Friday, November 9, 2018

Carbon Tax

Source: Seattle Times
"The carbon tax is dead; long live the carbon tax" is the headline of Tyler Cowen's Bloomberg column on the failed (again) Washington State carbon tax.  And rather decisively, per the picture on the left.

"Maybe its failure on the ballot in Washington state will inspire economists to come up with better arguments" challenges the subhead. I can't resist.

The key question for a carbon tax is, what do you get in return? What do you do with the money? Washington's carbon tax would have, according to the Seattle Times,
It would have taken effect in 2020, rising year after year to finance a multibillion-dollar spending surge intended to cut Washington greenhouse-gas emissions. The initiative reflected proponents’ faith that an activist government can play a key role in speeding up a transition to cleaner fuels.
The fee would have raised more than $1 billion annually by 2023, with spending decisions to be made by a governor-appointed board as well as the state’s utilities
Well, perhaps the voters of Washington State were not so much against a carbon tax per se, but had less than full faith that a large increase in green boondoggle spending by Washington State government was a good idea. They need only to look south at California's high speed train to see cost-benefit analysis at work in dollars per ton of carbon saved.

And in fact it violates the whole idea of a carbon tax. The point of a carbon tax is to give people and businesses an incentive to figure out their own ways to cut carbon emissions. The whole point is not to fund big government projects. If you want to fund big government projects, you do it out of the broadest based and fairest tax you can find.

As Tyler suggested,
But maybe it’s time for a change in tactics. These new approaches might start with the notion that we can address climate change without transferring more money from voters to politicians.
Here are three ideas:

Idea 1: One answer is obvious: a revenue-neutral carbon tax. Use the carbon tax to offset other taxes. Tyler anticipates this with
The economist can respond, correctly, that a carbon tax will ease the path to greener outcomes, and that other taxes can be cut as recompense if necessary. But it seems right now there is not enough trust for such a grand bargain to be struck. 
Perhaps. But if the carbon tax were coupled with an explicit reduction in other taxes, it might help to convince people. If carbon taxes were coupled with elimination of other taxes, it would help more. Taxes are like zombies. If you just lower the rates they tend to come back. If you eliminate them entirely, perhaps requiring referendum for their reinstatement, there can be more trust. Couple the carbon tax with elimination of, say, state property taxes, income taxes, or sales taxes.

And in the end we all know taxes must equal spending. You can convince voters there won't be more taxes if there isn't more spending. Advertising the carbon tax as a substitute for carbon spending; simultaneously eliminating green boondoggles, would help to seal the deal.

Idea 2: The Baker-Shultz plan, or Americans for Carbon Dividends, (previous blog post here) has another bright idea: Send the proceeds back to the voters. Write everyone a nice check. This ensures that the money doesn't go to boondoggles, and gives every voter a stake in keeping the scheme going. It is highly progressive, which Democrats should like.

I had a similar idea a while ago: Rather than a tax, give each American a right to, say x tons of carbon emissions that they can sell on a carbon market. That also gives everyone an incentive to vote for the system. And it states the issue squarely. You, a voter, are having your air polluted. You have a right to collect on that damage. It makes it clear that carbon is a fee, a penalty, not a "tax." The point is to disincentivize the use of carbon, not to raise revenue for the government to spend. "Tax" is a loaded word in American culture and politics. Carbon rights takes the whole discussion away from "tax."

Idea 3: Lastly, one could pair the carbon tax and fee with a trade: A hefty fee, in return for elimination of all the other carbon subsidies and regulations. To those who don't believe in climate change: ok, but our government is going to do all sorts of crazy stuff. Let's cut out the rot and just pay a simple fee instead. No more electric car subsidies -- $15 k from taxpayers to each Tesla owner in Palo Alto -- HOV lanes, windmill subsidies, rooftop solar mandates, washing machines that don't wash clothes anymore (hint: do NOT buy any washing machine built since Jan 1 2018), and so on and so forth.

