This blogpost is to lay out the journey and rationale behind the Action Network petition I am asking you to sign. It has some text. Some lengthy text. I will not apologize for starting off with my personal story. #notsorry There's also this TEDx talk that says storytelling is best practice for change petitions anyways. (In case you don’t know me, I’ll let you in on a secret before we get into it...I do my homework and am thorough as fuck. You’re welcome).
Climate change has been the one issue that threads my entire adult life into a cohesive fabric/story. I am not exaggerating. I left my parents a doe-eyed college freshman to get called an “environmentalist” solely because I turned off the faucet, recycled my cans and turned out the lights. I did those things because I came from a state with droughts, aluminum rebates and rolling electrical brownouts. It wasn’t “environmental”, it was just common sense where I came from. But the label people applied to me stuck and found its way into my subconscious.
I gave environmental classes a try and only a couple years later, environmental work had me doing some pretty cool shit. I got chased in the African bush by charismatic megafauna (loved it!) and those experiences inspired me to commit my academic and professional life to helping find ways for humanity’s survival on this overtaxed spaceship Earth. I’ve struggled on oil/gas regulation as a contractor for the EPA under George W Bush. I’ve drowned my eco depression during the climate change denial backlash of 2008-2009 with frequent Facebook posts on the facts of climate change. I knew it was a shout into the abyss, but sometimes you just need to repeat things that are true - the facts - to maintain a fingerhold on sanity in a denialist, crazy world. Friends give me eco-related birthday presents, e.g. a copy of Al Gore's book An Inconvenient Truth, a coffee mug with a picture of the world where when filled with hot liquid the shoreline disappears to represent sea level rise. My classmates in business school introduce me as "into eco and green stuff" because it is clearly “my brand.” My environmentalism has ruined multiple dates for me...I mean, I recognize these "romances" were doomed before they never started, but having a climate change denier red-faced yell at you on a date, in a public space, is extremely not awesome. That has happened more than once.
I’ve lived this issue. I’ve given my blood, sweat and tears to this issue. I’ve trolled for this issue. In summary, it’s pretty much the defining characteristic of Megan Rast, and I’d like to take this opportunity to say:
FUCK YAS!
So when November happened, and I marshaled the strength on November 9th to go to my day job as an environmental and diversity professional, key parts of me were broken. I felt personally indicted. How could my fellow Americans have gone so far from the eco, equitable and just country I’ve devoted my sweat equity to building? How could the meaningfulness infused in my choice of life’s work be meaningless to so many?
These questions have weighed heavily on my soul. They have changed me. They have reformulated my theory of change. They have converted me into an active citizen participating in my democracy. They have made me a proud, card-carrying member of the resistance.
People say to focus on one issue, focus on what you know. Well people, this is my one issue. This is what I know. And if planting my “Carbon Tax is THE Answer” flag in the sand ends with me tilting at windmills or Thelma-and-Louise-style driving off an insanity cliff, so be it. When I was getting chased by elephants and rhinos doing that fieldwork in the South African bush, the wildlife rangers nicknamed me Dudwani, which is Zulu for honey badger, because I would doggedly go forth no matter what. That means I was honeybadger status almost a decade before the viral Youtube video, since before it was a thing on the interwebs. And this I promise you: I’m going to keep on honeybadgering the shit out of this idea because it is that awesome and good ideas go to Washington DC to die. Not this time. Not today, Satan. #staynasty
Depending on how you count, I have either been sitting on this for 15 years or 3 months….
—yes, it is true (but unflattering to moi) that 15 years ago in an environmental economics class I learned about the efficiency and effectiveness of a carbon tax to reduce greenhouse gas emissions. The numbers and data said it all. I was a convert then, but obvi did nothing about it. Life gets in the way? The takeaway is this: very smart people in our most venerable institutions of higher learning know some stuff, and we’ve ignored them this whole time. That is silly. We should stop, collaborate and listen.
—3 months ago I was listening to my favorite Crooked Media podcasts on my public transit commute home (low carbon intensity, natch) and heard laments about how the Democratic Party has no solutions for globalization and automation, Democrats only whine about the problem. Maybe a universal basic income so people can retrain? They said. But how would that even get paid for? [Insert rant with no solution].
How about NOT ending the conversation and solving the greatest threat humanity has ever faced AT THE SAME TIME? Attention successfully grabbed? Super.
