In-Depth Analysis: How A Progressive Carbon Tax Will Fight Climate Change And Stimulate The Economy

by Richard W. Caperton

Superstorm Sandy. Massive droughts. Devastating tornadoes. Horrific wildfires. The United States has certainly seen the dramatic weather-related effects of climate change in 2012, and every American has in some way been negatively impacted. Unfortunately, unless we start taking action now to curb the greenhouse gas pollution that’s causing this extreme weather, things are only going to get worse. Depending on which actions we choose to take, this year will either be the new normal or it will be a glimpse into a future where conditions are much, much worse.

Progressive leaders across the country are beginning to take action and look for ways to fight climate change. President Barack Obama is using provisions of the Clean Air Act to reduce pollution from new power plants. California and some Northeastern states—Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont—have regional programs that put a price on carbon dioxide and other greenhouse gas pollutants in the hope of reducing their usage. These are powerful steps in the right direction, but they alone cannot solve the challenge of climate change. Avoiding the most catastrophic consequences of global warming will require much broader action.

There are several ways that the United States could make a significant contribution to the global fight against climate change. We could take President Obama’s action on new power plants to the next level and use the Clean Air Act to reduce pollution from existing power plants and other major sources of emissions. The existing regional programs that charge a fee for pollution could be strengthened and broadened to cover more of the country, or Congress could get involved and put a nationwide price on carbon by creating a carbon tax.

Before diving into specifics on a national carbon tax, it’s important to recognize that there are countless ways to put a price on carbon. A cap-and-trade system is one such method, and it’s certainly possible to design a progressive cap-and-trade system. In such a system, a strict cap is set on national pollution, and polluters must have permits for all of their pollution. These permits are freely traded so that companies can reduce their pollution profit by selling permits to other companies that may need more pollution allowances. Analysis showed that the cap-and-trade bill passed in the U.S. House of Representatives in 2009 would have benefited low-income people, reduced the deficit, protected vulnerable industries, reduced pollution, and stimulated investment. That’s why CAP, along with private businesses and a bipartisan majority of the House of Representatives, supported the bill. Unfortunately, it failed to muster the necessary support in the Senate and was never enacted.

Three years later cap and trade is off the table largely because of a polluter-funded effort to deny climate science and delay action on pollution reductions. But Hurricane Sandy, the fiscal cliff, and the debate over clean energy incentives have together made it clear that we must put a price on carbon—and we must do it soon.

Given the track record of climate legislation in Congress—including the failed effort to pass the cap-and-trade bill in 2009—enacting a carbon tax poses more of a challenge than either expanding the regional carbon-pricing actions or using the Clean Air Act to regulate all power plants. While both of these alternatives are steps in the right direction, a national carbon tax would be able to address more than just our environmental concerns. In addition to mitigating the effects of climate change, a carbon tax could help solve our country’s budget crisis and provide revenue for new job-creating investments in clean energy infrastructure. By raising new funds, driving new investments, and reducing the likelihood of the most catastrophic consequences of climate change, a carbon tax is a tool that can take on our country’s three most pressing challenges: the deficit, joblessness, and the climate crisis.

In this issue brief we describe some of the key questions Congress needs to answer in designing a carbon tax. We lay out the principles for making sure that a carbon price puts our country on a progressive path to future prosperity and describe why a carbon tax is a desirable way to price carbon. We then turn to the issues in collecting the necessary revenue. Finally, we discuss how to use the revenue to most effectively solve the challenges facing our country.

Key principles for a progressive carbon tax

As with most energy policies, the details of a carbon tax are critical to accomplishing its goals. A well-designed pricing system can create jobs, reduce greenhouse gas pollution, and have fair impacts across all regions and income groups. To ensure this positive outcome, the United States should adopt a carbon pricing system that embodies progressive principles of fairness, environmental safety, and economic growth. The pricing system should:

  • Be sufficiently robust that it leads to meaningful reductions in greenhouse gas pollution, getting us on a path that helps us avoid the most catastrophic effects of climate change. In addition to being high enough to affect pollution rates, the tax should also increase over time and be applicable to non-carbon-dioxide greenhouse gases such as methane. This would both ensure a continuing reduction in the release of carbon dioxide and also encourage companies to move toward cleaner energies instead of different dirty ones.
  • Encourage businesses to make new investments in energy efficiency and renewable energy to reduce greenhouse gas emissions. This will stimulate the economy and put people back to work in the burgeoning clean-tech and green-jobs sectors.
  • Reduce—not increase—economic vulnerability of low-income households by ensuring that they are fairly compensated for any increase in energy prices.
  • Have appropriate mechanisms to protect existing American businesses and prevent so-called pollution leakage to countries without similar systems in place. Leakage occurs if highly polluting industries simply move to other countries that don’t have a comparable limit on pollution; in this way, they can continue business as usual without stricter environmental regulations. Leakage can also happen if domestic industries shut down, causing us to import goods from other countries.
  • Reduce the budget deficit to prevent draconian cuts in vital domestic programs by raising revenue from the tax.

