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Taxing Carbon - Part 5
I promise this is the last post in this series. (For a while, anyway.)
But there's one general point about the debate between carbon taxes and cap-and-trade that I want to make directly. Namely this: it's an unfair fight.
Here's the thing. Cap-and-trade is a real-world program for reducing pollutants. We used it successfully with sulfur emissions in the 90s. Europe is already doing it with carbon. The northeastern states are doing it with RGGI. The Waxman-Markey bill is a real piece of legislation that's hundreds of pages long and festooned with a hundred different compromises that will (we hope) allow it to survive the legislative sausage grinder.
And all of these variations of cap-and-trade are complicated. When you read about them, you're immediately bombarded with jargon: auctions vs. allocations; caps, floors, offsets, and banking; upstream vs. downstream; how the exchange should be set up; how often permits should be sold; etc. etc. Those are all real-life questions, and in any real-life plan they have to be addressed. And they're confusing. And yes, they all provide potential toeholds for special interests to game the system — something we should fight like banshees to keep to a minimum.
Tax advocates have no such worries. They propose that we simply tax various fuels based on their carbon content, and voila! We're done. Simple and easy.
Ironically, though, the only reason they can get away with this is because of the very fact that a tax is a political nonstarter, which means there are no real-world taxes on the table. But if there were, they'd have all the same questions as a cap-and-trade plan, plus a whole bunch of new ones. Should it be levied upstream or downstream? Can it be tax sheltered offshore? Are you allowed to apply a tax-loss carryforward to your carbon tax levy? How do you harmonize the tax with other countries? Can I get a tax credit for reducing carbon emissions? How are the revenues going to be distributed? Should midwestern states that rely more on coal-fired plants get treated differently than, say, California? What would it take to make a carbon tax on foreign oil compatible with WTO rules?
Rhetorically, tax advocates can pretend that none of these questions exist. They're able to contrast the genuine messiness of a real-world cap-and-trade plan with a Platonic, whiteboard version of a tax plan.
But that's not how it would work. If cap-and-trade goes down, we're not going to get a tax instead. And if we do eventually get a tax instead, it's not going to be a clean and simple tax. It's going to be a thousand-page monster with every paragraph the subject of a slugfest between a dozen different special interests lobbying half a dozen different congressional committees. That's reality.
If you're going to compare cap-and-trade to a tax, honest advocates need to compare apples to apples. We need to hear what a real-life carbon tax bill would be like. And we should have a few dozen tax experts in the room to laugh at us while all this is going on. The fact is, cap-and-trade isn't as complicated as it seems, and a tax isn't as simple as it seems. In the end, though, despite the admitted complexities of cap-and-trade, at least it wouldn't be embedded within an existing 100,000-page corporate tax code. A tax would be. I'd keep that firmly in mind whenever you hear about how simple and clean a carbon tax would be.
POSTSCRIPT: Rasmussen reported today that only 24% of voters have any idea what "cap-and-trade" even means. That doesn't surprise me. When I set out to write my cap-and-trade piece for the magazine a few months ago, I originally planned to write about the debate between cap-and-trade and carbon taxes. Very quickly, though, I realized that even among plugged-in people, very few of them really knew what cap-and-trade was or how it worked. So I switched gears and decided to write a straight ahead cap-and-trade primer instead. If you're part of the still-confused 76%, my piece is here.
The federal gasoline tax and
The federal gasoline tax and the federal coal tax have been around for as long as I can remember. The gasoline tax is ignored in terms of global warming because it is earmarked for road building, and progressive advocates of carbon tax want most of the proceeds to go into the general fund.
The problem, yet again, is that progressives and environmentalists are split. The environmentalists want to pay off the carbon non-polluters; the progressives want to use the funds for other purposes. The progressive view is suboptimal and may result in greater inefficiency, the environmentalist view is optimal.
kevin, you have been on fire
kevin, you have been on fire lately! unfortunately carbon tax posts are really boring, though:(
-they're not really gonna change much
-they may never be implemented
-GW really can't be stopped anyway
-no one REALLY has any idea whether GW will be a big deal or not
keep it up
Thanks for your great posts on this , Kevin. Even considering how few people know *anything* about this, there's a lot of misinformation out there.