OK let’s get something straight: this is not my idea. Clearly. Obviously. I didn’t invent it, I'm not even repackaging it compellingly. There's already been a bill in the Senate, multiple times over. I only want you to read it, digest it, love it as much as I do, sign the Change.org petition and spread the word to five friends about it. My personal aspiration is solely to be the honeybadger who unabashedly shoves this idea again and again out into the ether for long enough such that it gains and sustains the momentum it richly deserves. Especially since this Trump-era clusterfuck seems to have what used to be the "crisis of the year" on a daily basis. It's going to be a trek. Yes, I know. But I'm in it to win it. And rather than passively thinking that the arc of the moral universe will bend towards justice I’m going to bend that motherfucker cause it’s long past time. Who run the world? GIRLS.
The best ideas can be explained simply and quickly, so here’s the short-sized version of it, because yes. We really can solve these two problems at once. And yes, it really is this obvious:
I gave environmental classes a try and only a couple years later, environmental work had me doing some pretty cool shit. I got chased in the African bush by charismatic megafauna (loved it!) and those experiences inspired me to commit my academic and professional life to helping find ways for humanity’s survival on this overtaxed spaceship Earth. I’ve struggled on oil/gas regulation as a contractor for the EPA under George W Bush. I’ve drowned my eco depression during the climate change denial backlash of 2008-2009 with frequent Facebook posts on the facts of climate change. I knew it was a shout into the abyss, but sometimes you just need to repeat things that are true - the facts - to maintain a fingerhold on sanity in a denialist, crazy world. Friends give me eco-related birthday presents, e.g. a copy of Al Gore's book An Inconvenient Truth, a coffee mug with a picture of the world where when filled with hot liquid the shoreline disappears to represent sea level rise. My classmates in business school introduce me as "into eco and green stuff" because it is clearly “my brand.” My environmentalism has ruined multiple dates for me...I mean, I recognize these "romances" were doomed before they never started, but having a climate change denier red-faced yell at you on a date, in a public space, is extremely not awesome. That has happened more than once.
I’ve lived this issue. I’ve given my blood, sweat and tears to this issue. I’ve trolled for this issue. In summary, it’s pretty much the defining characteristic of Megan Rast, and I’d like to take this opportunity to say:
FUCK YAS!
So when November happened, and I marshaled the strength on November 9th to go to my day job as an environmental and diversity professional, key parts of me were broken. I felt personally indicted. How could my fellow Americans have gone so far from the eco, equitable and just country I’ve devoted my sweat equity to building? How could the meaningfulness infused in my choice of life’s work be meaningless to so many?
These questions have weighed heavily on my soul. They have changed me. They have reformulated my theory of change. They have converted me into an active citizen participating in my democracy. They have made me a proud, card-carrying member of the resistance.
People say to focus on one issue, focus on what you know. Well people, this is my one issue. This is what I know. And if planting my “Carbon Tax is THE Answer” flag in the sand ends with me tilting at windmills or Thelma-and-Louise-style driving off an insanity cliff, so be it. When I was getting chased by elephants and rhinos doing that fieldwork in the South African bush, the wildlife rangers nicknamed me Dudwani, which is Zulu for honey badger, because I would doggedly go forth no matter what. That means I was honeybadger status almost a decade before the viral Youtube video, since before it was a thing on the interwebs. And this I promise you: I’m going to keep on honeybadgering the shit out of this idea because it is that awesome and good ideas go to Washington DC to die. Not this time. Not today, Satan. #staynasty
Depending on how you count, I have either been sitting on this for 15 years or 3 months….
—yes, it is true (but unflattering to moi) that 15 years ago in an environmental economics class I learned about the efficiency and effectiveness of a carbon tax to reduce greenhouse gas emissions. The numbers and data said it all. I was a convert then, but obvi did nothing about it. Life gets in the way? The takeaway is this: very smart people in our most venerable institutions of higher learning know some stuff, and we’ve ignored them this whole time. That is silly. We should stop, collaborate and listen.
—3 months ago I was listening to my favorite Crooked Media podcasts on my public transit commute home (low carbon intensity, natch) and heard laments about how the Democratic Party has no solutions for globalization and automation, Democrats only whine about the problem. Maybe a universal basic income so people can retrain? They said. But how would that even get paid for? [Insert rant with no solution].
