Monday, August 4, 2008

Like The“Boy Named Sue,” Carbon Tax Advocates Battle Bias Against Name

In his hit "A Boy Named Sue," Johnny Cash sang of a boy whose father named him “Sue” and left him to make his way in the world. “Sue” grows up seeking revenge on his papa. They finally meet in a barroom brawl, and Sue gains the upper hand. But he spares the life of the man who saddled him with a girl’s name after his dad explains, “I knew you'd have to get tough or die. And it's the name that helped to make you strong."

Carbon tax advocates understand how "Sue" felt. We’re often ignored or ridiculed, and have to fight to be taken seriously. “Life ain’t easy for a boy named Sue.”

While carbon taxes are ignored, life has been easy for the competing carbon-reduction scheme known as cap-and-trade. Big Green groups like Environmental Defense and the Natural Resources Defense Council have strongly backed cap-and-trade, as have some major corporations seeking to promote their green credentials and secure prime seats at the bargaining table. Politicians seem loathe to mention carbon taxes. John McCain and Barack Obama (as well as Hillary Clinton) support a carbon cap-and-trade system. Few members of Congress dare to support a carbon tax.

Yet economists across the political spectrum are virtually unanimous: a revenue-neutral carbon tax would reduce emissions far more effectively than a cap-and-trade system. Some even suggest that cap-and-trade's complexity and volatility would cause it to fail altogether. Nevertheless, the political class insists that the public will never accept anything called a “tax.” And so, in a classic self-fulfilling prophecy, Congress hasn’t seriously entertained a carbon tax and media coverage is almost entirely focused on cap-and-trade.

Across the border, the picture is quite different. The leader of Canada’s (centrist) Liberal Party, St├ęphane Dion, is advocating a carbon tax re-framed as a ”Green Shift” that would tax fossil fuels and redistribute the revenues to taxpayers by reducing other taxes and direct payments. Dion and the Liberals are taking plenty of flak for advocating a tax, but, like Johnny Cash’s “Sue,” they’re hitting back hard, pointing out that a revenue-neutral tax is not a government money grab but an effective and progressive way to nudge the economy toward a low-carbon diet. Dion’s plan would bind the government to return every dollar collected for carbon pollution to Canadians via other tax cuts, annually verified by the Auditor General. Canada’s third largest province, British Columbia, started a revenue-neutral carbon tax this July, and other provinces are considering following suit.

Cap-and-trade advocates don’t broadcast the inconvenient truth that higher fuel prices are an element of both cap-and-trade and carbon tax systems, and indeed, that a price on carbon emissions is central to any serious policy to combat global warming. Advocating a carbon tax, Canadian environmentalist David Suzuki puts it this way: “We pay $90 at ton to put garbage into landfills – yet we act as if the atmosphere is limitless and don’t pay a price for [dumping carbon into] it. That doesn’t make any sense.”

Cap-and-trade would reduce emissions — and raise prices — by gradually reducing the number of pollution permits. This would require setting up a whole new market with its own currency (auctioned, tradeable permits) and a regulatory bureaucracy dedicated to overseeing the new market and its participants. Setting up and managing such a bureaucracy is an enormously high price to pay just to avoid saying the word "tax" or having to explain a “revenue-neutral carbon tax.”

To many environmental advocates conditioned by years of “settle for what we can get” politics, advocating a policy called a tax is about as appealing as being a boy who has to explain why his name is “Sue.”

But just as the boy named Sue was tough inside, a carbon tax is straightforward and plays no favorites. The underlying idea is simple: reduce carbon emissions by imposing a comprehensive tax on coal, oil and gas where they enter the economy. The tax must be high enough and increase steeply and predictably enough to affect consumer and business expectations and behavior via the pull of price signals. As the tax pushes the cost of coal power above that of wind energy, entrepreneurs will build, and consumers will purchase power from windmills, not coal mines and coal-fired power plants. When heating bills exceed the cost of attic insulation and energy-conserving windows along with the hassle of installing them, homeowners and landlords will hire renovators instead of paying the higher fuel and utility bills. When airfares exceed the cost to build and run a network of high-speed trains, perhaps Congress will get busy and authorize it.

During the debate leading up to the defeat of the Lieberman-Warner cap-and-trade bill in June, proponents argued that a cap with auctioned permits would generate revenue just as a tax would, and that these revenues could be allocated to alternative energy projects and other "good works." But this idea has three serious flaws:

1. Congress favors powerful corporations and other big campaign donors, so unsurprisingly Lieberman-Warner would have given out the auction revenue as subsidies for ethanol, nukes, "clean coal" research, and "transition adjustments" for the same fossil fuel industries that would have paid for pollution permits

2. It's far too early in the technology race for Congress or anyone else to know which technologies will work the best for reducing greenhouse gas emissions. In contrast, a tax on carbon pollution would set the market to work on finding, developing and deploying those technologies.

3. Because poor families spend a larger fraction of their incomes on utilities and fuel, both a carbon tax and cap-and-trade would disproportionately impact lower income people unless linked to a dividend or tax shift to distribute the revenue to everyone. Rich people (who fly more, drive bigger vehicles and live in larger and multiple homes) burn far more fossil fuel than poor people, so the rich would pay most of the revenue into a carbon tax, while a dividend would spread that money equally over all income groups. The Carbon Tax Center figures that the bottom 2/5 of households would be net gainers under a carbon tax with dividend, while the middle quintile would break even and the top 2/5 would pay more carbon tax than their dividend. Under a carbon tax-and-dividend, we'd all pay higher prices for fossil fuel but we'd all get the same dividend. So those who use less than their share of fuel (lower income folks and those who learn to reduce carbon impacts) would pay out less in increased prices than they would receive in dividends. We'd be PAID to conserve the carbon recycling capacity of the atmosphere while the wasters at the top were penalized.

The bottom line: a carbon tax with dividend (or tax shift) will push everyone to reduce fossil fuel use without hammering the poor.

Unless the U.S. and other nations attach strong, clear price signals to carbon emissions, we won’t develop and implement low-carbon technologies. Instead, the world will continue to waste energy and spew carbon, and global warming will cascade into a chaotic and unmanageable avalanche. A revenue-neutral carbon tax is the right medicine for this grave condition. It would be tragic if its jarring name kept the best medicine on the shelf while the patient languished and perished.