AFNY

CarbonTaxes First: 

Carbon Taxes First Charles Komanoff & Dan Rosenblum Carbon Tax Center www.carbontax.org April 24, 2007

Global Warming Is …: 

Global Warming Is … Triggering a climate crisis that threatens massive and irreversible damage to our global environment, public health, world peace, national security and economic well-being. No longer seriously contested by anybody other than vested interests, their hired “experts” and indebted politicians. See An Inconvenient Truth and IPCC Fourth Assessment.

Slide3: 

Warmer Winters: 4.3ºF, 1971-2002 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 Weather: 

More Extreme Weather Cameron Wake, UNH Extreme Precipitation Events, % Increase 1949-2002

The Problem:Unsustainable CO2 Emissions Worldwide: 

The Problem: Unsustainable CO2 Emissions Worldwide World must reduce emissions ~80% by 2050, with big cuts starting now. Americans are emitting many times our share of CO2 (next slide). Americans must reduce by >80%.

Americans Emit in a Day What Others Emit in a Workweek: 

Americans Emit in a Day What Others Emit in a Workweek

What about China?: 

What about China? “In an alliance of denial, China and the United States are using each other’s inaction as an excuse to do nothing.” – New York Times editorial, 4-20-07 U.S. China Lines X in 2009 U.S. China Lines X in 2009 U.S. China X

Chemistry → Responsibility: 

Chemistry → Responsibility Because CO2 stays “resident” in the atmosphere for at least a century, one hundred years of fossil-fuel use drive climate responsi- bility. U.S. still has a 40-50-year lead. U.S. China Lines X in 2009 U.S. China Lines X in 2009 U.S. China X

No More Free Dumping: 

No More Free Dumping “Since the dawn of the industrial revolution, the atmosphere has served as a free dumping ground for carbon gases. If people and industries are made to pay heavily for the privilege, they will inevitably be driven to develop cleaner fuels, cars and factories.” — Avoiding Calamity on the Cheap, Nov. 3, 2006 New York Times editorial

Putting a Price on CO2 Emissions: 

Putting a Price on CO2 Emissions High taxes on carbon emissions from coal, oil and natural gas will: Reduce fossil fuel use and CO2 emissions Substitution of clean fuels and technology More efficient use of energy Provide a revenue stream to enable Progressive tax-shifting, or Rebate to all U.S. residents

Additional Benefits of a Carbon Tax: 

Additional Benefits of a Carbon Tax Carbon tax receipts may also be used to finance Energy efficiency, further reducing use of fossil fuels and related emissions. Energy R&D. Will also reduce dependence on foreign oil, with major national security benefits. Economically, will keep dollars in USA instead of flowing overseas.

Rely on “Market Forces”? Here Come Synfuels: 

Rely on “Market Forces”? Here Come Synfuels Only a carbon tax can subject CO2-intensive oil sands, oil shale, coal-into-oil, etc. to a climate- appropriate market test.

Clean-Energy Subsidies:A Limited Answer: 

Clean-Energy Subsidies: A Limited Answer Selecting the next best energy technology by fiat has largely benefited lobbyists + special interests Oil shale, nuclear power, synfuels, ethanol, etc. Many new sources also emit CO2 Renewable Portfolio Standards: helpful – but not enough

Efficiency Standards:Vital, but Not Enough: 

Efficiency Standards: Vital, but Not Enough Too slow Corporate resistance Inherently reactive Corporate gaming (e.g., “CAFE” loophole that enabled SUV’s) Scattershot – impossible to regulate the hundreds of important energy-usage sectors 1-dimensional (e.g., CAFE doesn’t affect miles driven)

Slide15: 

More than Half of U.S. Oil Use Is Not Gasoline for Cars Cars Freight Heat, Power Other Air Paving RV’s

Example - Gas Use Decisions: 

