One bad way to fight global warming that both Democrats and Republicans love
Of the ideas batted about for cutting greenhouse gas emissions and slowing global warming, few have gotten traction as powerfully and suddenly as the notion of taxing carbon dioxide emissions. Unlike most other plans that have the word "tax" in the title, this is one that has found takers among both Republicans and Democrats, left and right.
The carbon tax meme made a big debut a month ago, when Harvard professor Gregory Mankiw, a longtime Republican economic sage and an advisor to Mitt Romney, pushed it in this New York Times piece. Then John Dingell, the Michigan Democrat who chairs the House's Energy and Commerce Committee, floated a bill with a similar plan. Now it's one of the econo-memes of the moment, tossed back and forth around Washington and editorial pages. That doesn't mean it's a good idea.
Both Mankiw, the Republican, and Dingell, the Democrat, use similar numbers for the carbon tax: Mankiw's plan is to charge $15 per ton of carbon dioxide released into the atmosphere, Dingell's plan calls for $50 per ton of carbon, which sounds different, but works out to about $14 per ton of CO2 released. To turn that into an everyday example, that's about 15 cents per gallon of gas (Though you should understand that a carbon tax covers not just gasoline, but all fossil fuels, from factories to power plants. One gallon of gasoline creates about two releases enough carbon to create 20 pounds of CO2.)
Mankiw would use that revenue to reduce other taxes. Dingell--who may have less interest in getting a carbon tax passed than in using it as a cudgel against folks who want to stick the auto industry with the costs of cutting CO2--says he'd use it for federal services and social security. Either way a tax like this could cut 700 million tons from the 6 billion tons of carbon dioxide the US releases into the atmosphere every year from oil, coal and natural gas.
That sounds like a good thing to a lot of people, as it should. It's a big drop and intuitively, it's awfully appealing to make people pay for their own greenhouse gases. Policy makers like this kind of approach because instead of imposing a fixed mandate, it lets the market decide when its worth paying the tax and when its better to cut down on fossil fuels. That makes this a tax that even people who think of themselves as opposing "regulation" can get behind.
But as I thought about this tax, I got to wondering how a tax that comes out to 15 cents a gallon would make a big difference US energy use, and carbon emissions, when a doubling of gasoline prices hasn't. That just didn't seem right.
It turns out that it can. If you want to see the math behind it yourself, you can find it in Tufts economist and carbon tax advocate Gilbert Metcalf's policy paper.
Metcalf's did show me how a carbon tax gets us to 700 million tons of carbon reduction. But it also left me thinking it wasn't be the best way to get there. Here's why:
Metcalf calculates that in 2005 a carbon tax would have cut CO2 emissions by 717 million tons. But almost 90 percent of that would come from cutting the use of coal, which releases more CO2 than oil and a lot more than natural gas. A carbon tax does a lot to push companies away from burning coal in older, more heavily polluting plants in which the cost of the tax could be more than the cost of the coal itself. But it does very little to cut oil use.
Cutting almost 650 million tons of coal emissions is pretty good already. The problem, however, is that two thirds of the tax would be paid by users of oil and natural gas--together, 64 percent of our energy consumption. Those taxes, totalling more than $50 billion, would be big enough to raise prices, but not big enough to change energy behavior very much at all. Oil use, for instance, would go down by just two percent. 90 percent of the effect we're looking for comes from just over a third of the tax! The other two thirds of the carbon tax--including that 15 cent a gallon levy on gasoline, taxes on heating oil, and taxes on natural gas fueled power plants--punishes people for energy use, but it doesn't actually make them reduce it.
You might still think that's still worth it for a big cut in greenhouse gas emissions. But it leads to a couple of consequences worth pondering.
One is that if the real benefit from this tax comes overwhelmingly from reducing carbon emissions from coal, and especially from the less efficient, least modernized coal-fired plants, you might ask if you can achieve that more directly. Say, by limiting the tax to coal. Or by mandating CO2 recapture systems in new plants (one European company is already building a test plant that will burn coal without releasing any carbon dioxide.
