Carbon Taxes: Tax Equity and Reduced

Global Warming

Presentation to the Energy Committee of theAssociation of the Bar of the City of New York

Charles KomanoffDaniel Rosenblum

December 12, 2006

The Problems• Global Warming

– Is triggering a climate crisis that threatens massive and irreversible damage to our global environment, public health, world peace, national security and economic well-being

• Inequitable Taxes– On productive work – payroll tax– On purchase of necessities – sales tax– On shelter – property tax

Americans emit in a day what others emit in a week.

0

4

8

12

16

20

CO2 metric tons per capita (1998)

USAnon-USA

An Answer? Carbon Taxes

High taxes on the carbon content of coal, oil and natural gas will:

• Reduce combustion of fossil fuels and related emissions of carbon dioxide

• Provide a revenue stream to fund a reduction in counter-productive taxes

• Carbon tax receipts may also be used to finance energy efficiency, further reducing use of fossil fuels and related emissions

Why Carbon Taxes(or other fuel tax-shifts)?

• Cheap anything (i.e., cheap carbon fuels) will never be maximally conserved.

• Standards / subsidies often fall short– “Gamed” (e.g., “CAFE”)– Diluted (e.g., hybrids)– Circuitous (e.g., NYS “RPS,” REC’s)– Scattershot (e.g., what about air travel?)– 1-dimensional (no behavioral change?)– Static (bypassed by dynamic capitalism)

Dynamic Capitalism & CO2“ … specially equipped,

privately owned jumbo

jets – the kind that

normally carry 300-400

passengers … recon-

figured … for the

enjoyment of, at most,

a couple of dozen.”

New York Times, 17-Oct-2006: For the Super-Rich, It’s Time to Upgrade the Old Jumbo Jet

Affecting Gas Use Decisions

Gas Tax-Shift• What car to buy

• Which car to drive

• How to drive

• VMT (miles traveled)– Share (carpool)– Chain trips– Transit– Walk/Bike– Proximity

CAFE• Mfg’er mpg decisions

• What car to buy

Nearly 60% of oil (> 80% of fossil fuels) is not gasoline for cars.

Cars

Freight

Heat

OtherAir

PavingRV’s

As oil “peaks,” here come synfuels

Only a carbon tax-shift can stop massive development of oil sands, oil shale, coal-into-oil, etc. to replace petroleum.

Energy Use: Not Inelastic• Gasoline usage has grown only 3.5% from 2003,

while the economy has grown 11%.

• Pump prices have risen only 50% since 2003 (adjusted for inflation) – not the doubling commonly believed.

• The slow growth in demand points to a “short-term price elasticity” of around 0.1, and 0.4 in the long term.

• Finding: Demand for gasoline (and other fuels) is at least somewhat price-sensitive.

Tax-shifting Will Shrink Fuel Use

Carbon tax proportions

0

1

2

Relative taxrate per btu

Gas

Oil

Coal

Fuels are taxed by their carbon content per btu.

A “Starter” Carbon Tax-Shift

• $37 / ton of carbon =

• 10¢ / gallon of gas, jet fuel, etc. =

• ¾ ¢ / kWh of electricity (U.S. avg)

• Reduces U.S. CO2 emissions ~2%

• Repeat 10 x

USA after “starter tax x 10”• Coal power out, wind farms in• SUVs out, sedans in• Incandescents & halogens out, CFL’s in• Costlier air and highway travel creates

market pull for 300-mph intercity rail• Urban trips by bicycle up x 10, to 10%• Suburbs contract / Cities thrive• CO2 emissions down by 15-20%• Oil use down by ~5 million barrels/day

The Wealthy Will Pay More

“Progressive” Use of Carbon Tax Revenues

EITHER• Distribute pro

rata (~ $1,500/yr)

OR• Tax Shift out of

regressive taxes (shown ) 0

100

200

300

400

500

Tax Revenues$Billions (2004)

Salestaxes

Soc Sec(workers)

Carbon(10 yrs)

Carbon Subsidy dwarfsUsual FF Subsidies

0

100

200

300

400

500

600

Annual U.S. Subsidy, $ billions

Fossil FuelIndustry

FF's @ 10¢ /gallon equiv.

FF's @ $1.00/ gal. equiv.

Who’s Taxing Carbon?

DenmarkFinlandItalyNetherlandsNorwaySwedenU.K.

$0

$10

$20

$30

$40

$50

Sweden EU #1 EU #2 Boulder "Starter"

Hon. MentionAustria, Belgium, Germany, Japan

Politics?• Concerns

– Contrary to Americans’ sense of entitlement to “cheap energy”

– Anti-tax ideology of past 25 years– Elected officials wary of another Btu tax debacle

• Yet support is growing for a carbon tax– Opinion leaders– Polls– Boulder, CO– Greens– National security

• Must be done right – Tax Shifting

Summary• Principles

– Tax-shifting – not a tax increase

– Full-Cost pricing– Polluter pays

• Responds to concerns about– Climate crisis– Inequitable taxes– Security / Oil dependence– Basing economy on

vulnerable energy

Coming Soon

Carbon Tax CenterAnticipated Launch - 1/2007

(look for www.carbontax.org)