Example - Gas Use Decisions Gas Tax-Shift impacts: How high CAFE is set Mfg’er mpg decisions What car to buy Which car to drive How to drive VMT (miles traveled) Share (carpool) Chain trips Transit Walk/Bike Proximity CAFE impacts: Mfg’er mpg decisions What car to buy

Dynamic Capitalism & CO2: I: 

Dynamic Capitalism & CO2: I “ … specially equipped, privately owned jumbo jets – the kind that normally carry 300-400 passengers … recon- figured … for the enjoyment of, at most, 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: II: 

Dynamic Capitalism & CO2: II Backyard Blizzards: “Snowmaking, since the mid-1960s the provenance of ski resorts and, more recently, some party planners, has gone domestic,” with 2-kW plug-in snowmakers that run ’round-the-clock. New York Times (Home Section) 15-Feb-2007: Not Enough Snow For You? Talk to Your Father

Example - Electricity: 

Example - Electricity Utilities and other generators will Respond to price signal by substituting lower-carbon fuels Renewables Natural Gas Invest in efficiency on demand- and supply-side Consumers will Respond by using less Substituting low- or non-carbon energy

Carbon Tax Proportions: 

Carbon Tax Proportions Fuels are taxed by their carbon content per btu

A “Starter” Carbon Tax-Shift: 

A “Starter” Carbon Tax-Shift $37 / ton of carbon = 10¢ / gallon of gasoline, jet fuel, etc. = 0.72 ¢ / kWh (U.S. retail average) Reduces U.S. CO2 emissions ~ 4% Repeat 10 X (while standards and incentives also cut emissions)

Energy Use: Not Inelastic: 

Energy Use: Not Inelastic Gasoline usage grew only 3.5% from 2003 to 2006, while the economy grew 11%. Pump prices have risen < 50% since 2003 (adjusted for inflation) – not the doubling commonly believed. The modest growth in demand points to a “short-term price elasticity” of around 0.1, and 0.4 in the long term. Finding: Demand for gasoline (and other fuels) is at least somewhat price-sensitive.

Elasticity (long-run) Assumptions: 

Elasticity (long-run) Assumptions Gasoline: ­ 0.4 Electricity Residential (37%) - 0.5 Commercial / Industrial (63%) - 1.0 Fuel-switching Leverage: 1.2 x “Other” – midway bet. Gasoline/Elect. U.S. CO2 Reductions

Starter Tax – Why Ramp Up?: 

Starter Tax – Why Ramp Up? Win broad consensus Implement ASAP Help people and businesses adapt Empirical validation of efficacy Mid-course corrections Establish long-term price trajectory Complement w/ investment in EE and renewables

USA After “Starter Tax x 10”: 

USA After “Starter Tax x 10” CO2 emissions down by a third Oil use down by ~5 million barrels/day Energy Coal-fired generation reduced Wind and other renewable generation increased Incandescents / halogens out, CFL’s + LED’s in Transportation and Land-Use SUVs out, sedans in Costlier air and highway travel creates market pull for 300-mph intercity rail Urban trips by bicycle up 10x, to 10% Urban revitalization

Slide26: 

The Wealthy Will Pay More

“Progressive” Use of Carbon Tax Revenues: 

“Progressive” Use of Carbon Tax Revenues EITHER Distribute pro rata to 320 million Americans (~ $1,500 each, per year) OR Tax Shift out of regressive taxes (green bar at right assumes 2.5%/yr drops in emissions (net of +1.5%/y income, - 4%/y price)

Two Fossil Fuel SubsidiesBy Taxpayers: Relatively SmallBy Climate: Enormous: 

Two Fossil Fuel Subsidies By Taxpayers: Relatively Small By Climate: Enormous

Existing Carbon Taxes(1st-year Starter Tax shown for comparison): 

Existing Carbon Taxes (1st-year Starter Tax shown for comparison) Per ton of car-bon

Politics?: 

