Energy Tax

Maya MacGuineas and Adam Caruso make the familiar (yet correct!) argument for a carbon tax. Except they don't actually favor a carbon tax:

The new tax shouldn't be a pure "carbon tax," which would saddle coal-based energy production with steep price increases while allowing us to maintain our national addiction to oil with little abatement. Rather, a comprehensive energy tax ought to discourage in a relatively uniform way the use of all energy sources that contribute to global warming.

I don't get that at all. If an electric car drawing its electricity from a natural gas power plant (say) contributes to global warming, but does so to a much lower extent than does a car with an internal combustion engine burning liquid coal, surely this difference should be reflected in our tax policy. Our current energy mix is so carbon intensive that there are plenty of technologies that would both "contribute to global warming" and also constitutes progress toward reducing carbon emissions. One wants a tax that rewards such technologies, but rewards them less than even cleaner ones. That means a government-auction of emissions permits, or a simple carbon tax. What's the advantage of the alternative? It's a bit more friendly to coal companies that'll fight you to the death anyway?

Comments

"If an electric car drawing its electricity from a natural gas power plant (say) contributes to global warming, but does so to a much lower extent than does a car with an internal combustion engine burning liquid coal, surely this difference should be reflected in our tax policy."

Will the sales tax on this electric car reflect the massive amounts of C02 released by manufacturing this vehicle (as well as manufacturing the parts later for fixing this vehicle) or will the proposed carbon taxes for the massive amounts of C02 released by manufacturing this vehicle be paid by the manufacturers? And if the latter is the case what will be the incentive for manufacturers to keep *any* auto and parts manufacturing in the U.S. when they can produce these things sans carbon taxes in Mexico and elsewhere?

People who buy new cars should already have the option of buying plug-in electrics but why should people who choose to maintain durable, well-made cars and trucks (a market research study from 06 found that a Jeep Wrangler emits less c02 over its life cycle than a Prius - largely because of the manufacturing process) be unduly punished? This is the kind of dumb, east-coast-corridor-liberal-elitist thinking that - along with highly regressive tax policies - are eroding middle class security in this country.

Posted by Linus | July 25, 2007 2:48 PM

In terms of carbon tax, the coal companies will fight to the death only if the tax is levied on them rather than the generators of the atmospheric carbon, the power companies.

Coal is a commodity priced by market forces, whereas electric power is a monopolistic utility. The economic consequences of the tax on the two industries is substantially different. If coal raises its prices, power companies buy from China if they don't want to pay more. If electric companies raise prices, they'll shut your electricity off if you refuse to pay.

Posted by Mudge | July 25, 2007 2:55 PM

If the US implemented a carbon tax, it should in principle (as is implied above) levy some kind of embedded-carbon duty on imported goods.

I am not sure this is feasible. I am also not sure that just because we can't have a perfect carbon tax means we shouldn't have any.

Posted by matt wilbert | July 25, 2007 3:00 PM

I'd like to see a link to that market research study Linus, it could be very useful.

Posted by Meh | July 25, 2007 3:00 PM

I saw a link to it in Reason (libertarian) magazine. Here is a link. http://www.reason.org/commentaries/dalmia_20060719.shtml
I forget why honestly, but the study didn't seem too credible to me...a lot of the 'extra' energy usage was because of japanese factory automation.

Posted by Questioner | July 25, 2007 3:07 PM

The ridiculous claim about the Prius is typical conservative bad science.

Posted by Phaedrus | July 25, 2007 3:15 PM

Here is a rebuttal to that...

http://www.thecarconnection.com/Auto_News/Green_Car_News/Prius_Versus_HUMMER_Exploding_the_Myth.S196.A12220.html?pg=1

Posted by Questioner | July 25, 2007 3:15 PM

People who buy new cars should already have the option of buying plug-in electrics but why should people who choose to maintain durable, well-made cars and trucks (a market research study from 06 found that a Jeep Wrangler emits less c02 over its life cycle than a Prius - largely because of the manufacturing process) be unduly punished?

Actually, this is just the sort of situation that a well-structured carbon tax will address.

If you choose to maintain your existing, carbon emitting vehicle, you'll only be taxed on the carbon said vehicle emits. If you buy a new Prius that emits less carbon, you'll be taxed less on the fuel you use to run your Prius. But you'll still have to pay for the carbon that was emitted in the manufacture of your Prius. If you buy a new vehicle that emitted less carbon in its manufacture but emits more when you use it, you'll be taxed accordingly. It'll all come out in the wash.

The overseas manufacture issue definitely needs some consideration. It would be reasonable to tax all products entering the country based on how much carbon was used to produce them, unless, of course, such products already paid such a tax in their country of origin. This would certainly be complex and would no doubt run afoul of WTO regulations. It is certainly a solvable problem if the will is there.