The remainder of this issue brief explains how to design a carbon tax that meets these criteria.

Why a carbon tax is the best solution

Although it is unlikely that Congress will attempt to pass federal cap-and-trade legislation again in the near future, there are alternatives to putting a price on carbon—including the carbon tax, which is getting significant attention today from lawmakers and thought leaders across the political spectrum. The basic mechanics of a carbon tax are very simple: A tax is assessed on each ton of greenhouse gas pollution, the tax is paid to the government, and the government uses the money for either targeted spending or general usage. The tax will discourage pollution, therefore discouraging the use of fossil fuels while promoting cleaner energies. It can be increased over time to continue incentivizing polluters to lower their emission rates.

A carbon tax does have a critical distinction from cap-and-trade. With the carbon tax, the price is fixed, and the market responds by reducing carbon pollution to a point where it is cheaper to pay the tax than reduce the pollution. With cap-and-trade, though, the amount of pollution reduction is set by law, while the market responds by setting a price for pollution at the point that reflects the amount of pollution that must be reduced. The difference is cost certainty versus emissions-reduction certainty. For some pollutants such as sulfur dioxide or nitrogen oxides, the emissions certainty is very important. With greenhouse gas pollutants such as carbon dioxide, on the other hand, atmospheric concentration will determine the impacts of climate change. This means that the reductions in greenhouse gas pollution need not be as precise as those for conventional pollutants, as long as we meet longer-term goals such as reducing pollution 17 percent from 2005 levels by 2020 and 80 percent by 2050. A carbon tax of $15 to $25 will achieve these levels of reductions by incentivizing companies to lower their pollution rates to the desired levels, making it an effective solution to curbing greenhouse gas pollution.

The cost certainty implicit in a carbon tax could also be very useful in driving investments in efficiency and new clean technologies. For long-lived assets such as power plants and factories, knowing what the cost of carbon will be in the future makes planning those investments much easier. A carbon tax will also incentivize the use of non-fossil-fuel-based energy, causing an economic boost in the green-jobs and clean-tech markets.

There are two important sides to a carbon tax: how the revenue is collected and where the revenue goes. Getting the right mix of policies on both sides of the equation will ultimately determine whether or not a carbon tax achieves the aforementioned goals.

How to collect the revenue

At the most basic level, a carbon tax is simply a fixed fee per ton of carbon dioxide pollution, as well as a comparable fee for other greenhouse gas pollutants such as methane, that a company must pay when it emits these pollutants. Beyond that, the details get somewhat more complicated. How much should the tax be? What sectors of the economy should have to pay? How should the tax be collected? The answer to each of these questions involves tradeoffs, but recent research can point us in the right direction.

How much should the tax be?

The tax should be set as close as possible to a level that will achieve growing pollution reductions over time—reductions that will be significant enough to avoid the most catastrophic consequences of climate change. Setting the tax lower than this will simply create a revenue-generating tool that doesn’t solve the underlying problem.

While getting the price right to the penny is virtually impossible, getting in the ballpark should be relatively easy. Modeling of cap-and-trade proposals from 2009 and extensive modeling of energy systems since then indicates that a price anywhere from $15 to $25 per ton is about what is needed to reduce pollution by appropriate amounts.Recent experience from California’s cap-and-trade system indicates that significant emissions can be achieved with a price of just around $10 per ton. To avoid shocks to the economy that may arise from introducing a new tax on pollution, it makes sense for the price to be very low—perhaps lower than ultimately necessary to achieve significant pollution reductions—for the first year or two years of the program, with a gradual ramp up to the target price. The price should then increase at a steady rate each year to ensure further reductions in greenhouse gas emissions.

Congress likely does not have the internal expertise to set the tax at exactly the right level. To set the price, Congress should direct the Department of Energy to determine the necessary carbon price that will put us on a path toward necessary greenhouse gas pollution reductions. Congress should recommend that the Energy Department use $25 per ton as a starting point for their analysis. Finally, the tax should be phased in on a predetermined schedule along the lines of 25 percent of the target price in year one, 50 percent in year two, and 100 percent in year three. (For a target tax rate of $25 per ton, that would mean a price of $6.25 per ton in the first year, $12.50 in the second year, and the full $25 in the third year.) Because there is a risk that the price may not be sufficient to fully address climate change, however, Congress should not interfere with the Environmental Protection Agency’s existing authority to regulate greenhouse gas pollution.