Another is that a carbon tax--remember, it adds up to about $80 billion a year--makes cutting carbon dioxide look even more expensive than it is (and no one says it's cheap). That might not be a huge problem for Dingell, who seems to want the tax to be scary. But it's bad news for people who really want to get it passed. It's hard enough to tell voters that they need to pay a new gas tax, and more for their electricity. Then try explaining to them that, actually, much of that new tax they're paying will do little to cut emissions and they need to do more.
The bottom line for me is that I can't get behind the logic of a tax that winds up putting most of the burden on the wrong things (oil and natural gas) and the wrong people. $50 billion of overhead is too much for me. In theory, a la Mankiw, the money could be used to cut other taxes. In the real world things rarely play out that way.
There's something of a vogue now for taxes like the carbon tax, that look a little like "user fees" and promise to solve problems through market mechanism. I'm not sure all of them are such a great idea. I might talk about that some more in my short guest-writing stay here.
I do know that carbon taxes do have some vociferous and smart proponents. If any readers think the idea has strengths or benefits I've overlooked, I hope they'll speak up.
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1
If the tax is $15 per ton of CO2 and a gallon of gasoline produces 2lbs of CO2 the tax per gallon would be 1.5 cents, not 15 cents.
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2
While we're at it, why not impose an even higher tax on the folks who are blasting off mountain tops in Appalachia to get a quick hit of coal, without getting their hands dirty?
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3
Your numbers are based on what would happen today. The thing is, technology changes fast. By setting a tax on CO2, we would be changing the shape of the market. Yes, coal would be the first to go. Then natural gas and oil. But what happens when solar and wind get just a little bit cheaper?
The power companies make long-term investments in plants and technologies. If they know all CO2-generating forms of energy will become more expensive by a known amount, it changes the way they plan. That solar plant that just wouldn't pay for itself over ten years /might/ be able to if the price of CO2-producing energy goes up.
If we want to lower CO2 emissions, the best way to do it would be to make emitting CO2 more expensive. It's not rocket science.
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4
Most of the mass in gasoline (or any hydrocarbon) is in the carbon itself. One gallon is roughly 3.6 liters. The density of gasoline is roughly 0.7 kg/L, so one gallon of gasoline weighs roughly 2.5 kg. (Remember the rule of thumb -- "a pint is a pound", based on the density of water.)
I suspect the author intended to say that one gallon of gasoline has approximately two kilograms of *carbon*. At $50/ton of carbon that comes to (very roughly) five cents a gallon.
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5
Don't waste my time with an additional $.15 per gallon tax on gasoline. Make that an additional $4.00 per gallon tax with a corresponding decrease in the payroll tax then you'll have something. I'm absolutely amazed at the cowardice of our political leadership.
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6
Ron and Ted:
Thanks to both of you. Mea culpa. I meant to say about 20 pounds, and have fixed it. But I did in fact mean CO(2), not carbon. Ted, your calculations are right on the dot. 2,5 kilos or about 5.5 pounds of carbon is the carbon content of 20 pounds of CO(2). -
7
Ted F.
In your calculation, you neglected the O2 that is coming from the air. That will almost triple your estimate to be inline with the authors. And Ron, he said it made 20lbs. of CO2 so it is 15 cents a gallon. Stop trying to correct the math.
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8
Seems to me that if this is impemented correctly - revenue from a carbon tax ($15 or $500 per ton) and reduce income tax by the same or similar amount - that this carbon tax is the perfect solution to a market problem that under prices the pollution we create by burning fossil fuels. Lowering income tax also incents hard work, creativity, and investment while the carbon tax...higher the better...clearly is a message to use fossil fuels very efficiently or switch to renewalbles (here again creating a market incentive to develope and use renewables). All these good things from the bad word TAX...oh, how can it be??? Tom
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9
Global warming is getting very serious. I favor a $25/ton tax on CO2 and, a $1/gal. gas tax increase and require 40 miles per gallon or better on new cars. The U.S. is behind Europe and Japan and we can't expect China to limit CO2 release if we don't.
