Carbon Tax Vs. Carbon Trading

L.A. Times editorial compares carbon taxes and carbon trading schemes and argues that carbon taxes are the best way to combat global warming.

"If you have kids, take them to the beach. They should enjoy it while it lasts, because there's a chance that within their lifetimes California's beaches will vanish under the waves."

"There is a growing consensus among economists around the world that a carbon tax is the best way to combat global warming...Yet the political consensus is going in a very different direction. European leaders are pushing hard for the United States and other countries to join their failed carbon-trading scheme...The obvious reason is that, for voters, taxes are radioactive, while carbon trading sounds like something that just affects utilities and big corporations. The many green politicians stumping for cap-and-trade seldom point out that such a system would result in higher and less predictable power bills. Ironically, even though a carbon tax could cost voters less, cap-and-trade is being sold as the more consumer-friendly approach."

Full Story: Time to tax carbon



Carbon Tax Shift

The article says that a carbon tax is the most efficient and fair way to deal with global warming, but no politician will touch it because "for voters, taxes are radioactive."

We can solve that political problem by calling for a "carbon tax shift" instead of a "carbon tax."

The basic idea is that we tax CO2 emissions at, say $20 per ton the first year, increasing by $20 per ton every year until emissions are cut by 80%. Each year, the Internal Revenue Service calculates the total Carbon Tax collected and reduces the income tax by an equal amount by giving a refundable tax credit to all taxpayers.

This article says: "it could be structured to be far less harmful to power consumers. While all the added costs under cap-and-trade go to companies, utilities and traders, the added costs under a carbon tax would go to the government — which could use the revenues to offset other taxes. So while consumers would pay more for energy, they might pay less income tax, or some other tax."

There should not be any "might pay less" about it. For political reasons, it should be structured so it is completely revenue neutral, not a tax increase at all.

The political message should be: "Cap-and-trade takes money from some corporations that emit CO2 and gives it back to other corporations. A Carbon Tax Shift takes money from corporations that emit CO2 and gives it back to all the taxpayers. By the year ??, the majority of taxpayers will not have to pay any income tax at all; instead, they will get a check back from the IRS."

Charles Siegel

Tax the bads, not the goods.

Better still, Charles, is to lower income taxes (what we want, income) and raise carbon and pollution taxes (what we don't want, externalities from consumption). This way, the palatibility comes with offering the carrot and the stick, and the carrot will be mighty tasty to the majority.



Taxing the Bads

I agree, Dano. As I said: "Each year, the Internal Revenue Service calculates the total Carbon Tax collected and reduces the income tax by an equal amount by giving a refundable tax credit to all taxpayers. ... By the year ??, the majority of taxpayers will not have to pay any income tax at all; instead, they will get a check back from the IRS"

Get an economist to calculate that year, and we have a great selling point.

I also think we would do better saying "1 cent per pound of CO2" rather than "$20 per ton of CO2" as I originally said. Equal amount, but 1 cent per pound sounds like so little.

Charles Siegel


I was just shorthanding your comment, Charles. It's clear to me that the best way to alter our particular society is to alter the in-go and out-go of the wallet. It's what our society understands.

Water budgets: a HH gets so much, then the overage is severely charged. VMT: create a demand for transit and people will alter their behavior and demand decent transit choices. Carbon emissions: heating prices will drive picking low-hanging fruit such as CFLs and low-e windows will evolve to retrofitting walls and roofs to R25+ insulation using recycled X, Y, and Z.

The extra income from eliminating income taxes will drive innovation to make our structures efficient. This is, of course, only the first step, but small steps with tangible wins are what we need.



I actually agree

I actually agree with you guys for a change. Consumption (VAT, sales, user), pollution, and carbon taxes would be good and offset by lower income tax, even better. I just thought that since you guys usually think I disagree to disagree, I would tell you when I agree with you. Following the concept through, what are your thoughts on how to spend the money? Naturally, there will be reductions in use, but there still would be plenty of revenue raised. Does it go to general government or to subsidize alternatives of whatever you're reducing?

C Tax revenue expenditures.

I think that there will be a number of issues that will need mitigation, and that's where the money should go, cp. And let me say I think there are overlapping places in the maps of our philosophies & they are not mutually exclusive. Anyway,

Having an ecological education, I see that there's a likelihood that trade will change as crop tolerances shift. We'll need to retrain or relocate displaced farmers & workers. As well as displaced coastal residents. And so on.

My answer would be to implement adaptive management schemes and ensure flexible, proactive government to ensure that the rapidly changing ecosystem responses to our inputs are able to be met by our societies.

That is: smaller, more responsive, more local governments balanced with an overarching directioning from a smaller regional or national government. There will be too much people moving around for big, national government, but there will be a need for internationalism as our trade will shift as climate and ecosystem services shift. We'll be more local as transportation becomes more expensive.

So I don't know how to spend the money in the future, I just know our societies will need to be more responsive.



Revenue Neutral Carbon Tax

My thought is that the carbon tax shift has the best chance politically if it is revenue neutral. All the revenue should go back to taxpayers in the form of an income tax refund - so there is no question of where to spend the extra revenue, because there would be no extra revenue.

Charles Siegel

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