I think on the left the strategy has been to ramp up climate hysteria: if we just yell louder and demonize opponents more, the voters will buy it. No matter how much of a problem you think climate is, let's admit that's not working. In part the claims are now so over the top that everyone can tell it's gone too far. No, the way to put out fires in California is not to build a high speed train.

When, in the name of science the IPCC writes things like this -- right up front in the executive summary --
D3.2. ...For example, if poorly designed or implemented, adaptation projects in a range of sectors can increase... increase gender and social inequality... adaptations that include attention to poverty and sustainable development (high confidence).  
D6. Sustainable development supports, and often enables, the fundamental societal and systems transitions and transformations that help limit global warming to 1.5°C. ... in conjunction with poverty eradication and efforts to reduce inequalities (high confidence).... 
D6.1. Social justice and equity are core aspects of climate-resilient development pathways that aim to limit global warming to 1.5°C... 
D7.2. Cooperation on strengthened accountable multilevel governance that includes non-state actors such as industry, civil society and scientific institutions, coordinated sectoral and cross-sectoral policies at various governance levels, gender-sensitive policies.... (high confidence). 
D7.4. Collective efforts at all levels, ... taking into account equity as well as effectiveness, can facilitate strengthening the global response to climate change, achieving sustainable development and eradicating poverty (high confidence)
You can't blame the suspicious Washington State voter from wondering if perhaps a larger agenda isn't being financed here.

There is a sensible middle. Voters who want to do something about carbon, but not finance massive boondoggles or a collectivist progressive agenda. Environmentalists who want to do something about carbon that actually will work. Skeptics who understand, as long as we're going to so something, let's do it efficiently via a carbon fee rather than at massive cost as we are doing now.



41 comments:

  1. Given the trillion dollar per year Republican deficits, everyone arguing over whether carbon taxes should be spent on trains or on public rebates seems to be living in a fantasy world. Angry arguments over choices you do not have...

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  2. They already proposed a revenue-neutral carbon tax in Washington, and it failed by a larger margin then the current one, so I don't think spending on "boondoggles" is the sticking point here

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  3. In 2016, Washington had a revenue neutral carbon tax ballot initiative (I-732). That proposal would have lowered the state sales tax rate by 1%, it reduced the Business and Occupation Tax on Manufacturing Businesses in Washington State to .001% and created a rebate program to send the money to citizens of the state.(https://en.wikipedia.org/wiki/Washington_Initiative_732) In addition, that initiative received less support than the current initiative (59.3% opposed vs. 56.3%). Based on this, unfortunately, it does not seem to me that making a carbon tax revenue neutral will increase support for it among the general population.

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    1. Dallas Weaver, Ph.D.November 21, 2018 at 1:09 PM

      Note that the environmental activist like the Sierra Club and related environmental non-gov't organizations (ENGO's) strongly opposed this first carbon tax that didn't give the eNGO's any say in how the tax would be spent (the money went to the citizens who were paying the tax).

      The ENGO's behavior on this initial attempted carbon tax demonstrates that they care less about decreasing CO2 than they do about controlling money and decisions. The latest attempt spend money on their projects and dreams while giving them a say in the projects along with all the government bureaucrats. The ENGO's and government bureaucrats are just trying to exapand their power controlling billions of dollars and don't really care about the CO2 problem.

      Actions speak much louder than the ENGO's rhetoric.

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  4. Canada is implementing Idea 2 in provinces that did not pick their own plan. We will see how much traction that gets...

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    1. It is important to note that the Conservative party in Canada is working very hard to kill this idea.

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    2. It is important to note that the Conservative party in Canada is working very hard to kill this idea.

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  5. They tried a revenue neutral carbon tax in 2016. It lost even more decisively. Even the Sierra Club opposed it. https://www.sierraclub.org/washington/sierra-club-position-carbon-washington-ballot-initiative-732.

    I appreciate you trying to come up with a sensible compromise, but this is far too polarized into dueling camps for the foreseeable.

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    1. The Sierra Club and the other ENGO's were stating that they really don't care about solving excess CO2 production but using it for political purposes. Their prime directive has become growth and survival and CO2/global warming is too powerful of fundraising tool to ignore.

