Argument for a Argument for a Carbon TaxCarbon Tax

Sergio RodriguezSergio RodriguezBronwyn TurnerBronwyn TurnerStephanie LeeStephanie Lee

No More Free DumpingNo More Free Dumping

“Since the dawn of the industrial revolution, the “Since the dawn of the industrial revolution, the atmosphere has served as a free dumping 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 develop privilege, they will inevitably be driven to develop cleaner fuels, cars and factories.”cleaner fuels, cars and factories.”

—— Avoiding Calamity on the CheapAvoiding Calamity on the Cheap, Nov. 3, 2006, Nov. 3, 2006New York Times editorialNew York Times editorial

What’s a carbon tax?What’s a carbon tax?

??A tax on the carbon A tax on the carbon dioxide emissions from dioxide emissions from burning fossil fuelsburning fossil fuels??Levies a fee on the Levies a fee on the

production, distribution or production, distribution or use of fossil fuels based on use of fossil fuels based on how much carbon their how much carbon their combustion emitscombustion emits

Why a carbon tax?Why a carbon tax?

??Form of market regulation Form of market regulation that can be implemented that can be implemented quicklyquickly??Current cost of fuels do not Current cost of fuels do not

take into account the cost take into account the cost of pollution and other of pollution and other negative externalities negative externalities associated with their associated with their related carbon emissionsrelated carbon emissions

Benefits of Carbon TaxBenefits of Carbon Tax

??Easy to Implement:Easy to Implement:??Government agencies already have the Government agencies already have the

necessary tools required to impose the taxnecessary tools required to impose the tax??Can be applied to fuels using a standard unit Can be applied to fuels using a standard unit

of measurementof measurement??Example: lbs. Carbon/BtuExample: lbs. Carbon/Btu

Source: Carbon Tax Center

Carbon Content per MMBTUCarbon Content per MMBTU

??Subbituminous Subbituminous coal = 213 lbs. coal = 213 lbs. COCO22/MMBtu. /MMBtu. ??Bituminous coal = 205 lbs. COBituminous coal = 205 lbs. CO22/MMBtu./MMBtu.??Residual fuel = 174 lbs. COResidual fuel = 174 lbs. CO22/MMBtu ./MMBtu .??Natural gas = 117 lbs. CONatural gas = 117 lbs. CO22/MMBtu. /MMBtu.

Source: Edison Electric Institute

Application of the taxApplication of the tax

0

1

2

Relative taxrate per btu

GasOilCoal

Source: Carbon Tax Center

Hypothetical price per million Btu of fuel, with a tax of $50 per ton of carbon (not CO2) emitted. The higher the price, the dirtier the fuel.

Lignite $1.47 Subbituminous coal $1.45 Bituminous coal $1.40 Residual Fuel Oil $1.18 Crude Oil $1.12 Gasoline $1.07 Natural Gas $0.80

Benefits of carbon taxBenefits of carbon tax

??Revenue Uses*Revenue Uses*??Energy Efficiency and energy R&DEnergy Efficiency and energy R&D??Revenue could be used to reduce the deficitRevenue could be used to reduce the deficit??Rebate to all U.S. residentsRebate to all U.S. residents

??Should be revenueShould be revenue--neutralneutral??Little if any of the tax revenues raised by Little if any of the tax revenues raised by

taxing carbon emissions would be retained by taxing carbon emissions would be retained by governmentgovernment

SOURCE: Robert J. Shapiro, a private consultant who was a Commerce Department official in the Clinton administration

Benefits of carbon taxBenefits of carbon tax

??With a carbon tax, raising the price, will With a carbon tax, raising the price, will encourage industries and individuals to:encourage industries and individuals to:??Consume lessConsume less??Incentives to develop carbonIncentives to develop carbon--reducing reducing

measuresmeasures??Create innovating energy efficiency strategyCreate innovating energy efficiency strategy??Renewable energy strategyRenewable energy strategy??ConservationConservation--based behavior strategybased behavior strategy

Growing support for taxing Growing support for taxing carbon emissionscarbon emissions

??Opinion leadersOpinion leaders?? Al GoreAl Gore?? Scientists such as James Scientists such as James

Hansen (NASA)Hansen (NASA)??Conservatives including Conservatives including

Gregory Mankiw, Bush Gregory Mankiw, Bush chief Economic Advisor, chief Economic Advisor, 20032003--20052005

??CEO’s of Dynegy & FPL CEO’s of Dynegy & FPL GroupGroup

??Feb. 2006 New York Feb. 2006 New York Times pollTimes poll?? 59% would support tax if 59% would support tax if

it would curb energy it would curb energy consumption and global consumption and global warmingwarming

??Oct. 2006 M.I.T. surveyOct. 2006 M.I.T. survey??Over three years, 50% Over three years, 50%

increase in respondents’ increase in respondents’ willingness to pay more willingness to pay more for electricity to reduce for electricity to reduce global warmingglobal warming

Boulder, ColoradoBoulder, Colorado

??November, 2006, City residents voted to November, 2006, City residents voted to tax themselves for carbon usetax themselves for carbon use