How about NOT ending the conversation and solving the greatest threat humanity has ever faced AT THE SAME TIME? Attention successfully grabbed? Super.
OK let’s get something straight: this is not my idea. Clearly. Obviously. I didn’t invent it, I'm not even repackaging it compellingly. There's already been a bill in the Senate, multiple times over. I only want you to read it, digest it, love it as much as I do, sign the Change.org petition and spread the word to five friends about it. My personal aspiration is solely to be the honeybadger who unabashedly shoves this idea again and again out into the ether for long enough such that it gains and sustains the momentum it richly deserves. Especially since this Trump-era clusterfuck seems to have what used to be the "crisis of the year" on a daily basis. It's going to be a trek. Yes, I know. But I'm in it to win it. And rather than passively thinking that the arc of the moral universe will bend towards justice I’m going to bend that motherfucker cause it’s long past time. Who run the world? GIRLS.
The best ideas can be explained simply and quickly, so here’s the short-sized version of it, because yes. We really can solve these two problems at once. And yes, it really is this obvious:
Implement a broad-based "fee and dividend" carbon tax making "polluters pay" that returns the revenue generated as an equal distribution to households earning less than $250,000, and invests a smaller portion of the revenue into clean energy research and clean energy job retraining to accelerate the de-carbonization of our economy.
Below the jump is a longer FAQ on why and how this idea will work. Take it and run people. Share, do your thang on social media. In order for this idea to gain traction in the Democratic Party, you - yes YOU - have to take a few minutes one time and share it with five people.
Got that?
Enviroish/Megan: Wrote this all up and made a petition for your slactivist activation.
You: Sign the Action Network petition and share it with 5 people.
The end.
Questions about what you are signing and why? I got you. Read on below the jump.
Got that?
Enviroish/Megan: Wrote this all up and made a petition for your slactivist activation.
You: Sign the Action Network petition and share it with 5 people.
The end.
Questions about what you are signing and why? I got you. Read on below the jump.
Frequently Asked Questions (FAQ) - yes, thanks to other organizations there are frequently asked questions on carbon tax. Maybe not to me, but whatevs. You get the meaning. Here's what I think is important to know because I've cherry-picked the recommendations from different resources.
What is this solving?
Climate Change. This is a direct way to make Polluters Pay for the costs of emitting greenhouse gas emissions into the atmosphere at a cost to society and taxpayers. The redistributed income will help Americans alleviate the costs experienced from climate change impacts (think: people who lost everything in Katrina, Sandy, Harvey, Irma) and cover the costs of corporations in oil/gas who might pass along their fees (despite making record-breaking profits, you know they will)
Income Inequality. By distributing the revenue to households earning less than $250,000 as reported on their income taxes, this recommendation will help reduce income inequality and operate like a universal basic income without the typical downside of not having a sustainable revenue source (cash money to those who would experience greater costs)
Clean Energy Investment. Using a portion of revenue to directly invest in clean energy research (mimic the American Recovery & Reinvestment Act categories for clean energy cause that was well-designed and very impactful)
Clean Energy Job Retraining. Using a portion of revenue to directly invest in clean energy job retraining focused on rural communities to help provide opportunity for Americans to catch up and become trained for advanced clean energy jobs in this fast-moving global economy since they cannot be outsourced (think: provide opportunity in coal country for retraining)
Why solve climate change?
Seriously? As I write this Houston is underwater from Hurricane Harvey, Hurricane Irma is raining fury on Florida and the entire west is on fire. I can't believe you've even read this far to ask this question. Umm, no. Nope. I've spent 15 years of my life trying to wrest the cancer of climate denialism from Americans. Not this time. There's many great documentaries you can watch if you're still stuck in profound stupidity and ignorance on this issue. I am not spending my precious time on the likes of you any more. Not on this post. Not today, Satan. #ReclaimingMyTime.
But does this solve climate change?
Yes. Greenhouse gas emissions are an externality to our economy, meaning polluters enjoy a "freerider" and do not pay the costs of their pollution, society does. The burning of fossil fuels is actually very concentrated on a relatively small number of entities to make this easy to implement (CBO says)...and I am recommending to utilize the structure proposed here by Bernie Sanders and Barbara Boxer so that the carbon fee would apply to only 2,869 of the largest fossil fuel polluters, covering about 85 percent of U.S. greenhouse gas emissions.