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  6. Washington State tried to implement a fiscally-neutral carbon tax in 2016 and it failed because a large faction prioritized a big slush fund over actual carbon usage reductions.

    http://cliffmass.blogspot.com/2018/11/a-political-analysis-of-i-1631-carbon.html

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  7. Isn't the map you show basically just a population density map? https://xkcd.com/1138/

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  8. It seems all the comments about a revenue neutral plan missed the point that the successful plan would eliminate some other tax, not just lower it. Because it is much easier to just raise an existing tax. It still may not work, but a plan that lowers a tax by 1% is not the same thing as a plan that eliminates a tax and makes it hard to re-establish.

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  9. It's time to act simply. It's time to advocate the voluntary Lighting Curfews that are in effect in over 500 EU municipalities because they work. Lights Out America! from 11 pm until dawn every night everywhere. It's your move.

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  10. An effective carbon tax raises zero tax revenue!

    Rather it promotes what free lunch economists consider bad results: paying workers to produce energy or product without burning any carbon, and they consider all money paid to workers to work to be too costly.

    High costs kill jobs.

    But this comes from Milton Friedman arguing circa 1970 that paying workers resulted in workers spending money, which led to more workers being paid, who in turn spent money, and businesses paid workers to build capital to increase output, etc, leading to ever increasing consumption, ever increasing demand for labor, and that led to inflation in the cost of living.

    Fossil carbon is a capital asset, so burning carbon drives capital scarcity, carbon price increases, which creates wealth without paying workers. Milton Friedman preferred scarce capital generating higher profits, and that means cutting labor costs.

    A carbon tax instead drive tax dodging building of green capital which reduces capital scarcity reducing profits as workers get paid all the money from energy production. The more jobs created, the more wealth destruction from profits falling to zero.

    Essentially, the best carbon tax rate is slightly higher than the profits on carbon capital (coal, oil, gas) driving substitution of building green capital to avoid losing money.

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  11. Australia’s federal government adopted a carbon tax combined with personal income tax cuts. The revenue neutral aspect of the plan did little to enhance its popularity and was repealed a few years after its introduction. This wasn’t a referendum with theoretical outcomes, Australian voters were seeing the benefits of the tax cuts in their take home pay. And they still didn’t care for the carbon tax. The politics around this tax reform are messy and complicated.

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    1. The thing is the the income tax free threshold was raised from $6000 to $18,000AUD. I think there was also a pension increase. But after the CPRS was repealed the changes weren't reversed. So, linking future tax changes would be logical.

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  12. The problem with a revenue neutral carbon tax is that it is of no interest to redistribution or climate change fight profiteers.
    http://ourpiedaterre.blogspot.com/2017/04/solutions-that-share-out-all-benefits.html

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  13. Shouldn't the proceeds of a CO2 tax be paid out to those who remove CO2 from the air?

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    1. Yes.

      Note for areas being flooded by sea-level increases. Pumping CO2 into deep saline aquifers can cause the surface of the land over vast areas to increase. ( 30 cm in Long Beach Ca from injecting seawater)

      At refundable tax rates in the $50/ton range, it may be profitable to remove CO2 from the atmosphere and raise up area like flooding cities.

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    2. Kindly point to information source ------ "Pumping CO2 into deep saline aquifers can cause the surface of the land over vast areas to increase"
      --E5

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    3. Dallas Weaver, Ph.D.November 21, 2018 at 1:25 PM

      Use scholar.google.com to look up the references. There was a big project with CO2 in the middle east where they measured many cm uplift. These tests were not trying to get uplift and were limiting down-hole pressure. We also know injecting water to prevent and reverse subsidence caused by oil extraction has been done around the world and in Long Beach, Ca. they elevated the land 30 cm.

      With stiff rock layers or ductile layers like salts, you can overpressure and get large amounts of uplift. Remember a 1000 meter column of rock on a porous trapped aquifer can have a down hole pressure in the 3,000+ psi range and CO2 is a liquid at 15,00 psi. We will be injecting liquid CO2 at any real volumes.