Who should have to pay?

The tax should ultimately cover the entire economy. Addressing the climate crisis will require reducing emissions from every source—including electricity, transportation, industry, households, agriculture, and forestry—and the best way to do so is through a price on carbon. Given the differences in terms of how easy it is for each of those sectors to reduce pollution, however—as well as the political challenges that will arise from attempting to tax some of them for carbon use—it may make sense to start with only a portion of the economy and phase in the rest over time.

The two largest sources of U.S. carbon pollution are electricity plants and motor vehicles. The Obama administration already adopted the first limit on carbon pollution from motor vehicles, which is projected to reduce carbon pollution by 6 billion tons over the lifetime of the cars built between 2017 and 2025. A carbon tax should therefore focus first on the electric power industry. One advantage in doing so is that there are a relatively small number of sources—just 5,800 power plants in America—and existing technologies can help them reduce their pollution.

The electric power industry is also where most cost-effective reductions are found. Research from Roberton Williams and others at the environmental think tank Resources for the Future shows that a tax on carbon pollution just from the electricity industry gets 90 percent of the reductions of an economy-wide tax in 2020. This is because a relatively low tax will lead to much more fuel switching and changed behavior in the electricity industry than in other parts of the economy. Put another way, sectors such as transportation and industry will not respond as much to a moderate tax as the electricity industry will because the electricity industry has less expensive ways to reduce pollution than other sectors of the economy. As the tax increases, though, emissions reductions in other sectors will become a bigger part of the solution.

To be clear, reducing emissions from the electricity sector alone is not sufficient to avoid the most catastrophic impacts of climate change. A sector-specific approach only works in the very early years of a carbon tax. Eventually, the tax must cover all major emitters.

How should the tax be collected?

If the carbon tax is initially only placed on power plant emissions, the tax should be assessed at the power plant. This is better than assessing the tax either farther upstream or downstream from the plant for several reasons. Assessing it downstream—that is, on people’s power bills—is extremely complicated and unnecessarily bureaucratic. It would send a price signal in favor of energy efficiency to families and businesses, but the downsides—complicated and expensive bureaucracy—almost certainly outweigh the benefits. Assessing the tax upstream—that is, at the mouth of the coal mine or at the natural gas well—is relatively straightforward, but it impacts other industries that use coal and natural gas and doesn’t capture imported fossil fuels. If the carbon tax were only applied to certain sectors of the economy—at least in the beginning— assessing the tax at this point would not be appropriate.

Power plants collect and report other environmental data, so adding greenhouse gas pollution is a relatively low administrative burden. Assessing the tax at the power plant also sends a price signal for energy efficiency at the power plant, which should encourage investments in more efficient combustion of fossil fuels—or even investments in renewable energy technology.

Where the revenue goes

While much of the focus on a carbon tax has historically been based around how a carbon price will reduce pollution, it’s important not to discount the other side of the equation. Spending the revenue earned from a carbon tax is critical for fighting climate change and driving economic growth. The revenue needs to be directed to three uses: minimizing harm to vulnerable consumers and businesses, growing the economy with investments in clean energy infrastructure and other infrastructure that makes communities more resilient in the face of climate change, and reducing the deficit burden on future generations.

Minimizing harm

A simple carbon tax will likely be regressive instead of progressive, and a carbon tax on just the power sector will potentially be more regressive than an economy-wide program. That’s because low-income consumers spend a higher portion of their income on electricity than high-income consumers, even though wealthy households tend to use more electricity because they live in bigger houses, own more appliances, and generally have more demand for energy.

Research from the Congressional Budget Office explored seven different options for reducing the regressivity of a carbon tax via the tax code or targeted-spending programs. While none of its solutions are perfect, it does find that an income-tax rebate or payroll-tax rebate can be very effective in addressing the challenge. This is because these rebates reach a very broad number of people and can be targeted to specific income levels. Congress could also create a carbon tax in the context of broader tax reform. If this is the case, the carbon tax need not be explicitly linked to a progressive fix, as long as the overall reform package is progressive.