Boulder, ColoradoBoulder, Colorado

??Charges residents and businesses a carbon tax Charges residents and businesses a carbon tax based on how much electricity they use:based on how much electricity they use:??Will raise average home bills $1.33 per month and Will raise average home bills $1.33 per month and

businesses will pay an extra $3.80 per monthbusinesses will pay an extra $3.80 per month??Will generate about $1 million for the city annuallyWill generate about $1 million for the city annually

??Money will fund:Money will fund:??Energy audits for homes and businessesEnergy audits for homes and businesses??Visits by energy experts to advise homeowners how Visits by energy experts to advise homeowners how

to save with energy efficient lighting and insulationto save with energy efficient lighting and insulation

Source: City of Boulder, Colorado

Carbon tax is superiorCarbon tax is superior

??Will lend predictability to energy prices, and will Will lend predictability to energy prices, and will encourage investments in less carbonencourage investments in less carbon--intensive intensive electricity generationelectricity generation??Can be implemented much sooner than complex capCan be implemented much sooner than complex cap--

andand--trade systemstrade systems??Are transparent and easily understandable, making Are transparent and easily understandable, making

them more likely to elicit the necessary public supportthem more likely to elicit the necessary public support??Can be implemented with far less opportunity for Can be implemented with far less opportunity for

manipulation by special interestsmanipulation by special interests??Revenues can be rebated to the public through Revenues can be rebated to the public through

dividends or taxdividends or tax--shiftingshifting

““It makes much more sense to tax It makes much more sense to tax things that are bad, like pollution, things that are bad, like pollution,

than things that are good, like than things that are good, like savings and work”savings and work”

Nobel Laureate Joseph StiglitzNobel Laureate Joseph Stiglitz

Advantage to CapAdvantage to Cap--andand--Trade SystemsTrade Systems

Billy CavalieriBilly CavalieriCherry BustamanteCherry Bustamante

Xin HeXin He

Different ApproachesDifferent Approaches

??An “Upstream” program would have An “Upstream” program would have several advantages over a “Downstream” several advantages over a “Downstream” one one ((Congressional Budget Office)Congressional Budget Office)

??ImplementationImplementation??Carbon Target Certainty Carbon Target Certainty ??CostCost--Effectiveness Effectiveness

A Guaranteed Cap on EmissionsA Guaranteed Cap on Emissions

??Sets a clear limit on emissions that is Sets a clear limit on emissions that is lowered each yearlowered each year

??Gives companies flexibility in the manner Gives companies flexibility in the manner in which they may achieve their emission in which they may achieve their emission targets targets (Catalysts Magazine)(Catalysts Magazine)

??Easier to Implement in Congress Easier to Implement in Congress (Bill Chameides, chief scientists of Environmental Defense)(Bill Chameides, chief scientists of Environmental Defense)

A Proven WinnerA Proven Winner

??Free market is the best program to Free market is the best program to develop innovations develop innovations (Environment Protection Agency)(Environment Protection Agency)

??Huge success with stopping acid rain in Huge success with stopping acid rain in the early 1990s the early 1990s (San Francisco Chronicle)(San Francisco Chronicle)

??Room for flexibility Room for flexibility

PermitsPermits

??Equal to one ton of pollutionEqual to one ton of pollution

??Financial valueFinancial value

??Benefits any company that is using or Benefits any company that is using or selling technologies that limit carbon selling technologies that limit carbon dioxide emissionsdioxide emissions

DiagramDiagram

Works Best ForWorks Best For

??Emissions that have a negative impact on Emissions that have a negative impact on broad geographic areasbroad geographic areas

??Cost of reducing emissions variesCost of reducing emissions varies

??Consistently and accurately measuredConsistently and accurately measured

Source: UCSUSA Publications

ProvidesProvides

??Incentives for early pollution reduction Incentives for early pollution reduction and innovations in control technologiesand innovations in control technologies??Compatibility with state and local Compatibility with state and local

programsprograms??Human health and environmental Human health and environmental

benefitsbenefits??Efficient use of government resourcesEfficient use of government resources

Source: U.S. EPA

Accountability for Accountability for Cap and TradeCap and Trade

??Transparent of emission and trading dataTransparent of emission and trading data??Sources report emission data frequently Sources report emission data frequently ??Construct nation system collect and verify emission Construct nation system collect and verify emission

data (e.g. Allowance Tracking System)data (e.g. Allowance Tracking System)

??Accurate for emissions measurement (e.g. Accurate for emissions measurement (e.g. Emission Tracking System)Emission Tracking System)??EPA check data qualityEPA check data quality??Provides automated feedback to sourceProvides automated feedback to source??Automatic penalties for noncomplianceAutomatic penalties for noncompliance

Cap and Trade Cap and Trade Minimizes CostMinimizes Cost

??Minimize compliance costMinimize compliance cost

??Minimize administrative cost to Minimize administrative cost to governmentgovernment

??CostCost--effectiveness methodeffectiveness method

CostCost--Effective MethodEffective Method

Source: UCSUSA Publications

Successful Story with Successful Story with Cap and TradeCap and Trade

??AcidAcid--rain program in the USrain program in the US

Source: U.S. EPA

This concludes our This concludes our presentationpresentation

Thank YouThank You