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    4. Thank you Dallas.
      Algeria; In Salah CO2 storage project.
      I won't pay to read the papers. Will have to trust your details.
      --E5

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  14. Pollution taxes are a great idea.

    Income taxes are a bad idea and are becoming uncollectible anyway.

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  15. I like reducing/eliminating payroll taxes that have known detrimental impacts on the economy that exceed the impacts per $ of a carbon tax.

    Eliminating the Medicare part of the payroll taxes would be about the correct size relative to a reasonable carbon tax starting point in the $50/ton range.

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  16. I suspect that a larger political problem with the carbon tax is the concentration of its effects on the very few industries. As a result these industries can make an effective interest group to oppose such tax. The benefits are dispersed: almost all of them are not even benefits to the residents of Washington.

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  17. OT but related to earlier posts.

    Short story: In India shadow banks issue bonds and lend on real estate and infrastructure. They do not take deposits. They are collapsing and risky, and enabled a lending boom etc. This is quickie version.

    https://www.ft.com/content/dda8cd40-e442-11e8-8e70-5e22a430c1ad

    You know, the collapses alwys eem to come back to real estate....

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  18. One might argue the A.C. Piguo is the father of externalities. Further, the advocates of a carbon tax and associated ilk are looking to reduce a perceived externality via a Piguovian Tax.

    One can go even further and state that Piguo appeals to advocates of a carbon tax and associated ilk because they never read further/read on regarding what Piguo had to say about his own proposition. That is, they stopped at the Piguovian Tax because it appeals/supports there debate point. They are soooo smart they forgot to read the complete Piguo. How so?


    "It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure, and to personal corruption by private interest. A loud-voiced part of their constituents, if organized for votes, may easily outweigh the whole." - A.C. Piguo

    Piguo basically said (he was apparently channeling an early form of Public Choice Theory) that that the tax would never work as the proceeds would be squandered by politicos. The squandering out weighed any value of the tax. That is, although not mention at this point in history i.e. Coase had not made his point yet, he was basically stating Coase's future point about "blackboard economics". Piguo was stating it looks good on the blackboard, but it doesn't work in the real world.

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    1. That would be Arthur Cecil Pigou, presumably. https://en.wikipedia.org/wiki/Arthur_Cecil_Pigou

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  19. Hmmm. Lot's of things here. Commenting on a couple.
    The chart (not of John's making) suggests overwhelming rejection of the proposition. The margin was, however, 54% (against) to 46% of those casting their vote. Which suggests putting the chart, not in the "true" category, not in the "outright lie" category, but in the "disinformation" category.
    Few voters, probably, read any part of the 32 pages of the IPCC's "Summary for Policymakers". The quoted fragments are extracted from a sub-section, 6 pages of statements, suggesting advice to policymakers, under the title "D. Strengthening the Global Response in the Context of Sustainable Development and Efforts to Eradicate Poverty"
    Just like the Bible, documents like the IPCC report should be read in their entirety in order to get their meaning. A few cherry-picked fragments, again, go in the category "disinformation". If this is the kind of exposure voters received then no wonder a few percent more voted "NO" than voted "YES".
    Evidently it is futile trying to foster the transition from fossil fuel burning to sustainable alternatives by a political process. The transition will be made. Eventually business will find it worthwhile for profit-making. But the natural consequences of delay, i.e. results of enhanced extremities of climate, will be regretted by many.
    --E5

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  20. "Social justice and equity are core aspects of climate-resilient development pathways that aim to limit global warming to 1.5°C"

    As a public service, can anyone here quickly summarize the underlying logic behind this flavor of IPCC findings? Not the underlying pathologies that might have caused a misjudgment mind you, just how the IPCC thinks the science around this works.

    I know I should stop being lazy and read the thing myself, but it's been awhile since I first saw this and I still haven't gotten around to it. And the statements seem so very outlandish I feel like I've got to be missing something...