Closely related to reducing harm to low-income consumers is reducing potential harm to energy-intensive, trade-exposed industries. A relatively small number of industries such as cement and glass manufacturing could be harmed by competing imports from countries that do not have their own price on carbon—and therefore can offer their goods at a lower price. Efforts to reduce harm can come from the revenue collection side; that is, there could be some sort of “border tax” on imports from nations without programs to limit carbon pollution in order to level the playing field.

Another option would be to spend federal revenue to compensate domestic industries and reduce the competitive advantage of imports from nations without carbon pollution reductions. Because there are questions about the legality and complexity of a border tax on imports, it may make more sense to address this challenge on the revenue-spending side instead of by using border adjustments. In other words, the government can make domestic products less—not more—expensive through some type of rebate or government spending. This spending is also vital in fighting climate change since it prevents emissions leakage to countries without a price on carbon.

Investments in clean energy

A carbon tax is not the only thing that’s needed to win the fight against climate change. The tax will be much more effective if paired with additional investments in clean energy infrastructure both domestically and abroad. Using the revenues accrued from the carbon tax could allow us to make those additional investments. The Center for American Progress has previously estimated that in order to address the climate crisis, we need to spend about $20 billion annually on researching, developing, and deploying clean energy technologies, reducing emissions in challenging sectors such as forestry, and meeting our international climate commitments to assist developing nations with their pollution reductions.

The exact mix of investments should evolve over time to reflect the impacts of the carbon tax and ongoing developments in clean energy technologies. Generally, though, the spending should be a mix of direct grants, tax incentives, and credit support for deployment of renewable energy technologies, all of which can be cost-effectively targeted to meet specific needs. This spending should be adjusted annually to recognize the impact of an increasing carbon tax on the competitiveness of clean alternatives and the interactions with other policies, such as state renewable portfolio standards or a federal clean energy standard.

There is also a great need to repair and replace critical transportation and water infrastructure that helps communities deal with the impacts of climate change. Some portion of the revenues from the carbon tax could be directed toward these sectors. These investments have the benefit of being good for the economy. Research shows that infrastructure investments are one of the most effective ways to spend public money to drive growth. In this case, the infrastructure investments would put people to work in labor-intensive sectors such as renewable energy and energy efficiency.

Reducing the deficit

The money remaining after funding these measures should be used for deficit reduction. The total amount of money available for deficit reduction depends on how much of the economy is covered by the tax, but it will likely be substantial. For instance, a $25-per-ton tax on power plants, which were responsible for about 2.2 billion tons of carbon dioxide in 2010, would generate $55 billion per year. Even after protecting low-income consumers and investing in infrastructure, billions of dollars could be left over to help address our nation’s debt. Cutting the deficit reduces the amount of interest future generations will have to pay on our national debt, which frees up resources for more valuable uses.

A carbon tax is a popular bipartisan tool for reducing the deficit. Think tanks across the political spectrum, including CAP and the American Enterprise Institute, among others, endorsed a carbon tax in 2011 as part of their proposals to balance the budget. Just like with progressive tax reform, Congress could include a carbon tax to raise revenue as part of an agreement on deficit reduction. In this case, the tax may not need to be explicitly linked to deficit reduction as long as the comprehensive budget package deals with this problem.


America is currently on the right path. Our greenhouse gas pollution is lower than it’s been in recent history, and our economy is starting to see more signs of life. Neither of these positive trends, however, is anywhere close to where we need them to be to fully address the challenges of climate change and economic growth. Even worse, our country must make additional significant changes to reduce our substantial budget deficit so future generations aren’t stuck with the bill for our expenses.

These issues—climate change, economic growth, and fiscal responsibility—may not appear to be intimately linked. They all have different causes, and they impact our country in different ways. They are, however, inextricably tied together by their solution: A price on carbon can make a significant contribution to solving each of these challenges.

This issue brief has explored some of the critical questions in designing a carbon tax, which is the most likely way that carbon will be priced in the near future. There are certain ingredients that a carbon tax must include to be part of a progressive vision for the United States: It must reduce greenhouse gas pollution, drive new investments in infrastructure, minimize harm to vulnerable consumers and businesses, and reduce the deficit.

The good news is that there is no doubt that such a tax can be created. The question is whether Congress will do the right thing and design a tax that meets these standards. For the benefit of current and future Americans and global citizens, Congress should act now and create a progressive carbon tax.

Richard Caperton is the Director of the Clean Energy Investment program at the Center for American Progress.

26 Responses to In-Depth Analysis: How A Progressive Carbon Tax Will Fight Climate Change And Stimulate The Economy

  1. Merrelyn Emery says:

    Some great arguments but why is he still preaching for economic growth? ME

  2. dick smith says:

    Here’s my own (shorter) Statement of Principles on why we need a carbon tax.

