August 10, 2014


The carbon tax: why a bipartisan idea is still held up (Chris Berdik, AUGUST 10, 2014, Boston Globe)

The notion of taxing problematic goods dates to the 1920s, when British economist Arthur Pigou observed that some products had social costs that weren't accounted for in prices set strictly by supply and demand. He suggested what became known as "Pigovian taxes" on goods and services such as alcohol and tobacco, which were legal but the government might want to discourage people from using.

In the case of carbon, the Pigovian approach was first debated by economists in the late 1980s and early 1990s. Supporters say a single, uniform tax in which fuels are taxed based on how much carbon they contain, or on the amount of carbon dioxide emitted when the fuel is burned, would cut emissions, and encourage conservation and the development of green energy more efficiently (and less expensively) than government mandates or patchworks of subsidies. In 2012, researchers at MIT's Joint Program on Global Change analyzed the idea and concluded that a $20 per-ton fee on the carbon content of fossil fuels, implemented in 2013 and increasing 4 percent a year, would by itself cut emissions to 20 percent below 2006 levels by mid-century. (That's a sizeable reduction, if only a step toward the what the Intergovernmental Panel on Climate Change suggests is needed to fend off serious climate trouble: an 80 percent drop from 1990 levels by 2050.)

But the scheme runs into one deep, common-sense objection: Like it or not, America's economy runs on carbon--more than 80 percent of our energy comes from fossil fuels. Taxing carbon would make everything more expensive, slow economic growth, and put people out of work. That $20-per-ton tax the MIT researchers analyzed would pull about $1.5 trillion out of the economy in its first decade.

Hence the twist: What if you just returned all the carbon tax money to the economy? The revenue could be returned to taxpayers with dividend checks, or it could be used to lower other taxes on individuals or businesses. Either plan would effectively be taking money from the biggest polluters and plowing it back into the economy.

In the past few years, this so-called revenue-neutral carbon tax has garnered support from a wide spectrum of political and economic interests. It includes climate scientists such as James Hansen, who sits on the advisory board of a national carbon-tax advocacy group called Citizens' Climate Lobby; but also economist Arthur Laffer, who was Ronald Reagan's economic policy adviser; former Republican treasury secretary Henry Paulson; and even ExxonMobil. 

Posted by at August 10, 2014 9:06 AM

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