Politics? Concerns about carbon tax-shifting Contrary to Americans’ sense of entitlement to “cheap energy” Anti-tax ideology of past 25 years Elected officials wary of another defeat Clinton’s 1993 Btu tax Rep. John Anderson’s “50-50” program (1980 presidential campaign)

But: Growing Support for Taxing Carbon Emissions: 

But: Growing Support for Taxing Carbon Emissions Opinion leaders Al Gore Scientists such as James Hansen (NASA) NY Times op-ed columnists Brooks, Friedman, Kristof, Krugman & Tierney Conservatives including Gregory Mankiw, Bush chief Economic Advisor, 2003-2005 CEO’s of Dynegy & FPL Group

Some Support in Opinion Polls: 

Some Support in Opinion Polls Feb. 2006 New York Times poll 55% would support increased tax on gasoline if it reduced dependence on foreign oil. 59% would support if the increased tax would curb energy consumption and global warming. Oct. 2006 M.I.T. survey Over three years, 50% increase in respondents’ willingness to pay more for electricity to reduce global warming.

Carbon Tax v. Cap-and-Trade: 

Carbon Tax v. Cap-and-Trade Cap-and-trade is alternative vehicle for “putting a price” on carbon Proposed by US CAP – coalition of large environmental groups and large corporations Emissions are capped at a level determined through the political process Allowances/permits to emit CO2 up to the cap are distributed or auctioned Market participants can buy or sell as necessary

Cap v. Tax: Predictable Prices: 

Cap v. Tax: Predictable Prices Carbon taxes provide predictable prices necessary to encourage investment in less carbon-intensive technology carbon-reducing energy efficiency carbon-replacing renewable energy Cap-and-trade aggravates price volatility that discourages beneficial investments

Are We Over-Valuing Cap-and-Trade’s “Emissions Certainty”?: 

Are We Over-Valuing Cap-and-Trade’s “Emissions Certainty”? “Safety-valve” would authorize auctioning additional allowances if allowance prices exceed predetermined level Emissions cap could be politically fragile without public support No magic emissions level (except as low as possible)

Tax v. Cap: Timing: 

Tax v. Cap: Timing C&T design and implementation: complicated, contentious, prolonged Level of cap Timing Allowance allocations Certification procedures Offsets Penalties Permit banking Inevitable requests for exemptions Tax can be in place promptly with quick results

Tax v. Cap: Equity: 

Tax v. Cap: Equity Cap-and-trade Practice has been to allocate based on past use Rewards polluters with windfall Perverse incentive to pollute more now to increase base for allocations Allowances can be auctioned off to highest bidders Proposed in RGGI program Proceeds used to provide public benefits Lawyers and consultants are other big winners Carbon tax would be revenue-neutral

Tax v. Cap: Understandability: 

Tax v. Cap: Understandability Carbon taxes provide direct, transparent and understandable price signals to consumers Perceived political liability, but essential to transform societal climate-awareness Cap-and-trade is complicated and opaque Perceived political asset, but limits public participation and could backfire

Tax v. Cap: Comprehensiveness: 

Tax v. Cap: Comprehensiveness Carbon taxes address emissions from every sector All users must respond to price of carbon Most current cap-and-trade programs, as proposed, only target the electricity industry Only 40% of emissions If allowances are allocated, polluters with sufficient allowances have less incentive to reduce emissions

Keys to Political Success: 

Keys to Political Success Progressive Tax-Shifting Not a tax increase Carbon tax revenues used to reduce regressive payroll and sales taxes Provisions to Protect Low-Income Families Reductions in payroll/sales taxes will offset all or a portion of the carbon tax Other measures to reduce low-income energy use Message: Taxing pollution instead of productive work

Summary: 

Summary Principles Tax-shifting – not a tax increase Full-cost pricing Polluter pays Responds to concerns about Climate crisis Inequitable taxes Security / Oil dependence Basing economy on vulnerable energy www.carbontax.org