    • It reduces emissions by 80% by 2050. That means it’s based on our best science, and adequate to do the job of reducing emissions big enough and fast enough.

    • It’s revenue neutral. All the taxes are recycled into the economy. Government keeps none of it. That means there’s no way to argue it hurts the economy or jobs.

    • It’s progressive. For lower-income Americans, the tax refunds match or exceed the taxes paid in.

    • It’s comprehensive. Markets sort the entire economy based on carbon use, which spurs innovation. It doesn’t just tax large, fixed stationary sources like cap and trade. It reaches into every nook and cranny of long, complex supply chains, and lets the market decide whether conservation, efficiency or alternative energy makes the most sense.

    • It protects business from unfair domestic and international competition with border taxes and credits. If China and India don’t play (by enacting comparable emission reductions systems) they pay the import fees. No need for treaties.

    • It’s capital neutral. Government should not try to pick (and risk “locking in”) winning technologies. No arguments about hydrogen cars or Solyndras.

    • It starts small. About 10-cents-a-gallon and a penny per kilowatt hour would be enough to start.

    • It increases predictably until we hit our emission goals. Businesses need predictable energy prices, not market fluctuations as with cap and trade permits.

    • It’s easy to administer at home and to copy abroad. It’s one time—at the first point of sale—the mine head, wellhead or border crossing. Government already collects sales taxes from these businesses (and banks don’t get to skim a fee like with tradable permits). It doesn’t repeal, prevent or discourage any other private, state, regional, national or international strategies to reduce greenhouse gas emissions with other taxes, tradable permits, regulations or subsidies to alternative fuels. And, it works in countries with widely different economies.

  3. Jamie says:

    Obviously a lot of work and thought went into this. Kudos. Some hopefully constructive criticism:

    Targeting electric power – I would like to see a bit more justification for industry specific targeting and in particular for taxing power plants instead of resource extraction. Leaving resource extraction untaxed allows and encourages coal exports, a problem the report recognizes but I don’t think adequately addresses.

    Mitigating the regressive nature of a resource tax – an income tax rebate is insufficient mitigation when so many are unemployed.

    Favoring subsidies over border taxes may be the simpler course, but it is hard (for me, anyway) to see how keeping consumer prices low will prevent the export of coal or result in an emission reduction.

    It is easy to forget that the over ridding purpose is to curtail emissions, not produce revenue. Ideally we would like to internalize all social and environmental costs and let the markets work out the pricing. We need to think carefully about how a proposed tax internalizes costs and what costs are left as externalities after the tax is in place.

    The author seems to confound deficit and debt. Touting a carbon tax as either a deficit reducing income stream or a debt reduction tool may be politically expedient, but represents over taxing the resource. A carbon tax should generate sufficient extra dollars to spend significantly on reversing the years of environmental harms due to the externalities allowed for so many years. But once those harms are fully paid for, the carbon tax should be revenue neutral. Again, the goal is to reduce emissions (and other environmental harms), not generate revenue. Since it is an inherently regressive tax, it should be kept to the minimum needed to do the job.

    A carbon tax is a great place to start. It is not clear that such a tax, by itself, would get us the emissions reductions we ultimately (and quickly) need to achieve.

  4. M Tucker says:

    “Congress could get involved and put a nationwide price on carbon by creating a carbon tax.”

    Not gonna happen. You need to focus on the others. Any tax bill would have to originate in the House so you can forget about any Congressional discussion about this. Obama has even said “no way” to a carbon tax. So we have four years to get the President and the EPA to close carbon loopholes. As long as Obama remains nonchalant about the climate issue I don’t expect to see much action.

  5. Mark E says:

    My eminent domain formula for JUST LEAVE IT IN THE GROUND. (first draft)

    This idea creates a new commodity, called an “Future-Emissions-Extraction Permit” (FEEP).

    1. We agree on target ppm at which to stabilize.

    2. Determine how much total future carbon we can emit, with a fudge factor to leave room for increased emissions from carbon cycle feedbacks.

    3. Outlaw all extractions unless done under “Future-Emissions-Extraction Permit” (FEEP)

    4. Owners of proven reserves and their existing lessees or permitees are awarded FEEPs equal to their % of proven global reserves.

    5. Once an owner/operator uses up their FEEP, they’re done.

    ANALYSIS: There will still be supply/demand based on total proven reserves determining value. By making compensation possible, existing legal tools (in the US anyway) or eminent domain become available. The value of a FEEP is tied directly to proven reserves. The only difference is that instead of the supply-demand of the in-place mineral driving the market, the supply-demand of FEEPs drives the market.

