Carbon Pricing 2019-The Nuts and Bolts

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.

The two main ways they vary is as to (1) how the price is assessed (tax versus cap & trade), and (2) what is done with the money after it is collected (returned to all citizens/revenue-neutral versus retained and used for various means/revenue positive).

Here is a very basic review of these varied mechanisms.

I. The Energy Innovation and Carbon Dividend Act 2019 (H.R. 763).  (EICDA) 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 and legal permanent residents in equal amounts, monthly.  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 emitters pay out more in the fee than they receive back in the dividend.  Emissions are projected to drop 40% by 2030 solely due to the EICDA and 90% by 2050.  Projections also show that 2.1 million jobs will be added in 10 years.  The economy will grow as a direct result of the EICDA.

There is a “regulatory  pause” on federal regulations designed specifically to target carbon emissions.  This pause is immediately ended if the nation is not meeting emissions cuts targets.  This pause does not affect any regulation other than federal regulations designed purely to cut carbon emissions.  Auto emissions standards are untouched.  Methane leakage regulations are untouched. This regulatory pause impacts one existing regulation:  the now defunct Clean Power Plan.  It does not impact state, local or regional regulations.

There is no provision reducing fossil fuel company liability.  Fossil fuel companies remain wholly subject to tort law.

-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).

II. The Climate Leadership Council Proposal. This is a revenue neutral carbon fee and dividend as well.  It begins at $40/ton and rises steadily, but more slowly than the EICDA.  It would end fossil fuel regulations outright and prevent tort liability for the fossil fuel companies.

III. Cap and Trade.  The Waxman-Markey Bill of 2009.  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.  Waxman-Markey retained the revenue.

 IV. The Tax Swap Proposals.  Favored by many conservatives, this bill places a fee on all carbon emitting products and is revenue neutral just like the EICDA.  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%.

V. Congressman VanHollen Bill 2014 (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 EICDA, 100% of the proceeds of the auctions are returned to each person.  The advantage of this bill over the EICDA 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.  Moreover, the EICDA has a mechanism to adjust the tax to ensure targets are met.

VI. Revenue Raising Approaches.  The Boxer-Sanders bill started at $20/ton and rose to $33/ton after ten years.  It rebated 60% to citizens, retaining 40% for subsidies and deficit reduction.

VII. John Delaney’s Tax Pollution, Not Profits Act 2017.  This was a carbon tax swap-dividend hybrid.  It was not 100% revenue neutral.  It retained 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 receiving more.  The primary return of the funds was 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.)

As of September 1, 2018:

• 46 national jurisdictions and 25 subnational jurisdictions are putting a price on carbon.
• 53 carbon pricing initiatives are implemented or scheduled for implementation. https://www.carbonpricingleadership.org/news/2018/10/23/update-carbon-pricing-dashboard

Due to limited formatting options, this blog did not support a more readable table, which you can find at this link.