This is discussion is really just a moot exercise, though. We might get a serious carbon tax in this country some time after Manhattan is neck-deep in seawater.

Posted by Rob Mac | July 25, 2007 3:16 PM

"If the US implemented a carbon tax, it should in principle (as is implied above) levy some kind of embedded-carbon duty on imported goods.

I am not sure this is feasible. I am also not sure that just because we can't have a perfect carbon tax means we shouldn't have any."

If we were to implement a carbon tax it would be impossible to imagine that lawmakers wouldn't also levy a carbon tariff. This should be legal under the WTO rule, btw, because it is non-discriminatory.

Posted by David | July 25, 2007 3:21 PM

"a car with an internal combustion engine burning liquid coal"

Do you mean "burning oil"?

Posted by ostap | July 25, 2007 3:25 PM

"(a market research study from 06 found that a Jeep Wrangler emits less c02 over its life cycle than a Prius - largely because of the manufacturing process) be unduly punished?"

If you assume the Prius lasts only 109,000 miles and the SUV 380,000 miles, it's amazing what you can find.

Colonic variables* - they're so useful

* i.e. Numbers one pulls right out of one's *ss

Posted by Sock Puppet of the Great Satan | July 25, 2007 3:43 PM

Perhaps the desire is to prevent a huge investment switching from coal to natural gas and then, 5 years later, we need to switch from natural gas to something else (thermal solar say)...

If you taxed both nat.gas and coal hard right up front, then people would just straight to thermal solar, perhaps.

I think the idea is BS - just force the market to include the cost of carbon emissions in their business models, and get out of the way (In that smae vein, you need to make sure you dont keep changing the rules on them.)

Posted by Chuck | July 25, 2007 3:44 PM

"Coal is a commodity priced by market forces, whereas electric power is a monopolistic utility."

Actually, electric power is increasingly being sold in competitive markets. As a carbon tax increases the price of coal, electricity generators will have a powerful economic incentive to increase the efficiency of their plants (getting more electricity per ton of carbon) or substitute less carbon intensive fuels (natural gas or renewables). On the demand side, consumers may find that a carbon tax makes distributed generation (e.g. combined heat and power or solar) more competitive, thus increasing the competitive pressure on electric generators to reduce the carbon used to produce electricity.

On a different point - "This is discussion is really just a moot exercise, though. We might get a serious carbon tax in this country some time after Manhattan is neck-deep in seawater" -

See a letter to the editor of the Los Angles Times written by Congressman Dingell on the Carbon Tax Center web site stating that "I agree with the Times that a carbon tax would be the most effective available option to fight global warming." A carbon tax is before Congress and supported by the powerful Rep. Dingell. It probably won't become law this session, but it will finally be considered seriously and we can look for progress in 2009.

Posted by Dan | July 25, 2007 4:42 PM

I'd love to be proven wrong, Dan. However, having Dingell behind it is unlikely to be enough. This Congress finds it impossible to do even incredibly popular things, like force a withdrawal of US forces from Iraq. A deep, complex, and unpopular change to the tax code will be a hard sell.

And make no mistake, once the details are understood of any carbon tax plan that is more than a token effort, it will be deeply unpopular among some powerful constituencies and among the public at large. To have any impact, the tax will have to be onerous. We're not talking another $0.25 per gallon. More like $4 per gallon or more. The size of the tax will likely have to be significantly greater than the cost of fuel for it to have any impact on behavior. I think this is worth doing, but $9 a gallon gas and $1,000 a month summer and winter power bills will be a tough sell, even if coupled with a massive decrease in federal income taxes.

Posted by Rob Mac | July 25, 2007 5:27 PM

I certainly agree that a carbon tax, even a revenue-neutral carbon tax such as we propose at the
Carbon Tax Center, will be a hard sell.

You may be interested in taking a look at our proposal. We're proposing a $37/ton tax on carbon the first year, which is equivalent to $.10 a gallon, to be increased by the same increment each year for another nine years. At the end of 10 years gasoline taxes will have increased "only" $1.00. More would be better, but at $37/ton/year, the tax will result in very significant CO2 reductions. Most of the reductions will be on the electricity side, where the elasticities are greater. It's very important that there be a clear trajectory of rising carbon taxes, so that energy users have a clear signal what to expect and time to adapt. Of course, the tax can be adjusted as necessary.

While a carbon tax will not be an easy sell, climate change is not going away, I'm optimistic that we'll have a more receptive President and Congress beginning in 2009, and a revenue-neutral carbon tax will look increasingly good when carefully compared to the alternatives.