    After we have extracted all the agreed fossil carbon, if the worlds governments agree we simply must extract more, they can do so.

    Also, some mineral owners will be able to be paid without messing with their environment and without the risk of drilling/mining operations, simply by selling their FEEPs to other operators.

    Eminent domain is the only way the privately owned stuff is staying in the ground.

  6. Mark E says:

    PS This is in addition to carbon taxes, of course

  7. Leif says:

    We all pay fees to dump garbage, waste water and more. Corpro/People dump tons for free and accumulate mega-bucks. Even get tax subsidies. The GOP don’t fund abortion. Fine. A precedent! Why must my tax dollars fund the ecocide of the PLANET via fossil subsidies?!!! We’re talking “MORALS” here.

    Robbed indeed!

    I pay $150/ton to dump my household garbage. $50/T to recycle yard waste. Waste water fees, of course. I even have a storm water run off fee of $5/m. (guide lines here?) Yet Corpro/people piss all over themselves at the thought of $25/ton for TOXINS! Sweet Jesus… They are making billions, I get ~$30/day to stay alive and must fund health insurance. Robbed indeed, and laughed at on the way to the off shore bank… The Rethugs have the gall to collect $200,000+ a/year and bennies, yet still carry the water for the ecocide fossil industry. Without a “Fact” one to back them up. Get a Life Time Retirement after serving One Term! Injustice ignored is injustice condoned.

  8. Paul Klinkman says:

    Whoa there.

    “Assessing the tax upstream—that is, at the mouth of the coal mine or at the natural gas well—is relatively straightforward, but it impacts other industries that use coal and natural gas and doesn’t capture imported fossil fuels.”

    It sounds like the author is trying to slip through massive coal sales from U.S. strip mines to China. The coal companies already get to strip mine federal land for a pittance.

  9. Max1 says:

    In Doha, US ambassadors argue that maybe by 2015 the USA “MIGHT” put together some goals for cutting emissions by sometime in the 2020’s.

    In the meantime, scientists warn the USA has done too little and far too late.

    While European nations are on target to reach their Kyoto commitments, the USA is still arguing why it should comply to ANY international standards because (insert inept reason)

    It would be good if TP would at least challenge the White House on this matter.

    Should I even hold my breath?

  10. Max1 says:

    West Pacific

    S I L E N C E

    Hundreds dead
    Hundreds more missing

    I though Sec. Clinton, last year, PLEDGED to help poor nations prepare for the onslaught of devastation caused by America’s carbon gluttony. 2nd Largest out put Globally. Well?

    Maybe TP can do a report about why the USA is NOT meeting that pledge.

    You would think the so called “Leader of free nations” would lead the way…

    If the climate was a bank… It would have been bailed out already.

  11. Steve Bloom says:

    “Depending on which actions we choose to take, this year will either be the new normal or it will be a glimpse into a future where conditions are much, much worse.”


    People really have a hard time understanding the lags in the climate system. We are already guaranteed this “new normal,” and probably considerably worse.

  12. BillD says:

    I am going to write a letter to my electric co-op warning them about the carbon tax. Here is Indiana, where something like 95% of electricity comes from coal, all politicians and utilities seem to take the pro-coal line. In addition to moral issue, I want our utilities to understand that they will be required to start a rapid move away from coal, probably in the next decade. The more they delay a serious start, the more expensive the transition will be. We have some wind power, but it’s a really small part of the mix. Over the longer term, we will also need to replace gas-fired plants.

  13. Mark E says:

    The US is more likely to have an atheist president than one willing to admit perpetual growth is fatal.

  14. dick smith says:

    You are right. This is a terribly flawed proposal.

    1. Impose the tax at the minehead, wellhead or border entry point. Then, the incentives to reduce emissions follow the carbon whereever it is used.

    2. We need a comprehensive carbon tax that penetrates every part of the economy–on exemptions or exclusions. In some parts of our long, complex supply chains, conservation will be the cheapest solution. In others, it will be energy efficiency. In others, it will be switching to wind, solar or water energy. Let the market decide. But, targetting just one sector is absurd.

    3. Who really believes $15-25/ton is adequate? Even British Columbia–which capped it tax after 4 years–did so at $30/ton. $10/ton is roughly 10 cents per gallon at the pump and 1.2 cents per kWh at the meter. Get serious. A tax that peaks at $25/ton is joke.

  15. dick smith says:

    That should be “NO” exemptions or exclusions.

