Carbon taxes -Reducing carbon-dioxide

emissions by putting a price on carbon

Welcome!

The rise of the C tax

and its recent stumble

Overview

• Reasons for a C tax• Pigouvian-tax game - what’s a C

tax & how will it work• Economic impacts of a C tax• 2 current versions of C tax• What you can do• Questions!

Why a carbon tax?

It’s time for Bob to talk about the reasons we would want to consider a carbon tax.

Thanks, Bob!

• Incentives• Innovation• Changes in behavior and technology

What have you already heard about C taxes?

. . .

Externalities

• Who knows what an economist means by “externality?”

Pigouvian-tax game• Nutritionists and medical doctors say

that we consume too much salt. How can we fix that?

• Apply a tax• A model of an economy reducing

consumption of a good with externalities by taxing it

Pigouvian tax

• Arthur Pigou• Externalities• Impact of externalities on consumption• A tax applied to a market activity that

generates negative externalities (costs for somebody else).

Social Costs

External Costs= Pigouvian tax

Private Costs

Salt

Health effects

DeliveryMarketing

ProcessingTransportation

MiningExploration

Fossil Fuels

Global warming Damage to environment Damage to property Health effects

DeliveryMarketingProcessingTransportationMiningExploration

Social Costs

Components

• 3 goods - cherries, salted almonds & unsalted almonds

• 3 salt-tax levels - none, low and high• 3 income levels - 20, 30 and 40 cents per

round• 3 rounds– Round 1 - pre-tax– Round 2 - low tax– Round 3 - hi tax

Volunteers / employees

• Qualifications– Willing to eat cherries, almonds and

salted almonds

• 3 roles– Producer– Banker– Worker

Pre-tax round

• Pay wages• Purchase goods– Prices• Cherries 10 cents• salted almonds 2 for 5 cents• unsalted almonds 2 for 5 cents

• Consumption

How to tax

• Game– Problem - Salt isn’t a separate good in our

model economy. Can’t tax it directly.– Solution - Tax the good with added salt

• Carbon– More complicated

Taxing carbon - a misnomer, ...

• CO2 is the real problem.• Except that some other green-house gases

are even more potent.• Fossil fuels differ in the amount of CO2

they emit when burned.• We don’t buy carbon or carbon dioxide by

themselves very much.• Carbon is converted to CO2 at many

places in our economy.

CO2 equivalentsFrom 2013 IPCC AR5 p714

Lifetime

(years)

Equivalent tons of CO2

Global-warming-potential time horizon

20 years 100 year

sMethane 12.4 86 34

Nitrous oxide 121.0 268 298

HFC-134a (hydrofluorocarbon)

13.4 3790 1550

Pounds of CO2 emitted per million Btu of energy(From Energy Information

Administration)

Fossil fuelPounds of CO2 /

million Btu of energyCoal (bituminous) 205.7Coal (subbituminous) 214.3Diesel fuel & heating oil 161.3Gasoline 157.2Propane 139.0Natural gas 117.0

Some answers

• What to tax?– Tons of CO2 equivalents emitted by each

fossil fuel

• Where to impose the tax?– At the mine, well or border– Let the tax percolate thru the economy,

affecting everybody in proportion to their CO2 emissions.

Low-tax round

• Choose tax level to achieve target reduction in salt consumption

• Adjustments to and impacts of tax - by income level– Conservation– Substitution

• Tax collected

High-tax round

• Dividend – Equal amounts– Progressive nature

• Adjustments to, & impacts of tax & dividend - by income level

• Reduction in salt consumption

End of game

What answers has it provided?

What questions has it prompted?

Economic models

It’s time to let Bob tell you about some serious attempts to explore the impacts of a C tax.

Comparison of 2 legislative proposals

• Sanders-Boxer Bill• Carbon Fee & dividend

Comparison of 2 legislative proposals

  Sanders-Boxer Bill Carbon Fee & dividend

Tax rateInitial

  

Increase

 $20/ton CO2 and C02 equivalent of methane + 5.6%/year for 12 years

 $15/ton CO2 equivalent  $10/year til IPCC target reached

Use of funds 60% to households40% to Pollution Reduction Trust Fund (PRTF)

Mitigate impacts of feeWeatherizationJob trainingResearchDeficit reduction

100% distributed to households

Trade impacts Mitigation of impacts on trade-exposed industries thru PRTF

Carbon-fee-equivalent tariffs Rebates for exports

Helping build political will for a stable climate

• Write letters to editors and to members of Congress, and op-ed articles

• Lobby Congress• Join groups• 350.org• 350Vermont• Citizens’ Climate Lobby• National Wildlife Federation• Rising Tide• Sierra Club• Vt Natural Resource Council• . . .

• More than 5,000 volunteer members• More than 1,600 letters to the editor

published last year• More than 480 meetings with members

of Congress or their staffs at annual Conference last month