Various Mechanisms for Pricing Carbon

[Edited to add: I am reposting this note. It seems that more people are talking about a carbon tax than at any time before. The climate movement has made great headway in raising the topic, especially through Bernie Sanders, on the carbon tax. So...here are some nuts and bolts on carbon pricing.]

Now that the science is settled, and the so-called climate deniers are in retreat, the battlefront moves to enacting the best policies to cut emissions. It is essential that all climate activists become versed in the various policies. You can be sure that the fossil fuel interests will fight for mechanisms that cut emissions the least. It is up to us to educate each other and the general public on which mechanisms are the best policies and will cut emissions the most. Toward that end, I would like to open up discussion for the most basic of questions about the policies. I am no expert in energy policy or carbon emissions. But I have been reading up on it. I hope to learn from everyone else as much as I hope to share what little I know. The following is pulled from my own presentation on the Revenue Neutral Carbon Fee and Dividend. Please make no mistake, I favor it and the following clearly is presented with that favor in mind. I am not closed to the other mechanisms and I hope that whatever discussion we have, it remains open-minded. Carbon Pricing There are several different forms of carbon pricing. Each is designed to create a disincentive to use products that emit carbon dioxide into the atmosphere. These all can be designed to impact fracking as well as traditional drilling and mining and impact the use of all products that depend upon fossil fuel use. • The Revenue Neutral Carbon Fee and Dividend (RNCFAD). This is a fee collected on all carbon-emitting products that enter the economy at point of well, mine or port. It is revenue neutral; all fees collected are returned to all citizens in equal amounts. Because none of the money collected is retained by the government, it is said to be “revenue neutral.” Studies project that the bottom 2/3 of earners, who have smaller homes, fewer boats, RVs, and other luxury items, receive back more in the dividend than they pay out in the fee. The top 1/3 of earners pay out more in the fee than they receive back in the dividend. Emissions are projected to drop 33% in ten years solely due to the RNCFAD and 52% in twenty years. Projections also show that 2.1 million jobs will be added in 10 years and 2.8 million jobs in 20 years. The economy will grow as a direct result of the RNCFAD. ➢ The average family of four receives $47/mo in the first year, $288/mo after 10 years, and $396/mo after 20 years. ➢ Gas prices go up 15 cents/gallon in the first year, and 10 cents/gallon each year thereafter ➢ The price on carbon will reduce direct fossil fuel use and also derivatives like plastics (Note: This bill also includes a “border adjustment” which places the fee on any imported products only if the product comes from a country without a comparable price on carbon. This creates an incentive to importing countries to implement a price on carbon rather than pay into US coffers). • Cap and Trade. The government sets limits on how much carbon can be emitted and auctions off the rights to emit that carbon. The limits gradually decline annually. Previous challenges with this mechanism included the right to increase emissions if they were offset (a carbon reduction plan was instituted). Corporations were buying and selling carbon rights and emissions were not limited because offsets took the place of the emissions cuts that were supposed to happen. Money collected can be retained to raise revenue or returned, varying from plan to plan. • Congressman VanHollen Bill (Healthy Climate and Family Security Act of 2014). Rep. VanHollen has introduced a cap and trade bill that sets limits on emissions and auctions off the rights to those emissions. This bill closes the offset loop holes. In addition, it adds a dividend. Like the RNCFAD, 100% of the proceeds of the auctions are returned to each person. The advantage of this bill over the RNCFAD is that it sets carbon limits according to the scientific projections of what is required to remain under 2 degrees celsius change. The drawback is a more costly and complicated mechanism of implementation. • The Tax Swap. Favored by many conservatives, this bill places a fee on all carbon emitting products and is revenue neutral just like the RNCFAD. However, money is not returned equally to all citizens. Money collected is returned by reducing income taxes in amounts equal to the fee collected. People who do not pay income taxes receive nothing back. People who pay little in tax see little in returned money. The wealthiest, with the greatest taxes, receive the most back. BC uses a tax swap along with a tax credit for the poorest citizens. It started at $9/tonne in 2008 and up $5 each year. It cut fuel usage 16% while surrounding Canada went up 3%. Criticized for exporting usage (no border adjustment) • Revenue Raising Approaches. The Boxer-Sanders bill rebated 60% to citizens, retaining 40% for subsidies and deficit reduction.Since my original post of this, other pricing bills have been proffered. Notably:Congressman Delaney, of Maryland's Tax Pollution, Not Profits Act. This is a carbon tax swap-dividend hybrid. It is not 100% revenue neutral. It retains a portion of the money to retrain or fund retirement of coal workers. Those at or near the poverty level receive a rebate, with those at the poorer end recieving more. The primary return of the funds is in reducing the corporate tax rate from 35% to 28%. This bill was heralded by EAI, conservative think tank and Bob Inglis as a very significant development in that a Democrat was putting corporate tax cuts on the table, making this a big step forward in seeking a bipartisan solutions to carbon emissions. (Schatz/Whitehouse's American Opportunity Carbon Fee Act was introduced shortly thereafter and is very similar to Delaney's Tax Pollution, Not Profits Act, differing in allotments of rebates and tax cuts and rates of increasing taxation.)