Posted by Dan | July 25, 2007 6:43 PM

"The ridiculous claim about the Prius is typical conservative bad science."

That may be half-true. The point worth repeating I think is that manufacturing *any* new car is going to release large amounts of c02 and while good for people who happen to work in the industry (as well as shareholders and executives) used cars will never again be that acute source of c02 emissions. If we're going to offer eco tax rebates on hybrids but implement a carbon tax states ought to cut the sales and use tax for used cars (especially fuel efficient used cars and used cars that cun run on biofuels).

Posted by Linus | July 25, 2007 8:48 PM

Not I hope to be a complete thread-hog but I'm concerned about the impact of a carbon tax on the working poor, working class, and middle class. I'm liable to be telecommuting a great deal in coming months if not years but it's the case that white collar people are far more able to do this. You can't telecommute to your job as a clerk, maid, janitor, waiter, or construction worker and in most of the country public transit will continue to not be a viable option for decades; this is also the case for carpooling. It saddens me that no one in either party is speaking to these concerns.

Posted by Linus | July 25, 2007 9:06 PM

To be a complete thread-hog after all I have to say that as a Californian so many people - Democrats and Republicans alike - just don't get it. I was born in Jersey in the 1970s; my father was a CBS man. We moved to the Bay Area then LA. When I was growing up you could work hard and expect to afford a home and decent quality of life if not in the city itself at least on the outskirts. The terms of that contract have changed; millions of hard-working Californians can't afford to buy homes, and some who have have lost them or will lose them. Our taxes are already outrageous. Traffic across a significant swath of the state is a nightmare all hours of the day and night. Our schools are the pits. We're already paying to subisize the richest rich and the un-working and half-working poor; if the immigration bill passes many, many thousands of formerly illegal immigrants will be eligible for Medicaid benefits in just a few short years. Practically everyone knows someone whose good job was offshored. And you want me to pay a carbon tax on top of all this?

I live in an already unaffordable rural county increasingly plagued by crime, traffic, gangs, ozone and still plagued by Faulknerian freaks who lawfully (really) shoot their neighbors' dogs and burn their trash within 15 ft of the house next door.

And you want me to pay a carbon tax too?

It's only a matter of time before I move my ass to another less insane more humane state with lower taxes. I imagine it's only a matter of time before my employer and others like them follow.

Posted by Linus | July 25, 2007 9:41 PM

Please take a look at our web site, Linus. We do respond to your legitimate concerns about the impact of a carbon tax on the working poor, working class and middle class. A revenue neutral carbon tax, such as we propose, combined with progressive tax shifting, will provide real environmental benefits and will provide real economic benefits to poor and working people through rebates and/or an offset to payroll taxes. In addition, and to the extent necessary, a small portion of the carbon tax revenues could be used to mitigate any negative impacts on those with low-incomes such as those who are required to drive long distances for employment or medical reasons.

Posted by Dan | July 25, 2007 11:16 PM

About working poor: there is a ton of ways to change the policies to the benefit and to the detriment of the working poor. A balance is always possible. Moreover, how to change behavior without making it cost-ineffective? By communist-style fiat?

About "pure carbon tax": I think it would be reasonable to have 10-20c/lb tax on carbon, plus additional same size tax on hydrocarbon, the first due to global warming, the second due to scarcity. The idea of the second tax is that if we decrease the consumption of hydrocarbons faster than market signals alone would dictate, the world-market price of oil and gas can drop quite a bit (or raise much less) and we effectively transfer money from foreign oil producers to US Treasury. 5% more demand than supply can double the price if the demand is inelastic, something that we have seen recently. It stands to reason that this effect can work in two directions.

My plan would hit very badly gas-fired electricity producers, which is a feature. Natural gas can be used as a very good fuel for cars, trucks and buses, and it can be substituted with wind, solar, geo-thermal, nuclear, and even coal to a degree. Decreasing hydrocarbon imports 2-3 times is a good separate goal. I think it would be more effective to burn biomass for electricity and use natural gas for transformation than to produce bio-fuels and loose a lot of cost and energy for the latter. Electricity generators can burn anything, and vehicles can burn natural gas quite easily.

Posted by piotr | July 26, 2007 6:16 AM

Dan,

I don't doubt that a more progressive tax structure is possible; it's been done before. I would like to think it will happen again.