On the New Yorker's May 7 "Political Scene" podcast, Elizabeth Kolbert made two points that you debunked weeks ago:
1) that cap and trade is only being proposed because a tax is a political nonstarter, and
2) that a cap and trade scheme where carbon emitters don't pay for permits would somehow not raise energy prices, and thus would not do anything.
I had been listening to that podcast for the last few months, and had thought it was great, but this episode was extremely disappointing.
Same old lame argument of
Same old lame argument of yours. You prefer cap and trade because it seems doable and you dislike a carbon tax because you think it's a political minefield.
But you don't address the truth, which is that the right wing mobs have already targeted cap and trade as a tax, or the problem that should we push back against that, we'll be labeled once again as elitist jerkoffs that lie to the public because we don't trust the public.
That's not a good position to be in.
Anyway, I am amused to learn that we've implemented so many cap and trade regulations and never fielded a successful tax.
And more amused to note how much you sound like Ross Perot discussing the need for income tax reform and his move to a flat tax in 92 because it was so much simpler.
I don't see
tagged as:- solution
why you still say that cap and trade is passable and a carbon tax isn't. You say this:
"Ironically, though, the only reason they can get away with this is because of the very fact that a tax is a political nonstarter, which means there are no real-world taxes on the table."
But the right is already calling cap and trade "an energy tax." If we can't pass a tax we can't pass CnT either, and for exactly the same reason. And if we can pass CnT then we can pass a carbon tax.
So the only real question is which works better. I can't imagine an argument in which a cap and trade scheme, imminently game-able as it is, could possibly be seen as superior to a straight out tax.
Saying one is a tax and the other isn't is simply naive in the face of the right's already telegraphed move to equate both to taxes.
Thanks Kevin
When I read about the Rasmussen poll I sincerely had to wonder which group I was in: the 24% who understood what cap & trade was or the 76% who didn't. I mean, I thought I knew what it meant, but did I really? Thanks to your linked piece I can happily now say that yes, it is what I thought it was. The basic policy/mechanism isn't really very complicated, but as your article goes on to point out, some of the implications and related concepts can get kinda labyrinthine. As far as cap and trade vs carbon tax goes, I prefer the former but think you gave the latter a typically (often maddeningly) even handed treatment.
You are vastly
You are vastly over-complicating the way a tax could be used to reduce carbon emissions. Just drive up gasoline taxes significantly and you'll reduce oil consumption (over 90% of which goes into the transportation sector). Add that with a standard tax per unit electricity produced via coal (with some exemptions for non-CO2 releasing coal plants that do the underground piping trick), and you have a tax system.
I notice you brought up the European cap-and-trade system on carbon. Perhaps you should also point out that it has been a massive failure.
Should it be levied upstream
Should it be levied upstream or downstream? Can it be tax sheltered offshore? Are you allowed to apply a tax-loss carryforward to your carbon tax levy? How do you harmonize the tax with other countries? Can I get a tax credit for reducing carbon emissions? How are the revenues going to be distributed? Should midwestern states that rely more on coal-fired plants get treated differently than, say, California? What would it take to make a carbon tax on foreign oil compatible with WTO rules?
Upstream, No, no, UN Treaties, no, you're already paying less taxes there is your credit, green research green jobs and space, no midwestern states have wind and have less population....
...and that last, I don't know! New rules?
Don't stop, you're on a roll
Kevin wrote: "I promise this is the last post in this series."
I hope not. There is no more important issue facing humanity than anthropogenic global warming, and no more important policy debate going on today than the debate about how to address it.
I'm agnostic on the comparative merits of cap-and-trade vs. a carbon tax -- my greater concern is that either one of them can easily be rendered ineffective by politicians beholden to the fossil fuel corporations, and probably will be -- but at this point it does appear that if the Congress is going to do anything to force markets to internalize the real costs of carbon pollution, it will be some form of cap-and-trade.