From https://www.carbontax.org/faqs/:
"Charging businesses and individuals a rising and transparent price for carbon dioxide emissions is essential to reduce U.S. emissions quickly and steeply enough to prevent atmospheric concentrations of CO2 from reaching an irreversible tipping point. The transformation of our fossil fuels-based energy system to reliance on energy efficiency, renewable energy and sustainable fuels won’t happen fast enough without carbon fees or taxes sending the appropriate persistent and rising price signals into every corner of the economy and every aspect of life. Or, in the words of Brookings economist (and carbon tax supporter) Adele Morris, “As long as burning dirt (i.e., fossil fuels) is the cheapest form of energy, that’s what we’ll do.”"
Why is a carbon tax the best solution?
Carbon tax leverages the power of the market and directly makes polluters accountable ("Polluters Pay") via transactions for consuming fossil fuels.
The Congressional Budget Office in 2008:
A tax on emissions would be the most efficient incentive-based option for reducing emissions and could be relatively easy to implement.
Summary from The Economist:
"Carbon emissions represent a negative externality. When an individual takes an economic action with some fossil-fuel energy content—whether running a petrol-powered lawnmower, turning on a light, or buying bunch of grapes—that person balances their personal benefits against the costs of the action. The cost to them of the climate change resulting from the carbon content of that decisions, however, is effectively zero and is rationally ignored. The decision to ignore carbon content, when aggregated over the whole of humanity, generates huge carbon dioxide emissions and rising global temperatures. The economic solution is to tax the externality so that the social cost of carbon is reflected in the individual consumer's decision. The carbon tax is an elegant solution to a complicated problem, which allows the everyday business of consumer decision making to do the work of emission reduction."
If you are savvy in the space and want to know why cap-and-trade is not the answer, it's comes down to that scheme needing to be perfectly designed and rebalanced/maintained more heavily based upon the conditions of the trading system. It's less optimal in practice by far.
Why are you recommending the carbon tax be $30 per ton and rise as a percentage of inflation to 2050?
Because that's what the leading climate economist Nordhaus from Yale says is the optimal number. In short, it's the optimal tax pricing for trading off the necessary significant reductions in carbon (& GHG) pollution without imposing too high a cost on global economic growth. Nordhaus' model estimates it should increase to $85 by mid 21st century, so a policy solution that anticipates a gradual and modest increase is also optimal. It's important to have an increase over time because introducing a carbon tax would lead to a decline in emissions, resulting in a decline in the amount of revenues generated. However, if the tax rate grew slowly, it could produce rising revenues for many decades and allow the economy to adjust more gradually to less-emission-intensive ways of producing goods and services.
I trust academia more, and believe the optimal price of carbon is one that addresses the core issue of reducing greenhouse gas emissions, but there's also this proposal from a DC thinktank to start it lower than my recommendation and increase 4% over inflation. So maybe start it where science says is best (i.e. $30), but use that formula for increasing.
Why aren't you recommending a variable carbon tax?
There is evidence that a carbon tax that asymmetrically fluctuates with the price of oil would be more stabilizing for the market. However, because this recommendation has a distribution/dividend of the majority of revenue to American households, the need to compensate within the tax pricing for the fluctuation on the price of oil/gas on how that would get applied to the consumer is muted if not moot. Furthermore, with the complexities of the tax code implementation, the efficiency of not having a variable carbon tax that has to be recalculated and communicated as the price of oil changes to polluting businesses and individuals who pay the tax significantly outweigh the incremental optimization of a variable carbon tax. Certainty for the market to incorporate this cost is far greater for stability than a theoretically perfect but variable tax.
Why are you recommending a portion of the revenue go to fund clean energy investments modeled after the American Recovery & Reinvestment Act?
Because it got some seriously awesome clean energy work done. Why reinvent the wheel? Use what works people.
"Through the American Recovery and Reinvestment Act (Recovery Act), President Obama made the largest single investment in clean energy in history...Clean energy investments made up over one eighth of total Recovery Act spending and provided a meaningful boost to economic output. In addition to providing a stimulus, the funding helped address market failures in clean energy markets. The funding reached nearly every aspect of the value chain for numerous key clean energy technologies, including advanced vehicles, batteries, carbon capture and sequestration, and technologies to enhance energy efficiency."