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10
The carbon tax will increase the cost of doing business across all industries, and will also increase bills or all indivduals. The government will get another $80 billion to squander...Sounds like the global warming people are really just former socialists who could get people to pay higher taxes selling their old social programs, so they've used global warming to scare the money out of people. I'd rather drown from melting icecaps than give 1 more penny to these losers in the federal goverment.
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11
The long term trend is towards higher energy use. So either you kill the economy trying to fight this trend or you find something better.
I vote for finding something better. Perhaps instead of throwing $100B a year trying to take over other countries we should invest the money in alternative energy research.
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12
David, I am well aware that there are two ways of measuring carbon release, but the original number wasn't correct for either. I took a guess as to what was intended, did some quick mental calculations, and came up with a correct answer. The revised figure of 20 pounds CO2 is also a correct answer.
I'll correct the math only when it is erroneous.
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13
I think Metcalf's paper is rather opaque, making it hard to use as a basis for an opinion as strong as the one expressed in this paper. "Petroleum products would increase in price by nearly 13 percent....a carbon tax of this magnitude would raise gasoline prices by approximately 13 cents per gallon, assuming the tax is fully passed forward into consumer prices." 13% of 3.00 per gallon is 39 cents a gallon--so what is being passed on to the consumer is a cost, not a percentage. So I think that means that the 13% increase is based on an upstream price of $1.00 per gallon, which then is passed onto the consumer as a fixed cost, not a percentage. The whole analysis is based on taxing the carbon upstream, rather than at the pump. So the price of a fuel requiring more refinement and transportation will be relatively less affected by the tax. Perhaps the problem is not with a carbon tax, per se, but with the upstream carbon tax considered by Mr. Metcalf.
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14
I see no reason to fight global warming.
Global warming is an irreversible problem that will happen even if all CO2 emission sources ceased to exist today. These emissions have sped up the rate at which the planet is warming, but the Earth is going to get warmer no matter what is done.
I believe that reducing waste is a good thing, but global warming is a part of the Earth's evolutionary process. Just like there was an Ice Age, there will be a Sun Age in which the temperature of the planet will rise to unsustainable levels for many regions of the Earth.
The only thing that can really be done is to invent technology that will protect the areas that will be less impacted by the Sun's deadly rays. The best thing that can be done is to invent more efficient solar power technology. Since the sun's effects will become greater, humans need to use the sun as the main source of energy for the world.
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15
Many above have already stated why this tax may not work, so I will not reiterate my feelings on these points.
However, if I read the proposal correctly, the only thing the tax is meant to do is change behavior of the consumer. The tax revenue doesn't even go into reduction of carbon.
Am I missing something? If the tax is implemented, wouldn't it be better use of the tax to invest in renewable energy, planting trees, researching clean energy, etc. In that way you get double the value: 1. change behavior and 2. reduce effect of carbon.
I would still be skeptical of its ability to create change, but I might support it more if I knew the money was being used to help solve the problem, not just being added to the general tax coffers.
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16
Yadgyu, there are some serious flaws with your logic.
First, the "sun's deadly rays" are not getting noticeably stronger. (Unless you are referring to the increase in UV radiation that reaches the surface due to the destruction of the ozone layer.) The changing composition of the atmosphere is simply doing a better job of trapping the heat. Global warming won't make solar power any more effective. It may even make solar power LESS effective by increasing the cloud cover.
Second, there is little doubt that human activity has dramatically sped up the *rate* of warming. Nobody knows for certain what the future holds, but unrestrained release of CO2 is like putting the pedal to the metal on the global climate.
