that not scaling the size of the tax to equal the cost of preventing the damage is also a mistake. Making fossil fuel prices reflect full costs is a good start. For that, we ought to start by making gas taxes cover the cost of the roads -- which they do not even come close to doing. I just don't think that making them reflect full costs, by itself, is enough to get the job done.
OK, I didn't quite understand from the author, but have read up a little bit. Alcohol and a polluting factory were given as examples, and in 1920 when examples were given the alcohol example made more sense Its not 1920 anymore, but the idea of using taxes to price in externalities is an intriguing one, but a poor idea when it comes to ghg. Well the idea is simply taxing will reduce use and reduce these externalities. In the case of oil consumption this may work. There are two big problems. First the government can't agree on how to price the externality. The second is that simply imposing a regressive tax, will have negative consequences if it is big enough to work. That means some taxes on the poor need to be lowered when the higher oil taxes are added. Problems with the oil tax part of clinton btu can be addressed - Reduction in payroll tax if high, perhaps along with higher caps and means testing as payroll tax is really insolvent - Tax imported refined products, exempt exported refined products to not just shift refining to canada and mexico - No loopholes, forget about the giveaways to heating oil, trucking, and farming - Slowly rising tax, as vehicles are kept a long time, it needs to change behavior for best bang for buck, put in a provision to be able to suspend the tax in oil price spikes A carbon tax simply won't reduce ghg from electricity production in most states though. There are regulatory hurdles. Consumers simply will get the tax passed along to them in coal states where regulators allow it. In a state like texas where deregulation allows competition and choice it may have a big impact. That is part of the reason for cap and trade. Its much cheaper for texas utilities to reduce carbon than say those in west virginia. What is needed before it can work in coal states is large regulatory reform allowing competitors to build natural gas plants to compete with coal, and removing of the grandfathering of coal plants. Yes but if the consumer can not change behavior then what you do with the money is really important. First since CO2 is not waste it is difficult to dispose of once it is produced. You can mitigate its damage by building sea walls and irrigation systems. We seem to be doing the opposite and are subsidizing building in harms way with cheap government insurance and farm subsidies. I have no idea how a waste disposal scheme could guarantee no change. The last 2 interglacials had sea levels rising much higher than current ones without man made ghg. You can mitigate, you can reduce production, but you can't guaranty nature won't bit you in the A%% no matter what you pay. Agree here.
Yes, the taxes will inevitably be passed through to the consumer, especially in the elecric utility rate you cite. But that is precisely the point! If my electric bill goes up 10% due to carbon tax, I have the choice to reduce consumption (in most cases!) simply or complexly. I can either turn off some of the lights, or replace bulbs with LEDs, or, or... Is the devil in the details? Of course, but like with anything, the perfect ought not be the enemy of the good. Let's assume for the sake of argument that a carbon tax "raises" $X billion in revenue. Let's also assume that the bulk of that revenue is directed toward programs that decrease the impact on people, (energy programs, mass transit, environmetal clean up etc). If people marginally change thier behavior as a result, by reducing thier net carbon foot print, is that not admirable goal? Bottom line, if you accept that the externalities of carbon are not being paid now, and you accept tht carbon emission is a real problem, then a carbon tax is a viable solution for SOME if the problem. What's not to like? Icarus
Most people that care already do that. The big decrease in ghg has to be switching, and the US has been doing this but could be doing it faster. Over the last 20 years much natural gas and wind has been built. It will take regulatory reform to use this. In a state like texas where reform has already happened, it just would take some tweaking of the rules. Peoples electricity demand down where I live is pretty dependant on how hot the summer is, not how much electricity costs. Mom always turns off everything even without a tax The low cost of natural gas, and lawsuits seem to be doing the trick, but reform has to happen if a tax will be effective in most states. I have a problem with calling that doing it right. You are talking about raising a regressive tax, especially to hard hit low income people in west virginia and montana then giving the money for say expanding a light rail say in austin, where we can easily just switch to more natural gas and wind and avoid the bulk of the tax. We already have efficiency programs built into our utility bills, we don't need a federal tax for that. If congress gets this as a money pot, like they have in europe, spending just continues to spiral up. If you happened to be born by a hydro electric damn you win even more. That's why to do it right there needs to be some reduction taxes those hardest hit pay, and that likely is only the payroll tax. Perhaps we can cut defense spending too while we are at it, and use some of that money for mass transit and environmental clean up. As I said I am infavor of an oil tax. I would like to see a cap and trade or carbon tax as well if it is done right. If it is done the way the '93 btu tax, or the congressional cap and trade proposal no thanks. We need to set it up with lessons learned and a lot less pork.
The CRS proposal mentioned in the New Yorker article calls for $20 tax per metric ton of CO2 emissions, all of which was dedicated to deficit reduction. If fully passed on to the consumer, that would work out to: 18 cents per gallon of gas 1.4 cents for the typical US kilowatt-hour 10 cents per therm of natural gas. You can guesstimate the resulting environmental benefits from that. FWIW, the 18 cents doesn't even bring total (federal and state) gas taxes up to covering the cost of the US road network.