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    1. You read it and tell us what *you* think. Please. --E5

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    2. The IPCC is not a science body. It is a political entity of the UN. It has the charter to cultivate evidence for human caused global warming. If it seems one-sided and political, that is because it is.

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  21. "Similar ideal a while ago"...Love the idea of fees compensating those exposed to production generated negative externalities. Addresses the free rider problem. Firms could purchase insurance against claims much like drivers insure themselves against other bad drivers.

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  22. I live in the clinatc change hysteria capital of the world. While attending a wedding in Berkeley, I came to the conclusion that there were three issues where mild disagreement brought out mass hysteria (pre Trump): Inequality, Climate Change, GMOs.

    How sad.

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  23. Idea #2 -- and even do the writing the checks first.
    a) Predict how much the carbon tax will generate. b) Send everybody a check for "their amount" of the carbon tax substitution, to help them adjust, c) start collecting the tax; d) adjust the next quarterly (not annual) check to be closer to what was collected.
    e) publicize how much reduced carbon there was.

    Not mentioned

    idea #4) build more nuclear power plants. If CO2 isn't enough of an issue to justify building more nukes, it's not yet a big enough issue.

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    1. Except that nuclear has just as much problem of mismatch to demand as wind and sunshine have. Nuclear only makes sense if it is right next to a 24/7 constant demand. Such as a plant making aircraft fuel (which would have to be hydrogen). We don't know how to do that yet.
      --E5

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    2. "Except that nuclear has just as much problem of mismatch to demand as wind and sunshine have."

      That's patently untrue.

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    3. "That's patently untrue." You say that without explanation.
      Demand varies on a daily cycle. Demand also varies in fine detail according to air conditioning needs, popular television advertising breaks, etc.. It takes a week to cycle the output of a nuclear reactor. Therefore mismatch. Same problem as with wind and sunshine but different pattern. Nuclear boosters invented the term "base load" in order to construct marketing propaganda. Base load is simply a flat line drawn between the troughs of a daily cycle. So you have to switch off all other sources in the middle of the night and then start them up again. Or pump water uphill overnight. Operators find this to be expensive. Therefore we don't have many nuclear power stations. Most of the world's nuclear power stations exist because governments wanted to make nuclear weapons. Electric power is a subsidiary product that partially offsets the cost of the weapons.
      --E5

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  24. Washington state was right to be suspicious. The buzz among new House Democrats is for social engineering through energy/CO2 regulation, taxing, and control. The Ocasio-Cortez proposal reads like a wishlist for socialism and includes: (https://ocasio2018.com/green-new-deal)
    * guaranteed jobs
    * "living" wages
    * mitigation of gender and racial inequalities
    * union labor considerations
    * universal health care
    ...

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  25. Where did you get the "belief" that nuclear reactors "take a week" to change the power output They are really just a steam power plant with a different heat sources, which can change power output as fast as normal boilers. Yes, like all steam power plants you can have differential thermal expansion issues on the steam turbine and its case on rapid power level changes that limit rates of power change.

    The concept of base load is real and has been around long before nuclear power plants. Remember, there is a lot of 24/7 load ranging from sewerage treatment plants to water supply systems and industrial facilities that operate 24/7 producing all the basic resources you use from metals to glass and cement along with petrochemical plants. Something like 10% of the worlds electricity production goes into mining/material production with aluminum being the obvious one on the list of big energy burners.

    Your "belief" in nuclear power stations existing for weapons purposes is also just false propaganda. Designing a nuclear reactor for producing electricity and producing Pu for weapons are inconsistent design goals that results in unstable and unsafe designs like Chernobyl. To get the high weapons grade Pu production out of the system, the graphite moderator is great combined with fast fuel cycling, but having lots of water for producing energy in the system makes it possible to go "prompt critical" and explode where an all the power generating water moderating designs the water just expands or boils and the system shuts down.

    A well designed reactor can have the core go prompt critical and the system just goes bump with a short time pulse and shuts itself down. The safety is in the physics of the design, not the equipment or people or computers.

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