  16. Joan Savage says:

    I’m uneasy with the one recommendation that directly follows the headline about a progressive carbon tax:

    “While none of its solutions are perfect, it does find that an income-tax rebate or payroll-tax rebate can be very effective in addressing the challenge. This is because these rebates reach a very broad number of people and can be targeted to specific income levels.”

    The policy wizzes that came up with that inept idea probably haven’t personally experienced limited income with high utility bill payments in winter, or they would catch the implications of their dud proposal.

    A payroll tax rebate isn’t tuned to electricity demand so it is not a good fit to deal with a soaring bill and a constant paycheck, even if the rebate is imbedded in each check.
    Worse, for the retired and unemployed on limited incomes, the payroll tax doesn’t help at all, and the income tax rebate only surfaces months after the energy expense has occurred.
    Basically, the people who can’t afford a price increase, can’t afford it in real time, they don’t have contingency funds to carry them over until the rebate catches up with expenses or an annual rebate arrives.

    Please head the wonks back to the drawing board for a more realistic and compassionate variety of “progressive carbon tax.”

  17. Joan Savage says:

    Sorry I limited to the winter example.

    The high electric bills for air conditioning obviously hit as much as eight months (May) before the earliest income tax rebate, if filing taxes ASAP the following January.

  18. Dick,
    Your principles are much more consistent and smart than the ones of the article.
    Have you heard about a proposal from Equator President proposint a tax on every barrel of oil (article in Guardian 11/26/2012)?
    This is bold proposal that could install an affective and simple world wide carbon price!

  19. The climate situation is urgent. We have maybe 10 years left to bend the CO2 accumulation curve, maybe less. We have 20 years or so to reduce emissions by half.

    The ice cap is our canary in the coal mine. It’s disappearing fast. Once it goes, the weather is going to get very unstable. Agriculture is at grave risk worldwide. Ask the guys at NSIDC.

    Given this urgency, and the focus on the main goal–carbon reductions, not tax equity–the progressiveness of a carbon tax may only be approximated. A tax is always inequitable at some level. It’s going to hit the Midwest the hardest, for example.

    It is far more important that it be established.

    We are still laboring under the assumption that all the technology we’ve created, and the energy we’ve consumed to do it, has been done so at cost. In fact, we have borrowed the well-being of the future and consumed it. We now have to make the balloon payment.

    This will not be any easier to do than it is to get out of an underwater mortgage with an imminent balloon payment.

    A carbon tax is far less regressive than letting climate change happen as it will without such a tax. Climate change is the ultimate regressive tax. It will disproportionately hurt the poor much more than a tax now will. Between payroll tax offsets and personal conservation inspired by higher energy prices, there is at least some progressive equity to be offered.

    I grew up poor in central Maine, so I know about winter heating bills. There’s still room for the poor to do more, as there is for the better off.

  20. PJMD says:

    Join Citizens Climate Lobby if you want to help promote the consumer-friendly, revenue-neutral, progressively-rising, price signal-sending fee on the carbon content of fossil fuels with recycling of the revenue back into the economy.

    And never say “never.” There is widespread support for this across the political spectrum. (See Leiserowitz at Yale.)

  21. dick smith says:

    As always, your comments are excellent. You’ve made the case for per capita rebates of the fees in monthly “green checks” just like social security. The Carbon Tax Center estimates that those in the lowest 60-percent by income would break even or come out ahead if a carbon tax were 100% recycled in per capita rebates.

  22. Ken L says:

    And a non revenue-neutral tax getting through congress has what kind of a chance???

  23. Dennis Fletcher says:

    Lot’s of reports on how this is going to hurt the poorest countries.

    Well I’m part of Montreal Urban Poor (MUP). We don’t have anywhere to go. The water levels will rise and destroy our homes.

    Frankly I don’t give a shit about to world’s poor as reported by the press … I am the world’s poor.

    I have Multiple Sclerosis. I am on a small disability pension. I go to the food banks where we are given stale dated food. bent cans, all the refuse from the sponsors/partners. This is the kind of help I get here in Montreal.

    Now we’ve got rising sea levels, warmer surface water temperature translating into mega-storms.

    How the HELL AM I GOING TO ESCAPE THIS? I can’t walk more than about 50 metres. I have an old wheelchair with two broken front wheels due to Montreal’s crumbling ROADS.


  24. Joan Savage says:

    That’s the kind of improvement we need.

    The sign up should be fairly simple. A lot of elderly and the under-employed don’t apply for programs for which they are eligible because they are unsure.

    Let’s combine it with that incremental scale-up in the carbon tax over time.

