Thursday, April 17, 2014

Carbon and Taxes

In November, the Obama administration set the social cost of carbon dioxide at $37 per ton.  Many argue that that figure is too low. 

The recent IPCC report estimates that it would take $0.15/kg of CO2 to solve the climate change problem.  If I do my math right, that works out to be a little less that $150/ per ton.

The British Columbia carbon tax experiment at a rate of $30 per ton has proven to be a success.  Carbon emissions are down without any severe economic impacts despite the poor economy.  Note that there are special provisions in the BC law that mitigate the economic impact on low income households.

That puts a framework around it.  We can start moving the right direction with a $30/ton figure.  But to really solve the problem we need to get closer to the $150/ton level.  With the higher taxes, there should be sufficient economic incentive for carbon sequestration efforts to begin to pay off.

The Citizens Climate Lobby has produced legislation that starts with a $20/ton tax with an annual increase in the rate.  Unlike the BC law, only 60% of the proceeds are returned to the taxpayers with 25% going into the general fund and 10-15% going towards green energy subsidies.

Personally, I think there is little need for any of this money to go into the general fund.  That is better addressed by income tax reform.  Nor, do I see a need for channeling any of the money into green energy subsidies.  The tax itself should be sufficient incentive for green energy development.

I went looking for oppositional articles to the BC carbon tax and found none.  Actually, many who opposed the tax have come to love it.  Because of the kickback to taxpayers, any repeal of the tax would have to be defended as a net tax increase--not a very popular idea.

Furthermore, a carbon tax is much easier to administer than a cap-and-trade regime.  A carbon tax can be revenue-neutral way to modify economic behavior and perhaps even create a few new jobs as markets shift away from carbon emissions.

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