Carbon Dividends: 2 New Proposals

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(1) Carbon Dividend Talking Points.

(From James Ewing)

In November 2018, three Republicans and three Democrats in the House of Representatives led by Congressman Deutch (D-FL) proposed the Energy Innovation and Carbon Dividend Act (“Deutch proposal”—HR7173), the first bipartisan carbon pricing proposal in Congress in nearly a decade. A similar proposal (Flake/Coons) has been introduced in the Senate. These legislative efforts would establish a national carbon tax which would achieve reductions in greenhouse gas emissions at a lower cost than approaches focusing on specific sectors, regions, or technologies. Proceeds from the carbon tax would be returned in equal portions, and sent in monthly payments, to all Americans with a social security number or a tax identification number, with minors receiving a half-share each. A small percentage is also be allocated to administration expenses required to run the program.

Under both proposals, low- and middle-income households would receive more in rebates than they pay in taxes, while high-income households would pay more in taxes than they receive in rebates.

The carbon tax revenues paid out to consumers would increase as the tax (staring at 15 $/ton) increases year over year. As the carbon tax rates rise households will also receive larger rebate checks. Assuming equal payments to 130 million US households, those carbon tax revenues would imply (taxable) rebates of about $600, $1,400, and $2,600 for each household in the first, fourth, and ninth years of policy implementation.

A carbon tax reduces emissions by providing financial incentives to switch to lower-carbon alternatives if doing so costs less than paying the tax. The average consumer benefits financially if their taxed carbon footprint falls below the revenue income the tax generates for them.

A carbon tax increases energy costs in proportion to the carbon content of the source of energy: impacts are most significant for energy produced with coal, then petroleum, then natural gas. Higher carbon tax rates cause larger changes in energy prices.

The two active Carbon Tax proposals (Deutch in the House and Flake Coons in the Senate) unfortunately lift regulations on taxed GHG emissions but reauthorize them if the tax is not meeting initial expectations. This may be a necessary strategy to secure bipartisan support.

A carbon tax will encourage conservation and significantly accelerate the pace of deployment of renewable energy sources like solar and wind; nuclear energy and carbon capture and storage technologies.

The long-term goal of a Carbon Tax “Revenue Neutral “ proposal is to reduce US emissions by 80 to 90 percent below 2015 levels by 2050, create a sustainable national energy model, and help guide the evolution of a zero emissions global economy.

 

(2) Carbon Tax talking points

(From James Ewing)

“A sustainable economy may not exceed ecological limits.”   – Herman Daly

The lack of price mechanism to signal the costs of economic externalities (like pollution) ignores the dangers of ecological destruction which would ultimately cause the economic system itself to collapse. How do we begin to adjust the existing system to disallow unrestrained CO2 atmospheric contamination?

There are currently two recently introduced Carbon Tax proposals working their ways through the House of Representatives and the Senate—the Deutch proposal (HR 7173) and the Flake/ Coons proposal in the Senate. The proposed legislation would establish a national carbon tax imposed primarily on producers of fossil fuels near where the fuels enter the economy. It covers nearly all carbon dioxide emissions from the US energy system. Importantly, the proposal includes a border carbon adjustment (BCA) to avoid harming the competitiveness of US industries in international markets.

The carbon tax rates start relatively low ($15/ton), and increase by $10/ton per year rising to $125/ton by 2030 (in inflation-adjusted terms @+2%/year) and potentially higher if the emissions targets stipulated in the bill are not met. The tax is attached as the products enter the market and passed on to the consumer.

To compensate the consumer the proceeds from such a “revenue neutral “ carbon tax would be returned in equal portions in monthly payments to every American with a social security number or a tax identification number, with minors receiving a half-share each.

A relatively small share of carbon tax payments would come from low- and middle-income households as they are taxed only on the carbon content included in their spending which is generally much lower than the more affluent. The bulk of the tax will fall on the upper income level households.

The carbon tax revenues paid out to consumers would increase as the tax ($/ton) increases year over year. As the carbon tax rates rise households will also receive larger rebate checks.

Assuming equal payments to 130 million US households, those carbon tax revenues would imply (taxable) rebates of about $600, $1,400, and $2,600 for each household in the first, fourth, and ninth years of policy implementation.

These “revenue neutral” tax proposals cover virtually all of the US energy system’s CO2 emissions, which account for about 90 percent of the country’s net greenhouse gas emissions. If a comparable carbon tax is adopted by the US greenhouse gas emissions would fall dramatically in the 2020s, well beyond the pace of reductions outlined by the United States in the 2015 Paris climate agreement aiming to limit global warming to below 2˚C.

A carbon tax will achieve emissions reductions by encouraging the consumer, businesses, and industry, to reduce spending on carbon intensive models, practice conservation, and stimulate innovation and gradually move us to an ideal “zero emissions” economy.

The two active CarbonTax proposals (Deutch in the House and Flake Coons in the Senate) unfortunately lift current regulations on taxed carbon emissions but will reauthorize them if the tax is not meeting initial expectations, This may be a necessary strategy to secure bipartisan support.

