Today we review a handbook to implement carbon pricing- either by tax or by cap and trade- in the USA. Among the points noted were that a low to moderate tax alone would be “highly unlikely” to meet the UN’s goal of keeping global warming to less than 2 C (as recommended by 195 states at COP21 in Paris). Technological innovations subsidized by government are also needed and these can be funded from carbon tax revenue as well as other benefits such as tax cuts, return of money to households and electric users, and helping those directly harmed by carbon taxes as well as reducing national debt. Canada and the USA are well behind Scandinavian countries (such as Denmark, Finland, Norway, and Sweden, beginning in the early 1990s) to establish a national carbon tax, although at the sub-national level, California and Western states, British Columbia, Alberta, Ontario and Quebec have started to price carbon in recent years. Another interesting point is that a moderate carbon tax of $28/tonne applied to the USA would impact low income earners by 2.5% (and high earners by only 1%). This identifies the need to neutralize the regression effects by subsidizing the low income group by this amount.
Key Quotes:
"A carbon price would lead to reductions in U.S. greenhouse gas emissions and create leverage to encourage other countries to reduce their emissions, both of which are necessary to prevent the more severe effects of climate change. In addition, reduced fossil fuel usage will provide “co-benefits” in the form of reduced emissions of other harmful air pollutants.”
Some Potential Benefits of Carbon Tax:
- TAX CUTS. The revenues from carbon pricing could be used to fund cuts in other tax rates. …
- RETURNING MONEY TO HOUSEHOLDS OR ELECTRICITY CONSUMERS. Revenue from carbon pricing could be returned to households by sending them “lump sum” payments, which could be divided equally or by some alternative metric….
- DEFICIT REDUCTION….. Carbon pricing revenues could be used to reduce annual deficits and thereby help to avoid such adverse economic effects.
- INVESTING IN COMBATING CLIMATE CHANGE. In addition to its potential to stimulate innovation in low-carbon technologies (for example, renewable energy), a carbon price can provide revenue to help promote the development and deployment of breakthrough technologies
- TRANSITIONAL ASSISTANCE. A portion of the revenues can be used to assist those likely to be most adversely affected by a carbon price…”
“The major advantage of a cap-and-trade program is that the policy sets a firm limit on the quantity of emissions that will be allowed.”
“It is highly unlikely that a low to moderate carbon tax would achieve the level of emissions reductions the Intergovernmental Panel on Climate Change (IPCC) recommends in order to prevent the worst impacts of climate change”
“The longest-running programs are the carbon taxes established by Denmark, Finland, Norway, and Sweden in the early 1990s. National carbon taxes have also been established in recent years in France, Iceland, India, Ireland, Japan, Mexico, Switzerland, and the United Kingdom,”
“Government support of research, development, and demonstration of measures to reduce emissions from energy, transportation, agriculture, or other sectors can fill the gap created by private sector under-investment, and help bring down the costs of breakthrough technologies. This, in turn, could help to drive more cost-effective emissions reductions and reduce the cost of complying with the carbon tax.”
“CBO has found that a carbon tax of $28 per metric ton of CO2 emissions would increase after-tax costs for the average household in the lowest quintile of the income distribution by 2.5 percent; for households in the top quintile, the carbon tax would increase after-tax costs by only one percent.”
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