Why distribute the revenue as a dividend like universal basic income?
First, it's important to understand what would happen if you *didn't* redistribute the revenue as a dividend from an equity standpoint. It would harm low-income households more than the average American.
The Congressional Budget Office states:
"Without accounting for how the revenues from a carbon tax would be used, such a tax would have a negative effect on the economy. The higher prices it caused would diminish the purchasing power of people’s earnings, effectively reducing their real (inflation-adjusted) wages. Lower real wages would have the net effect of reducing the amount that people worked, thus decreasing the overall supply of labor. Investment would also decline, further reducing the economy’s total output. The costs of a carbon tax would not be evenly distributed among U.S. households. For example, the additional costs from higher prices would consume a greater share of income for low-income households than for higher-income households, because low-income households generally spend a larger percentage of their income on emission-intensive goods. Similarly, workers and investors in emission-intensive industries, who would see the largest decrease in demand for their products, would be likely to bear relatively large burdens as the economy adjusted to the tax. Finally, areas of the country where electricity is produced from coal—the most emission-intensive fossil fuel per unit of energy generated—would tend to experience larger increases in electricity prices than other areas would."
So the revenue generated from polluters has to be redistributed to offset the inequity of the negative impacts of the legislation. That being said, this is in an existing tradition of a number of existing policies that distribute revenue as dividend/income to people, such as Alaska's permanent fund, this can be used to correct this issue.
Why shouldn't the revenue from carbon tax offset labor or capital taxes?
Because academia and economic modeling says it would make the emissions taxes higher and inefficient due to tax interaction effects:
"Finally, our analysis confirms Pearce’s (1991) conjecture that second best greenhouse gas emissions taxes might be substantially higher than those identified using conventional “first best” techniques. When emissions tax revenues are used to provide targeted cuts in labor and capital taxes, the optimal emissions tax is on average 83% higher than the level prescribed by the “first best” decision rule. Following the insights of authors such as Bovenberg and de Mooij (1994), Bovenberg and Goulder (1996), and Parry et al. (1999), however, we also find that comparatively low emissions tax rates emerge as optimal when the resulting revenues are returned to the economy in the form of lump sum transfers. In this case, tax interaction effects reduce the fiscal benefits provided by taxing greenhouse gas emissions, suggesting that this policy approach is relatively inefficient"
Why is it important to distribute the dividend as a tax rebate, aka "check in the mail"?
A tax credit offsets income you have to pay in taxes, but if you are very low income it doesn't actually benefit you. A tax rebate is paid regardless of the tax is payable. There is evidence that even with the differences in household income, a tax rebate (check in the mail) results in 20-40% spend of it back into the economy. Similarly, academia finds that people appear to over-respond to anticipated income increases. A "check in the mail" is important because when it's not given as such - as the Making Work Pay tax cut was done via a credit - people don't notice that it even happened. And in the case of carbon tax, people noticing is key to their buy-in.
This is also an important philosophical recommendation, meaning that instead of the government forcing this revenue to be spent based upon its priorities - to help pay for the budget deficit - giving it as a dividend to people will help them spend it on their own priorities. We should trust our fellow Americans to spend the money where they think is best upon receipt.
Why are you advocating for the dividend to only be received by households less than $250,000?
Truthfully, I plucked that number from a few places. One of them being Bernie Sanders cutoff on his tax reform proposal (above which taxes would increase). The other being the number Hillary Clinton promised for tax breaks to the middle class. Yes, $250,000 annual income as a household has its share of criticism for not being middle class, but alternatively, it represents 95% of American households and so therefore is a good cutoff to exclude the wealthiest while still ensuring a broad-based revenue distribution. There's also evidence that people's income fluctuates from year to year, so this allows for individualized fluctuations that can happen.
How will this help with income inequality due to globalization and automation?
Because the revenue generated would be distributed to households earning less than $250,000 per year, this would work like a universal basic income and have the benefit of being fully funded by the revenue generated by making polluters pay.
