Wednesday, May 21, 2008

Carbon Tax or Cap-and-Trade or Both?

Whooee! Well friends an' foes, everybody's talkin' about Stephane Dion's tax shift plan. Right? No, they ain't. They're talkin' about Dion's carbon tax. Dumbass Dion shoulda come out and leaked the idea of a bigass change in the way the gummint collects taxes. First thing he shoulda leaked was a massive reduction in income and business taxes. Then, when everybody asks where the money's gonna come from, he comes clean an' tells 'em it's gonna come from a carbon tax.

But the absent-minded perfesser didn't think about politics and how the adoption of Green Party policy was gonna get spun an' twisted an' misrepresented. He shoulda thought o' that and the fact that he's bein' so dang clumsy in how this is comin'out might make some people question his political acumen.

Now everybody's talkin' carbon tax and the Con's an' Dippers is goin' all out with the attacks on carbon taxes. Nobody, so far that I seen, has gone on the attack against tax-shifting.

The Con's is playin' up the fact that Dion went flippety-flop on carbon taxin'. They're usin' a lotta scare tactics an' tellin' everybody that the carbon tax is gonna mean poor, old seniors are gonna freeze in the dark, starvin' on account they can't afford gas fer the chugmobile. I reckon they never heard-tell of rebate programs to create a safety net for the weakest or least financially secure in society. Social safety net stuff ain't something the Con's is familiar with -- except when it comes to dismantlin'.

The Dippers is at least talkin' an alternative to carbon taxes. They're sayin' we gotta tax the crap out the big polluter corporations and create a cap-and-trade system to reduce GHG's. Now, taxin' the crap out polluters ain't a bad idea. The carbon tax, as I understand it, is designed to do exactly that. Yeah, it's also gonna tax Joe SUV Driver and Ma & Pa TurnUpTheThermostat. If they're hurtin' they can apply for a rebate. Almost every single one of us can reduce our CO2 output. That means we can all reduce our taxes, if we have a carbon tax.

The Dippers say they don't want a revenue neutral tax shift. Instead they want to increase taxes. Now, who doesn't think increased corporate taxes are gonna trickle down and make increased prices? In a revenue-neutral scheme, there's a corresponding reduction to help the conscientious consumer offset the increase in fuel costs. In a non revenue neutral set-up, like the NDP proposes, costs are passed on to the consumer without any corresponding reduction in taxes.

The Dip's also say they want a marketplace solution. The marketplace has been such a successful vehicle for social change, after all. The marketplace created the dotcom boom and bust bubble that saw thousands of Canadians lose millions on Nortel and other tech stocks. The marketplace was instrumental in creating the US housing boom bust bubble that has thousands of working class Merkins gettin' foreclosed on. The marketplace is dictating the price of oil and we all know how that's helpin' regular folks. The marketplace has pushed the price of basic food stocks so high that 25,000 people are starvin' to death each and every day.

Here's a bit from a Wired article on cap-and-trade and carbon offsets:
Nationally managed emissions-trading schemes could do a better job than Kyoto's we-are-the-world approach by adding legal enforcement and serious oversight. But many economists favor a simpler way: a tax on fossil fuels. A carbon tax would eliminate three classes of parasites that have evolved to fill niches created by the global climate protocol: cynical marketers intent on greenwashing, blinkered bureaucrats shoveling indulgences to powerful incumbents, and deal-happy Wall Streeters looking for a shiny new billion-dollar trading toy. Back to the drawing board, please.

While I was diggin' around this mornin' for info about carbon taxes, I come across a year-old Washington Post article that I found interesting.

Tax on Carbon Emissions Gains Support
Industry and Experts Promote It as Alternative to Help Curb Greenhouse Gases

By Juliet Eilperin and Steven Mufson
Washington Post Staff Writers
Sunday, April 1, 2007; A05

As lawmakers on Capitol Hill push for a cap-and-trade system to rein in the nation's greenhouse gas emissions, an unlikely alternative has emerged from an ideologically diverse group of economists and industry leaders: a carbon tax.

Most legislators view advocating any tax increase as tantamount to political suicide. But a coalition of academics and polluters now argues that a simple tax on each ton of emissions would offer a more efficient and less bureaucratic way of curbing carbon dioxide buildup, which scientists have linked to climate change.

"We want to do the least damage to the growth of GDP," said Michael Canes, a private consultant and former chief economist for the American Petroleum Institute, who led a Capitol Hill briefing on the subject in late February sponsored by the conservative George C. Marshall Institute. Between a cap system and a carbon tax, "a carbon tax will be the much more cost-effective way to go," he said, though he added that there are other ways to reduce emissions.

Robert J. Shapiro, a private consultant who was a Commerce Department official in the Clinton administration, agrees. A cap-and-trade system -- involving plant-by plant-measurements -- would be difficult to administer, he said, and would provide "incentives for cheating and evasion." And the revenue from a carbon tax could be used to reduce the deficit or finance offsetting cuts in payroll taxes or the alternative minimum tax.

A carbon tax offers certainty about the price of polluting, which appeals to many economists and businesses. William A. Pizer, a senior fellow at the centrist think tank Resources for the Future and a former senior economist for President Bush's Council of Economic Advisers, estimates that the benefit-to-cost ratio of a tax-based system would be five times that of a cap-and-trade system.

"You're going to pay one way or another, whether it's a tax or a permit program," Pizer said, adding that while a cap would provide more certainty on how much emissions would be cut, "the consequences of being uncertain about emissions over any short period of time just aren't that serious."

Under a cap-and-trade system, the government would set an overall limit on emissions and allocate permits to emitters. If one plant reduces its emissions more quickly than another, it can sell its credits to the other emitter. A carbon tax would simply increase the cost of emitting each ton of carbon, which could then be passed on to consumers.