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17
The two main alternatives for carbon reductions are carbon taxes or emissions allowances. The problem with emission allowances is that no one has a clue what the allowance prices will be 10 years from now, which makes utility planning very difficult. If allowances are much higher or lower than you project, the company goes broke. Knowing how much the cost penalty is for carbon makes it easier to invest the money to emit less carbon. Also, with taxes you COULD use the money to help people like unemployed coal miners (I am not naive enough to think that is a certainty.) But it is more likely to help the disadvantaged than with allowance trading, where it likely will end up going to NYMEX allowance traders. As for oil use for transportation, demand is very inflexible short-term, but long-term could be different, if people believe higher prices are permanent.
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18
Would the government try to impose this tax on individuals? Remember as members of the Animal Kingdom we emit CO2 with every single breath. It's just a silly tax. The only change that should/could be made is incentive based programs that modify behavior. Taxes do not modify behavior, incentives do. If those incentives need to be paid for with taxes that correlate directly to the desired behavior then so be it. You'll have a double-edged sword, i.e. increase the gas tax while giving tax breaks to individuals who purchase vehicles that average better than 30mpg. Or tax plants that do not have all of the air scrubbers possible to clean exhaust fumes while giving tax rebates to the plants that do. Very simple concepts that carry plenty of weight. Just a thought.
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19
A fixed CO2 TAX is not enough!
It MUST INCREASE by 20% per annum!
It should only apply to fossil based Carbon.I.E. Something which can be planned for and phased out rather than accomodated in existing pricing structures.
Even with a 20% increase per year, we've got a long way to go before were taxing fossil carbon for the costs it will inflict on society.
The ultimate GW enviromental impact of oil will be around $600 per barrel and coal is around a $1 per pound.
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20
Right now, in the case of global warming, the math is much irrelevant. We can gather experts, and they would come up with a good $$$ amount. It could even be adjusted over time to follow the market's response. What we must decide is to either treat the global warming problem with the great urgency that a problem of this magnitude deserves or to overlook and pretend that it does not exist. I suspect that we will do the latter because of our never ending desire for instant gratification. What will we get by paying more taxes, missing out on big SUVs, and sacrificing our economy? Maybe save the Planet 50 years from now? If I had to bet my house, I would bet that we will procrastinate until the Global Warming affect's become too great to be reversed.
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21
effects
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22
"Nobody knows for certain what the future holds, but unrestrained release of CO2 is like putting the pedal to the metal on the global climate."
I know what the future holds.
People are so worried about carbon emissions, but are not worried about what to do when the Earth's temperature reaches unsustainable levels. I am not against cutting carbon emissions. But cutting these emissions will make a negligible contribution to stopping the effects of global warming. An increase or decrease in CO2 emissions will do little to encourage or inhibit global warming at this point.
Global warming is now a self-sustaining process that has no means to be prevented. The planet is going to get hotter and many people will suffer. If you are in doubt, do some research on Australia and Africa. They are already suffering from the brutal effects of global warming.
What needs to be done is to find ways to provide comfort and relief for the areas that will be affected the least. The areas that will be affected the most will become a lost cause until the Sun Age is finished. Global warming will occur for several hundred years. Unless researchers get serious about protecting areas that will be least affected, the human population will die by one-third in 200 years as a result of starvation, dehydration, and heat-related diseases.
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23
If you refuse to acknowledge that expending fossil fuels has at least some negative effects, then naturally you'll label the carbon tax as a "bad idea".
Many economists agree that tax should be shifted away from things we want to encourage (i.e. a lower income tax encourages Americans to work more) and shifted onto things we want to reduce, like fossil fuel use. Pay less tax on work, more on waste. Makes sense to me. -
24
Ron Ritchie, the article says a gallon of gas produces 20 pounds of CO2 - not 2 pounds (at least the version I read). So, 15 cents/gallon it would be.
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25
This proposal would be much more effective in fighting global warming if the proceeds from the tax would be put into a fund used to research and fund the implementation of alternative fuel programs, and to subsidize corporate initiatives on cutting CO2 emissions through capital investment. I do not agree with channeling these dollars through another unrelated government program.
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