From the World Economic Forum on the "why" for universal basic income:
"The idea is called unconditional or universal basic income, or UBI. It’s like social security for all, and it’s taking root within minds around the world and across the entire political spectrum, for a multitude of converging reasons. Rising inequality, decades of stagnant wages, the transformation of lifelong careers into sub-hourly tasks, exponentially advancing technology like robots and deep neural networks increasingly capable of replacing potentially half of all human labour, world-changing events like Brexit and the election of Donald Trump – all of these and more are pointing to the need to start permanently guaranteeing everyone at least some income."
Who likes this idea?
Everyone. It's a favorite among climate scientists and overwhelmingly supported by economists. Some former-Republicans and conservatives are even hawking it on the Hill. Corporate America is highly supportive of and lobbying for action on climate change. And while I do not trust the motives in oil/gas industry on supporting a carbon tax (more profits is their aim to be sure), it is true even Exxon-Mobil supports this policy.
Key Resources
What is this solving?
Climate Change. This is a direct way to make Polluters Pay for the costs of emitting greenhouse gas emissions into the atmosphere at a cost to society and taxpayers. The redistributed income will help Americans alleviate the costs experienced from climate change impacts (think: people who lost everything in Katrina, Sandy, Harvey, Irma) and cover the costs of corporations in oil/gas who might pass along their fees (despite making record-breaking profits, you know they will)
Income Inequality. By distributing the revenue to households earning less than $250,000 as reported on their income taxes, this recommendation will help reduce income inequality and operate like a universal basic income without the typical downside of not having a sustainable revenue source (cash money to those who would experience greater costs)
Clean Energy Investment. Using a portion of revenue to directly invest in clean energy research (mimic the American Recovery & Reinvestment Act categories for clean energy cause that was well-designed and very impactful)
Clean Energy Job Retraining. Using a portion of revenue to directly invest in clean energy job retraining focused on rural communities to help provide opportunity for Americans to catch up and become trained for advanced clean energy jobs in this fast-moving global economy since they cannot be outsourced (think: provide opportunity in coal country for retraining)
Why solve climate change?
Seriously? As I write this Houston is underwater from Hurricane Harvey, Hurricane Irma is raining fury on Florida and the entire west is on fire. I can't believe you've even read this far to ask this question. Umm, no. Nope. I've spent 15 years of my life trying to wrest the cancer of climate denialism from Americans. Not this time. There's many great documentaries you can watch if you're still stuck in profound stupidity and ignorance on this issue. I am not spending my precious time on the likes of you any more. Not on this post. Not today, Satan. #ReclaimingMyTime.
But does this solve climate change?
Yes. Greenhouse gas emissions are an externality to our economy, meaning polluters enjoy a "freerider" and do not pay the costs of their pollution, society does. The burning of fossil fuels is actually very concentrated on a relatively small number of entities to make this easy to implement (CBO says)...and I am recommending to utilize the structure proposed here by Bernie Sanders and Barbara Boxer so that the carbon fee would apply to only 2,869 of the largest fossil fuel polluters, covering about 85 percent of U.S. greenhouse gas emissions.
From https://www.carbontax.org/faqs/:
"Charging businesses and individuals a rising and transparent price for carbon dioxide emissions is essential to reduce U.S. emissions quickly and steeply enough to prevent atmospheric concentrations of CO2 from reaching an irreversible tipping point. The transformation of our fossil fuels-based energy system to reliance on energy efficiency, renewable energy and sustainable fuels won’t happen fast enough without carbon fees or taxes sending the appropriate persistent and rising price signals into every corner of the economy and every aspect of life. Or, in the words of Brookings economist (and carbon tax supporter) Adele Morris, “As long as burning dirt (i.e., fossil fuels) is the cheapest form of energy, that’s what we’ll do.”"
Why is a carbon tax the best solution?
Carbon tax leverages the power of the market and directly makes polluters accountable ("Polluters Pay") via transactions for consuming fossil fuels.
The Congressional Budget Office in 2008:
A tax on emissions would be the most efficient incentive-based option for reducing emissions and could be relatively easy to implement.
Summary from The Economist:
"Carbon emissions represent a negative externality. When an individual takes an economic action with some fossil-fuel energy content—whether running a petrol-powered lawnmower, turning on a light, or buying bunch of grapes—that person balances their personal benefits against the costs of the action. The cost to them of the climate change resulting from the carbon content of that decisions, however, is effectively zero and is rationally ignored. The decision to ignore carbon content, when aggregated over the whole of humanity, generates huge carbon dioxide emissions and rising global temperatures. The economic solution is to tax the externality so that the social cost of carbon is reflected in the individual consumer's decision. The carbon tax is an elegant solution to a complicated problem, which allows the everyday business of consumer decision making to do the work of emission reduction."