And once such legislation is enacted, it will then have to be implemented, and that process will have to be monitored.
You have been paying attention to cap-and-trade for some time, you know quite a bit about it, and I hope you will continued to cover it on a regular basis.
can you prove this issue is
can you prove this issue is important or are you just being alarmist? there's no possible way you or anyone else can know if carbon is a big deal or not.
MNPundit: "...and that last
MNPundit: "...and that last [What would it take to make a carbon tax on foreign oil compatible with WTO rules?], I don't know! New rules?"
The last is equally simple: tax foreign oil at the same rate as domestic oil.
Cap and Trade is
Cap and Trade is complicated. However, that is not the reason it will not fly. The real reason is that now that it is going to cost people some money, they are taking a closer look at GW. They are rightly concluding the so-called cure is not worth the cost.
1. They see that the debate seems to be mostly along ideological lines, complete with politicization and shouting instead of scientific discussion.
2. They see predictions about conditions a century from now and rightly conclude that it is unreasonable to predict the climate that far off, when models haven't been right about recent years.
3. The change of term to "climate change" from "global warming" fits in with their intuition that they are being sold a bill of goods that is not well defined.
4. They have a good and right inherent distrust about computer modeling. Though they would not know to describe it this way, they inherently know the law of garbage in - garbage out that is rule number one of computer modeling.
5. And most important of all - the recent winters have been cooler.
I think AGW will soon be through. It will go the way of many other liberal doomsday scenarios that just don't pan out.
John Hansen's boring lies
John Hansen, you are a deliberate liar on the subject of anthropogenic global warming and every reader of this blog who is by now all too familiar with your repetitive, scripted dishonesty knows it.
Did anyone point out that it
Did anyone point out that it was 24% on a multiple choice question, of which only one was related to global warming or industrial effluent?
The other options were 'health care', 'national defense' and the wall street/banking meltdown.
BC has a real-world carbon tax
"Ironically, though, the only reason they can get away with this is because of the very fact that a tax is a political nonstarter, which means there are no real-world taxes on the table."
Actually, there is.
Here in Canada, the province of British Columbia brought in a carbon tax, effective July 2008. It starts at $10 per metric ton of CO2 emitted, increasing by $5 each year, to $30/ton in 2012. It's levied downstream; for example, it initially increases the price of gas by 2.4 cents/litre. The tax on coal is $20/ton. (Back in 2006, the provincial power-generating utility, BC Hydro, was considering building two coal-fired power plants, to supplement its hydro-electric dams; those plans are now dead.)
It's revenue-neutral, with income tax reduced by a corresponding amount each year. For the details:
http://www.bcbudget.gov.bc.ca/2008/bfp/default.html#5
An economist friend says that it took about three months from the government deciding on a carbon tax to the fully worked-out plan. It's basically a sales tax, which governments already know how to implement.
What about the political feasibility of the tax?
When the tax was initially announced in February 2008, people were moderately supportive, although there was an obvious urban/rural split. Environmentalists were extremely happy, while even business groups were supportive.
By July 2008, though, with gas prices skyrocketing because of the price of oil, the public was furious. The opposition party, the left-leaning NDP, attempted to capitalize on public anger by promising to cancel the carbon tax if they came to power.
We had a provincial election yesterday. The NDP's attempt to mobilize opposition to the carbon tax appears to have failed: the election results were pretty much the same as they were four years ago, with the government party (the right-leaning BC Liberals) staying in power.
To sum up, from BC's experience so far, a gradually increasing, revenue-neutral carbon tax appears to be politically feasible, but not a vote-winner. People don't like it (support is currently running at 40%--we'll see what it's like at the end of the summer), but it's not enough to make them bring down the government.
re:
kevin, you have been on fire lately! unfortunately carbon tax posts are really boring, though:(
The Canadian province of
The Canadian province of British Columbia does have a carbon tax, and the party that introduced it is likely to win re-election today.