The carbon tax model has been recognized by a majority of analysts as the most effective means of reducing our greenhouse gas emissions while at the same time benefiting the average consumer

by putting regular cash money into his pocket, not to mention addressing the very real and immediate danger of an overheating planet.

 

3) Notes on Carbon tax talking points

(From James Ewing)

There are currently two similar Carbon Tax proposals being submitted to the US Congress. The Deutch House proposal (HR7173) and the Flake/Coons proposal in the Senate, represent the first bipartisan carbon pricing proposals in Congress in nearly a decade.

The proposed legislation would establish a national carbon tax which would achieve reductions in greenhouse gas emissions at a lower cost than approaches that focus on specific sectors, regions, or technologies.

The carbon tax is imposed primarily on producers of fossil fuels near where the fuels enter the economy and covers nearly all carbon dioxide (CO2) emissions from the US energy system.

The proposal also include a “border carbon adjustment” requiring importers of carbon emitted goods to pay a fee and providing a rebate to exporters of the same products thus equalizing the international trade competitiveness.

The tax starts out at a relatively modest rate of $15/ton—C02 emissions—and increases by $10/ton per year rising to $125/ton by 2030 (in inflation-adjusted terms @+2%/year)

Proceeds from the carbon tax would be returned in equal portions, and sent monthly to all Americans with a social security number or a tax identification number, with minors receiving a half-share each.

The tax will fall largely on the upper-income households.

A carbon tax liability increases in proportion to the carbon content of the energy used. As low- to middle-income households generally

use less carbon energy content they will be paying less in carbon taxes overall while receiving proportionately more in tax revenue rebates. The rebates received by average low- and middle-income families should exceed their increased expenditures caused by the carbon tax.

The carbon tax revenues paid out to consumers increase as the tax ($/ton) increases year over year. As the tax rates rise households will also receive larger rebate checks to offset the cost of the tax.

Assuming equal revenue distributions to 130 million US households, carbon tax revenues would imply (taxable) rebates—cash directly to consumers—of about $600, $1,400, and $2,600 for each household in the first, fourth, and ninth years of policy implementation.

Both Carbon tax proposals unfortunately lift GHG regulations currently in place but each mandates their reauthorization under the EPA if the tax is not meeting initial expectations, a strategy which may secure bi-partisan support.

If we can muster the will and the wisdom to pass a revenue Neutral Carbon Tax, US greenhouse gas emissions would fall dramatically in the 2020s, well beyond the pace of reductions outlined in the 2015 Paris climate agreement and would put the country on a pathway to a low carbon economy by midcentury or sooner.

The urgency to act on climate change has never been greater. That time is now, there is no later.

 

 

(4) The Counter argument

(From Bruce Colbath)

“I think any proposal that can be characterized as a tax on consumers is political suicide.  These proposals smack of the same problems that befell the tax cut proposal.  The “carbon rebate” gets paid, assuming the pro-fossil fuel regulatory agencies in charge of administering the bill don’t scuttle it, after a year of consumers paying more at the pump for gas, more for heating oil/natural gas and with Republicans reminding them of it.  I seriously doubt the extent of the benefits being claimed and would recommend withholding support until it is scored.  I looked at our expenditures and we wouldn’t get a meaningful rebate even though we drive only on weekends, use fuel/gas for heating only on weekends (we do not directly pay for utilities in NYC).  The bill will lead to fuel surcharges imposed by taxis, airlines, trucking companies, downstream utilities that do not directly discharge greenhouse gases, and any other utility that can persuade regulators to give them a break.

There is little chance of this bill passing either the House or the Senate given the demographics of the House and the Republican majority in the Senate.  Then, there is little chance Trump would sign it — he has had such a pro-fossil fuel stance since taking office that it would be a betrayal to his perceived “base” for him to sign a law that would renew the “war on coal”, something he vowed to end.

All the introduction of this bill, despite its promise, will do is undo the Democratic majority in the House in 2020; give Trump an argument that will resound with the consumers, and cement the Republican Senate majority.”

 

5) Additional Comments on Talking Points by James Ewing

(From Marc Rauch)

First, the “equal shares” method of distributing rebates is not really progressive. You explain that most LMI households will likely come out ahead based on their (assumed) relatively lower use of fossil fuels. But an argument can certainly be made for increasing the size of the rebate the lower the household income, thus targeting the rebates to where they are needed the most. If folks want to write letters advocating support of these bills, they should be aware of this issue and feel free to advocate for a more progressive rebate method.

Second, you don’t mention that the Senate bill does not eliminate regulation of emissions from power plants (stationary sources) the way the House bill does. This is critically  important not just for climate change reasons, but because regulation of CO2 generally results in reducing emissions of “criteria pollutants” (conventional air pollution) as well. This is an environmental justice issue too, because it’s often the LMI communities that are living downwind from power plants.  So there are important public health reasons and environmental justice reasons, in addition to climate change reasons, for supporting the Senate version of the bill. If people are going to write letters in support of carbon tax legislation, they should be strongly urging that the Senate version of the bill be enacted, not the House version.

