Getting Serious About Carbon Pricing: Putting a Price on Carbon #priceoncarbon

WWW.WRI.ORG/CARBONPRICING

GETTING SERIOUS ABOUT CARBON PRICINGApril 30, 2015

Washington, DC

MICHAEL OBEITER WWW.WRI.ORG/CARBONPRICING

PUTTING A PRICE ON CARBON: A Handbook for U.S. Policymakers

WHY PRICE CARBON?

• Pricing carbon can be a core element of U.S. long-term climate change strategy

• A carbon price can also serve other policy goals– Promote economic growth– Support clean energy– Transition assistance

www.wri.org/carbonpricing

OBJECTIVES

• Putting a Price on Carbon provides an overview of carbon pricing– Basic primer– Refresher and reference work

• Future work from WRI will build on this foundation


PAPER OVERVIEW

• Basics of Pricing Carbon• A Brief History of

Carbon Pricing• Key Design Features• Uses of Carbon Pricing

Revenues• Economic Effects of a

Carbon Price


CARBON PRICING PROGRAMS AROUND THE WORLD


CARBON PRICING IN THE UNITED STATES


Federal proposals• McCain/Lieberman (2003)• Waxman/Markey (2009)• Whitehouse/Schatz (2014)• Delaney (2015)• …and many more

PROGRAM TYPE: CARBON TAX VS CAP-AND-TRADE

• Both incentivize emissions reductions • Similar design and revenue decisions• Carbon tax offers administrative

simplicity and price certainty• Cap-and-trade offers emissions

certainty


CARBON PRICE DESIGN: KEY QUESTIONS

• Which gases?• Which sectors?• Where to impose the regulation?• What price or cap level and trajectory?• Include a border tax adjustment?• How to monitor and enforce?• What complementary policies?


CARBON PRICE DESIGN: EXAMPLES

• Regional Greenhouse Gas Initiative– Electricity CO2

– Most revenues go to energy efficiency– $2.9 billion in lifetime savings to 3.7 million

households• British Columbia Carbon Tax

– Started at C$10, now C$30 – Covers ~3/4 of GHGs– Most revenues used to reduce taxes


REVENUE USE

• Revenue can be used to accomplish various objectives:– Promote economic growth– Offset adverse impacts – Investment in climate change protections

• Substantial revenue opportunity– $15 / tonne price could generate ~$100 billion


REVENUE NEUTRAL TAX SWAPS

• Taxes on labor/capital discourage productive activity we want more of

• A carbon tax discourages activity we want less of

• Why not tax destructive instead of productive activities?– For example, use revenues to reduce income or

payroll taxes


LUMP SUM DIVIDEND

• Send every household a check

• Key advantages:– Relatively simple– Revenue neutral (or nearly neutral)– Ensures low-income taxpayers are not

negatively impacted


ADDITIONAL REVENUE USES

• Various other policy objectives: – Deficit reduction– Transition assistance – R&D for low-carbon technologies– Climate change adaptation

• Different uses of revenue are of interest to different stakeholders


ECONOMISTS OVERWHELMINGLY SUPPORT A CARBON TAX

Source: http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_8oABK2TolkGluV7; weighted by confidence

Statement: Government should raise revenue with a carbon tax instead of labor income taxes

http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_8oABK2TolkGluV7



ECONOMIC IMPACT STUDIES

• Winners and losers in short run

• Smart use of revenue can offset negative impacts

• Trade-offs exist between revenue options


CONCLUSION

• A carbon price can be the cornerstone of long-run U.S. climate policy AND achieve multiple additional objectives

• Designing a carbon pricing policy involves a number of important decisions that can broaden support


FUTURE RESEARCH

• WRI aims to promote dialogue on why and how to implement a carbon price

• WRI will delve deeper into key issues:– Basic economics and incentives underlying a

carbon price – Regional disparities and how to address them– How a carbon price can drive innovation

Keep an eye on www.wri.org/carbonpricing for new research

PUTTING A PRICE ON CARBON: A HANDBOOK FOR U.S. POLICYMAKERS

THANK YOU



GETTING SERIOUS ABOUT CARBON PRICINGApril 30, 2015

Washington, DC

Getting Serious About Carbon Pricing: Putting a Price on Carbon #priceoncarbon

Environment

Transcript of Getting Serious About Carbon Pricing: Putting a Price on Carbon #priceoncarbon