If you are savvy in the space and want to know why cap-and-trade is not the answer, it's comes down to that scheme needing to be perfectly designed and rebalanced/maintained more heavily based upon the conditions of the trading system. It's less optimal in practice by far.
Why are you recommending the carbon tax be $30 per ton and rise as a percentage of inflation to 2050?
Because that's what the leading climate economist Nordhaus from Yale says is the optimal number. In short, it's the optimal tax pricing for trading off the necessary significant reductions in carbon (& GHG) pollution without imposing too high a cost on global economic growth. Nordhaus' model estimates it should increase to $85 by mid 21st century, so a policy solution that anticipates a gradual and modest increase is also optimal. It's important to have an increase over time because introducing a carbon tax would lead to a decline in emissions, resulting in a decline in the amount of revenues generated. However, if the tax rate grew slowly, it could produce rising revenues for many decades and allow the economy to adjust more gradually to less-emission-intensive ways of producing goods and services.
I trust academia more, and believe the optimal price of carbon is one that addresses the core issue of reducing greenhouse gas emissions, but there's also this proposal from a DC thinktank to start it lower than my recommendation and increase 4% over inflation. So maybe start it where science says is best (i.e. $30), but use that formula for increasing.
Why aren't you recommending a variable carbon tax?
There is evidence that a carbon tax that asymmetrically fluctuates with the price of oil would be more stabilizing for the market. However, because this recommendation has a distribution/dividend of the majority of revenue to American households, the need to compensate within the tax pricing for the fluctuation on the price of oil/gas on how that would get applied to the consumer is muted if not moot. Furthermore, with the complexities of the tax code implementation, the efficiency of not having a variable carbon tax that has to be recalculated and communicated as the price of oil changes to polluting businesses and individuals who pay the tax significantly outweigh the incremental optimization of a variable carbon tax. Certainty for the market to incorporate this cost is far greater for stability than a theoretically perfect but variable tax.
Why are you recommending a portion of the revenue go to fund clean energy investments modeled after the American Recovery & Reinvestment Act?
Because it got some seriously awesome clean energy work done. Why reinvent the wheel? Use what works people.
"Through the American Recovery and Reinvestment Act (Recovery Act), President Obama made the largest single investment in clean energy in history...Clean energy investments made up over one eighth of total Recovery Act spending and provided a meaningful boost to economic output. In addition to providing a stimulus, the funding helped address market failures in clean energy markets. The funding reached nearly every aspect of the value chain for numerous key clean energy technologies, including advanced vehicles, batteries, carbon capture and sequestration, and technologies to enhance energy efficiency."
Why distribute the revenue as a dividend like universal basic income?
First, it's important to understand what would happen if you *didn't* redistribute the revenue as a dividend from an equity standpoint. It would harm low-income households more than the average American.
The Congressional Budget Office states:
"Without accounting for how the revenues from a carbon tax would be used, such a tax would have a negative effect on the economy. The higher prices it caused would diminish the purchasing power of people’s earnings, effectively reducing their real (inflation-adjusted) wages. Lower real wages would have the net effect of reducing the amount that people worked, thus decreasing the overall supply of labor. Investment would also decline, further reducing the economy’s total output. The costs of a carbon tax would not be evenly distributed among U.S. households. For example, the additional costs from higher prices would consume a greater share of income for low-income households than for higher-income households, because low-income households generally spend a larger percentage of their income on emission-intensive goods. Similarly, workers and investors in emission-intensive industries, who would see the largest decrease in demand for their products, would be likely to bear relatively large burdens as the economy adjusted to the tax. Finally, areas of the country where electricity is produced from coal—the most emission-intensive fossil fuel per unit of energy generated—would tend to experience larger increases in electricity prices than other areas would."
So the revenue generated from polluters has to be redistributed to offset the inequity of the negative impacts of the legislation. That being said, this is in an existing tradition of a number of existing policies that distribute revenue as dividend/income to people, such as Alaska's permanent fund, this can be used to correct this issue.