 

Comment from Mary:

Thank you James,
I really appreciate being able to read this blog.  I’m hoping we will all use it in the way you state, as “talking points” when we all write letters to the editor about supporting these bills, especially the Senate bill S 3791 (see Marc’s comments about equal shares and regulations of CO2 emissions).
Yes, the bills can be tweaked, but rather than let the perfect be the enemy of the good, it is my hope we can all get behind encouraging  our friends and neighbors to call, email, write Congress, and to get a public conversation going in support of these bi-partisan bills what Robert Reich calls “the most important, #1, top of the heap solution” to jump start a national drawdown of carbon pollution.
Thank you.
Mary Morgan
Orient

 

 

About D. Posnett MD

Emeritus Prof. of Medicine, Weill Cornell Medical College
This entry was posted in climate change, Environment, Uncategorized. Bookmark the permalink.

2 Responses to Carbon Dividends: 2 New Proposals

  1. Don Matheson says:

    A couple points on the comments by Mr Colbath and Mr. Rauch:
    I share fear that, “anything that can be characterized as a tax on consumers is political suicide.” Hence, the care to call it “Fee and Dividend.” One of the well-known conservatives who supports this strategy is George Shultz, who has said, “If the government doesn’t keep the money, it isn’t a tax. It is a fee.” I’m not naive, and I know the Republicans will call it a tax anyway, but it is important that we who support it do the best we can to make that distinction. These bills remove no money from the private economy to be spent by the government. They are strictly market based, the holy grail for Republicans. The bills have been carefully designed to avoid waving that red flag at the Grover Norquists of the world.
    The numbers from the recent IPCC report and the 4th Climate Assessment, very well described in David Posnett’s most recent post, render the fear of “political” suicide somewhat trivial in my view. They make clear that we are, practically speaking, either already beyond salvation or on the hairy edge. Bill McKibben is fond of saying, “Winning late on climate change is the same as losing.” I’ve been working with Citizens Climate Lobby (CCL) for several years now, and the assessments just keep getting worse. Just today I saw the latest from Science magazine that, yes, the ocean has been warming 3 times faster than recently reported by IPCC, and are in line with the models from several years ago… the models that skeptics have been sneering at for years. We either win this battle very quickly or it may well be game over. So, in my view, we must take the risk and fight to push one of these bills to fruition.
    I agree it is beyond comprehension that Trump would sign it, but it takes time to build support for something like this in congress, and I can only pray that Trump will be gone by the time it would actually come to a vote. In the last congress, 50 plus Republicans had joined the Climate Solutions Caucus. (Some retired or lost, so not sure what the number is now.) I’m sure there are more lurking who will step forward as the news has been more clear on this issue this year than ever before. At least it is possible… remember how fast the tide turned on gay marriage, and how the Republicans who were screaming kill Obamacare backed off once they realized their constituents were for it.
    The version of Fee and Dividend CCL has been advocating was intentionally kept very simple; much like the House version. While many of us would like to see the improvements made in the Senate Bill and much more, the more progressive enhancements we put into it, the less likely it will pass. We must get a significant number of Republicans to sign on, or it will never pass. The REMI Study (see below) also predicts it will increase GNP and add jobs, so there are no losers except the fossil fuel purveyors. Government finger-on-the-scale moves to make it more progressive will be red meat for Republicans, so I would urge caution. The simple version projects to 40% reduction of fossil emissions in 12 years, other things being equal, and that would be a miracle versus where we are now.
    As to skepticism about whether the poor and middle class will be kept whole by the dividend, on the CCL website you could find a major study done by Regional Economic Models, Inc, (REMI Study)(a recognized consulting firm with no skin in the game… they work for governments and even the American Petroleum Institute) Their calculations predict that families up to 65th percentile in economic status will get as much or more back than their increase in cost of living. The most poor use very little fossil fuel, and for them it will be major increase in income. (this the economic stimulus, putting money in hands that will spend it.) That is in line with climate justice, as they have no wherewithal to control the lives they lead, and are bearing the brunt of the excesses of others. The higher up the income scale one goes, the more access one has to make less polluting choices. Starting with only $15/ton of emissions gives people time to react.
    When one considers how top heavy income is in the country, it becomes easier to understand that the folks living in large houses and multiple houses and flying many times a years are the ones who will pay the lion’s share of the fees, which will be embedded in everything that is bought, as there is nothing, no product, that won’t carry some degree of fossil influence in the manufacturing and transportation and marketing, and since the fee happens at the mine or wellhead, everything will be impacted. (Far more all encompassing than cap and trade, and no new bureaucracy to administer it… another republican gold star.)
    Therein lies the real impact of the strategy. Companies who have ignored fuel costs for processes and buildings and transportation as a level playing field will be looking five years out and realizing if they don’t do everything they can to minimize that cost as its steady increase is guaranteed will have competitive incentive to minimize that cost. States will have an incentive to push utility companies to use renewables, or lose business to states that do. (Iowa, of all places, is expected to hit 40% of its state electrical grid powered by wind this year. They won’t be paying much in fossil fuel fees, so that will be a lure for businesses that need lots of electricity.)

  2. David says:

    Thanks Don. This is great and very comprehensive.

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