At the moment it's a question of political will. Here in California a number of terrific environmental bills were enacted during the Davis years (including SB656 the precedent-setting regulatory mandates for particulate matter and an expansion of a program to turn ag waste into fuel and decrease seasonal burns); you'd barely know these things by reading the papers in the state. But it's also the case that Schwarzenegger is a hack centrist with little vision or courage (despite what the MSM says) and that the Democrats in the Assembly and Senate are still running a patronage machine on behalf of public employee unions, certain corporate interests, certain very rich people, and people who don't work at all or don't work full time jobs (which is about the only way you can qualify for Medicaid in this state). I see little evidence the governor or the Democrats are willing to raise taxes on even the richest rich let alone radically restructure the tax code on behalf of working people. And this is just at the state level; the situation at the federal level is famously worse.

But even if the pols grow some balls in coming years raising tax on the rich won't be enough to cover (at the state level) the health care costs of hundreds of thousands of new legal residents, the pension costs of many thousands of retiring boomer public employees as well as billions in infrastructure costs and (at the federal level) a worldwide military apparatus with more than 700 bases, occupations of multiple foreign countries, 24/7 patrols of the world's seas and airspace, and massive expenditures in personnel, ships, planes, arms plus the staggering costs of boomer entitlement benefits and well everything else. And people want to shovel a carbon tax on this heap?

The point I was trying to convey is that quality of life is declining rapidly in this state. Taxes are already too high on the middle class and likely to get worse. Traffic is already bad in much of the state and likely to get worse. The cost of housing is bad and likely to get worse (it seems reasonable to think there will be continued subarbanization in places further and further from urban cores leading to more traffic and pollution as well as increased density in places no one I know wants to live in apartments and condos). LA is increasingly plagued by transnational criminal networks; the rest of the state seems likely to follow.

As far as telecommuting goes, there are already rich incentives for companies in the state to offer this option to employees; they've been on the books since (I believe) the 1990s. And public transit is probably not going to be a serious option in this county and a lot of other places in the state in my lifetime.

Beginning in the 1970s there was a quiet but extensive exodus of working class whites from the state to Arizona, Colorado, even Idaho and Utah. I won't be surprised to see another one. Only this time it will be liberal and moderate white collar professionals taking their skills and tax dollars with them to the Pacific northwest and inter-mountain west. And I won't be surprised to see core industries - including production and post-production, parts of IT - follow suit.

Posted by Linus | July 26, 2007 1:09 PM

Linus,

Sounds bleak! At the risk of being repetitive, don't forget that the carbon tax we are proposing is revenue neutral. Al Gore and many others are also proposing revenue neutral taxes. To the extent the carbon tax is revenue neutral, doesn't that eliminate or minimize most of the problems you discuss. By the way, there will be some people who end up paying more with a carbon tax. In most cases, that will be because they choose to incur the cost. It makes good sense in terms of both economic theory and social policy that polluters should pay.

Posted by Dan | July 26, 2007 10:06 PM

"To the extent the carbon tax is revenue neutral, doesn't that eliminate or minimize most of the problems you discuss."

#1) More progressive taxation has been difficult to accomplish for decades, and for at least the latter years it existed on paper (the 1960s and 1970s) it was not well-enforced in practice. Perhaps it will be easier to enact in coming years - I have little idea - but carbon taxes will not only impact individuals buying gas but almost every purchase they make: from food to clothing to medication to cable TV and internet service.

#2) I doubt the magical efficacy in taxes in solving large scale problems much the same way I doubt the magical efficacy in markets in solving large scale problems.

#3) I'm still not convinced this doesn't have more to do with a cultural agenda - the left's hatred of cars and suburbs and fat white trash - than it has to do with the environment.

#4) I don't like people in positions of authority - whether they represent government, corporations, the Church - telling other people what to do, taking their hard earned dollars away. It just so happens that government - of all the three institutions mentioned - is uniquely empowered in this regard. Laws should be passed, new rules enacted, new taxes levied with the greatest care and caution. I'd like to see residential open burning severely restricted or banned outright in unincorporated parts of my county. It's a leading source of particulate matter (PM2.5 and PM10) emissions (exposure to which has been linked to all kind of respiratory and cardiovascular problems - even premature sudden death), and it's a fucking nuisance. But it's also the case that there are good alternatives to burning your yard waste. For lots of Americans there are no good alternatives to driving let alone eating.

#5) I was born in Jersey. I did my BA in New York. But I'm a westerner. I don't much trust any organization based in New York telling the government to tell us what to do.

Posted by Linus | July 26, 2007 10:52 PM

I didn't mean to be one of these jerk types with that last post. In the end a carbon tax is probably the only rational policy option but if it isn't combined with progressive tax cuts and other credits and incentives for working class people, middle class people, and small and medium sized business I wouldn't support it and if there aren't major curbs of c02 emissions in the developing world the whole project is just stupid; the leading source of c02 worldwide is cows.

Posted by Linus | July 27, 2007 4:29 PM