While Democrats have vowed to push through some sort of carbon dioxide control in this Congress, Bush has consistently opposed mandatory limits, so it remains unclear whether the United States will adopt any system before the next election.

Moreover, the fact that many economists back the tax approach is no guarantee that it will prevail over the five cap-and-trade plans already proposed in the Senate.

The complexity of the cap-and-trade system is part of its virtue for some politicians, since it may mask the system's impact on prices. Such a system also appeals to conservative lawmakers who like the idea of letting the market determine the price of carbon, while keeping revenue out of the hands of government. Some economists say it would channel capital to the most economically worthwhile projects first.

Environmentalists are split on a carbon tax. Fred Krupp, president of Environmental Defense, which is handing out baseball caps emblazoned with the slogan "Just Cap It" on Capitol Hill, called such a tax "an interesting distraction."

"It doesn't give us the guarantee the emissions will go down," he said.

But Carl Pope, executive director of the Sierra Club, said: "It will be more effective if people know that in year 'X' they will pay this much. Companies are highly motivated by costs." Moreover, he worries that rationing carbon allowances based on historical emissions would reward companies that spew out the most greenhouse gases now and did the least to limit them in the past.

Dan Becker, director of the Sierra Club's program on global warming, said the nation may need to adopt a carbon tax in several years but "we're not there yet."

Some industries that have historically opposed carbon limits embrace the idea of a tax because their sectors would not be singled out for regulation. "A poorly constructed cap-and-trade system can be as punitive as a regressive tax," said Scott Segal, an electric utilities lobbyist.

Red Cavaney, president of the American Petroleum Institute, told a National Press Club audience in February that his industry prefers that lawmakers explore a range of policy options before imposing a cap.

"A cap-and-trade system isn't necessarily the be-all and end-all," he said. "A carbon tax, everything, should be on the table from the beginning."

Few lawmakers, Democrat or Republican, have the stomach for a carbon tax, however. Some are still smarting from a vote in the early 1990s when President Bill Clinton persuaded the House to adopt a BTU tax -- a tax on the heat content of fuels -- only to abandon the effort in the Senate.

Democrats such as House Natural Resources Committee Chairman Nick J. Rahall II (W.Va.) say they have no desire to revisit the issue. "I'm not an advocate of a carbon tax," Rahall said. "That's going to be passed on; the consumer would end up paying for that."

Some analysts said former vice president Al Gore's endorsement of both alternatives in testimony before Congress last week was so politically unpalatable that it was a sign that he is not seriously thinking of running for president.

Only one House Democrat, Rep. Pete Stark (Calif.), has drafted a carbon tax proposal. Stark, who first proposed such a tax 16 years ago as a way to ease the nation's energy crunch, plans to introduce a bill in April that would levy a tax of $25 per ton of carbon released for five years.

"It's more efficient, more equitable, and it's less subject to gaming, I might add," Stark said, estimating that it would raise the cost of gasoline by 10 cents a gallon.

As Congress debates how to regulate greenhouse gases, however, several European officials have said it would be a mistake to choose anything but a market-based trading system that could be linked to the emerging carbon market in Europe.

"Political leaders in the United States need to make a decision, and make it quickly, whether they want to be left behind in a market that is going to evolve, or whether they want to get involved quickly," said Stephen Byers, a member of Britain's Parliament who helped establish the European Union's trading system. "Wall Street could become the world center of carbon trading."

And Stavros Dimas, the E.U. environment commissioner, speaking at a recent lunch hosted by the D.C.-based European Institute, called it ironic that the United States would question the cap-and-trade system, because U.S. negotiators essentially forced Europe to agree to such a system in the Kyoto Protocol negotiations in 1997.

"There was suspicion about market-based instruments," Dimas said. "In a way you did us a favor, because now we also are familiar with these market-based activities. It's functioning very well, actually."

"If we would go together into a world tax regime, that would be preferable," Jos Delbeke, the top E.U. official on climate change, said after a Senate Energy and Natural Resources Committee hearing Monday. "But practically speaking, it is not a likely way to go. Emissions trading is a very solid second best."

Now, as suspect as I am about marketplace solutions, I ain't completely unsold on cap-and-trade. I think that it could be a valuable addition to a carbon tax policy. I don't think it's an entirely either/or proposition and there's some consensus that both systems have value, even if each claims to have better value.

If the NDP wants to help ol' Mother Earth, they'll join forces with the Libs and Greens on the tax-shiftin' carbon tax. If they make their support conditional on the establishment of a cap-and-trade system, I think the Greens and Grits'll be willing to play ball.



Anonymous said...

I'd be fine with cap and trade added on top of a carbon tax, but to try to implement these simultaneously, seems likely to result in very long delays. Isn't it better to get started on the part that can be implemented quickly (the tax), make sure that is done as thoughtfully as possible, and be committed to continually trying to improve within Canada and trying to work with other countries as well?

To this end, it strikes me it would be best to convince the NDP that it is important to get started and attacking the idea of a carbon tax as they have been doing (rather than simply promoting the idea of cap and trade) will most likely result in nothing being done.

Perhaps I just don't understand the NDP position, which seems to suggest that one can have industries and companies take action but not affect citizens. The NDP has stated that they want lower gas prices and lower or no change in heating costs for citizens. Is there any example of that working and still lowering emissions? The examples I am familiar with (in Europe) started by affecting heating and transportation right at the beginning.

JimBobby said...

Whooee! Absolutely a tax-shift could be implemented much more quickly than the creation of a cap-and-trade system. I agree that the tax part should come first. Even if both solutions were initiated simultaneously, the tax-shift would be up and running (and doing some good) before cap-and-trade is fully functional.

The NDP position is, indeed, hard to get and, like you say, is stalling CO2 reduction.