Why shouldn't the revenue from carbon tax offset labor or capital taxes?
Because academia and economic modeling says it would make the emissions taxes higher and inefficient due to tax interaction effects:
"Finally, our analysis confirms Pearce’s (1991) conjecture that second best greenhouse gas emissions taxes might be substantially higher than those identified using conventional “first best” techniques. When emissions tax revenues are used to provide targeted cuts in labor and capital taxes, the optimal emissions tax is on average 83% higher than the level prescribed by the “first best” decision rule. Following the insights of authors such as Bovenberg and de Mooij (1994), Bovenberg and Goulder (1996), and Parry et al. (1999), however, we also find that comparatively low emissions tax rates emerge as optimal when the resulting revenues are returned to the economy in the form of lump sum transfers. In this case, tax interaction effects reduce the fiscal benefits provided by taxing greenhouse gas emissions, suggesting that this policy approach is relatively inefficient"
Why is it important to distribute the dividend as a tax rebate, aka "check in the mail"?
A tax credit offsets income you have to pay in taxes, but if you are very low income it doesn't actually benefit you. A tax rebate is paid regardless of the tax is payable. There is evidence that even with the differences in household income, a tax rebate (check in the mail) results in 20-40% spend of it back into the economy. Similarly, academia finds that people appear to over-respond to anticipated income increases. A "check in the mail" is important because when it's not given as such - as the Making Work Pay tax cut was done via a credit - people don't notice that it even happened. And in the case of carbon tax, people noticing is key to their buy-in.
This is also an important philosophical recommendation, meaning that instead of the government forcing this revenue to be spent based upon its priorities - to help pay for the budget deficit - giving it as a dividend to people will help them spend it on their own priorities. We should trust our fellow Americans to spend the money where they think is best upon receipt.
Why are you advocating for the dividend to only be received by households less than $250,000?
Truthfully, I plucked that number from a few places. One of them being Bernie Sanders cutoff on his tax reform proposal (above which taxes would increase). The other being the number Hillary Clinton promised for tax breaks to the middle class. Yes, $250,000 annual income as a household has its share of criticism for not being middle class, but alternatively, it represents 95% of American households and so therefore is a good cutoff to exclude the wealthiest while still ensuring a broad-based revenue distribution. There's also evidence that people's income fluctuates from year to year, so this allows for individualized fluctuations that can happen.
How will this help with income inequality due to globalization and automation?
Because the revenue generated would be distributed to households earning less than $250,000 per year, this would work like a universal basic income and have the benefit of being fully funded by the revenue generated by making polluters pay.
From the World Economic Forum on the "why" for universal basic income:
"The idea is called unconditional or universal basic income, or UBI. It’s like social security for all, and it’s taking root within minds around the world and across the entire political spectrum, for a multitude of converging reasons. Rising inequality, decades of stagnant wages, the transformation of lifelong careers into sub-hourly tasks, exponentially advancing technology like robots and deep neural networks increasingly capable of replacing potentially half of all human labour, world-changing events like Brexit and the election of Donald Trump – all of these and more are pointing to the need to start permanently guaranteeing everyone at least some income."
Who likes this idea?
Everyone. It's a favorite among climate scientists and overwhelmingly supported by economists. Some former-Republicans and conservatives are even hawking it on the Hill. Corporate America is highly supportive of and lobbying for action on climate change. And while I do not trust the motives in oil/gas industry on supporting a carbon tax (more profits is their aim to be sure), it is true even Exxon-Mobil supports this policy.
Key Resources
- Tax Policy Center on Carbon Tax: http://www.taxpolicycenter.org/publications/taxing-carbon-what-why-and-how
- Carbon Tax Center (non-profit): https://www.carbontax.org/
- London School of Economics Seven Reasons to Use Carbon Pricing in Climate Policy http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2016/02/Working-Paper-224-Baranzini-et-al.pdf
- Harvard Magazine "The Time to Tax Carbon" https://scholar.harvard.edu/files/jorgenson/files/harvardmagazine_09_2014.pdf
- 10 Things You Should Know About Carbon Tax https://www.brookings.edu/blog/brookings-now/2016/05/04/9-things-you-should-know-about-the-carbon-tax-2/
- World Bank Pricing Carbon http://www.worldbank.org/en/programs/pricing-carbon
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