  25. Ken says:

    Organize. You can type so devote part of your days getting your voice heard just as you have here. Seems like your head is working just fine to me, something that most grassroots organizations are in desperate need of, so why not join one and make a difference? By doing so, you can kill two birds with one stone: 1) make folks in the organization aware of the plight of folks in your situation and goad them into taking you into consideration; and 2) your intelligence contributes to a good cause of your choosing in ways that nobody can discriminate against. Good luck and know that I’m rooting for you!

  26. Dave Bradley says:

    Wow. There is so much so wrong ith this proposal, espeially th math part. So let’s start ther.

    The author of this thinks hat we only have to spend $20 billion/yr on new renewable electicty generation. Wrong. Try $200 billion/yr for 15 years, and that is just for mostly wind turbines and pumped hydro, and some minor amounts of similar costing renewables, like biomass, geothermal and biogas. Start including a lot of PV in that renewable mix and the investment requirement could skyrocket to $500 billion/yr for 15 years. And that’s before we onsider replacing natural gas heat with electrically powered heat pumps (we would need another 200 GW on a delivered basis, at least – all on top of the 400 GW delivered needed for the $3 trillion of the initial phase). Sure, lots of jobs, but all this needs to be paid for by higher electricty prices, or by higher taxes that can then subsidize electricty consumption. For unsubsidized wind based electricty, prices between 6 to 10 cents/kw-hr will be needed, onshore, with close to 60% more for offshore, at least. That increase in prices paid to generators from the present 2 to 6 c/kw-hr will be passed along and make for a lot of unhappy campers…

    As for the amount of money the carbon tax needs to be, let’s say it is $20/ton of CO2 pollutant ($73.33/ton of carbon atoms). Appalachian coal at 25 MBtu/ton goes for around $65/ton, and it makes around 2.5 tons of CO2 per ton of coal. So the cost of burning 1 ton of this coal would rise by $50/ton to $115/ton.

    A ton of this coal in a non-cogen plant should make 10 MBtu of electricty, or 2.93 MW-hr of electricty. The new raw material cost for this electricty would be $115/2.93 or roughly $39.25/MW-hr, or about 4c/kw-hr. add in other costs and this is 5c/kw-hr, before theprice of col drops due to lower demand for coal…. The number is imilar for Wyoming lignite delivered to where people tend to live….

    For natural gas, 1 MBtu of Ngas makes 122.5 lbs of CO2 pollutant, and it would make around 147 kw-hr of electricty in a non-cogen combined cycle plant. The $20/ton of CO2 pollutant would $8.33/MW-hr. Since the average delivered price of Ngas to generating facilities is now near $5/MBtu (costing 4.9 c/kw-hr), the new cost would be around 5.7 c/kw-hr. Cost of production, not price after a profit is thrown in…

    Meanwhile, lets look at the lowest cost renewable source, in an OK wind resource area. Take a Low Wind Speed turbine that would cost $4.5 million to install (all in) and that would make 6000 MW-hr/yr (38% net yield). At a cost of money of 7.75% for 20 yrs, if even possible to get, the capital cost would be roughly $450,000/yr. That makes 7.5 c/kw-hr electricity; add in another 1c/kw-hr for Operations & Maintenance, and you get 8.5 c/kw-hr for a cost of production, profit not included.

    So, a low cost renewable is 8.5 c/kw-hr, way cheaper than offshore wind and especially PV, even at a desert solar plantation costing a billion dollars or so. How is the wind owner going to compete with the coal dudes, who, even with a $20/ton CO2 pollution tax, have a cost of production of 4 c/kw-hr. or with the Ngas burner, who can get by at 5.7 c/kw-hr. Or the coal burner located next to a mine, where coal is available at between $11 to $20/ton? The is no way. And if you think that you can get a carbon (dioxide pollutant) tax approved and still keep renewable energy subsidies…. (which generally ONLY benefit the super-rich), perhaps you should check out the benefits of benzodiazepams…..

    Rather than or along with CO2 emanation fees/taxes, perhaps what should be done is to allow renewables (or at least the lower cost ones) to be sold into the grid at a cost plus reasonable (though probably inadequate by most corporate standards) profit basis, and then have that blended into the overall grid mix price. Either subsidizing renewables down to 4.5 c/kw-hr (or at present, 3 c/kw-hr in westen NY, which is the average price paid to generators…..) or taxing the pollution based electricity to an incredible extent ( to approximately 3 to 4 times its present price) is a fools errand.

    Also, FYI:

    Oh well, my 2 cents worth…