a few thoughts on carbon tax.

[Riggerjack]

I live in WA, and our governor just announced he wants a carbon tax. Now, blue Governor in a blue state, he's announcing this with no specifics, just a general press release of support. He wants some sort of "cap and trade for the 15 biggest polluters in the state."

This seems like political posturing to me. But I'm cynical like that. First, if you attack the 15 biggest polluters, in a state with a high B&O tax and sales tax anyway, then you will have a series of moving targets, as businesses move part, or all, of their operations to other states. Second, all these companies are already political contributors. Filling the Republican war chests id bad strategy.

More to the point, there will be a whole new level of bureaucracy created to track and administer this new plan (my real objection). Businesses will have a new collection of reasons for lobbying:
to keep the list from expanding if they are on the threshold
to expand the list to spread the load
to expand or contract the cap, fees, or change the exchange rules
to add credits, etc.

The whole thing just seems to be set up to funnel money out of the private sector, and into political war chests. There was a pollution cap and trade scheme like this back in the early 90's allowing older cars to be melted down to "offset" the pollution from factories. Of course the older cars weren't driven much and the environmental costs of removing manufactured products from use prematurely weren't factored in to this "successful" program.

I honestly think this was just flag waving from a first term governor. Just to see how the wind blows. Money won't flow until specifics are being worked out.

In theory, I like the idea of selling pollution rights rather than pushing regulations as a solution to pollution. However, in real world application, it fails miserably.

Now, any internet troll can find some policy to attack for offending said troll's sensibilities; but I think of myself as a troll extraordinaire, and have higher standards. I want to come up with a better way, not just criticize.

So, I did some Googling. This is all WA centric, as that was my focus. Wa has a lot of hydropower (incidentally, hydropower is not "green" power in the Evergreen State.). This will skew the numbers when compared to say, West Virginia. Feel free to do your own Googling for your state.

Here's what I found:
19 tons of CO2 per capita for US, 10.38 tons per capita for WA.

In 2012, WA produced 72 million tons of CO2 from fossil fuels.
3.73 million tons of CO2 from fossil fuels for commercial uses.
13.38 million tons of CO2 from fossil fuels for industrial uses.
6.15 million tons of CO2 from fossil fuels for electrical generation.
5.07 million tons of CO2 from fossil fuels for residential (propane, natural gas, heating oil).
42.73 million tons of CO2 from fossil fuels for transportation.

So, even if we eliminated the top 15 producers of CO2 entirely, that is only 15 sources, from a category that is only 18.5% of the pollution. Maybe we make a 1% dent in CO2 production in the state? Maybe. Even then, all we've done is close down 15 businesses, that then restart elsewhere. Damn, now that's PROGRESS!

So, on to my better idea. Carbon tax, on all fossil fuels, at the source. Heavy, nasty taxes, that will change behaviors. What if we eliminated ALL the WA taxes, sales, property, car tabs, B&O, blah, blah. Take ALL revenues from fossil fuels.

WA residents use 381 gallons of gas/diesel per capita. Total state revenue per capita is $4160. Burning a gallon of gas produces 8,887 grams of CO2. 381 gallons burnt creates 3.386 metric tons of CO2.

So, if we tax fossil fuels to cover the entire state budget, that is $4160/10.38 tons= $400/ton tax. $400 X 3.386 tons =$1354.40 in gas tax per capita. 1354.40/381= $3.55 per gallon in gas tax. Compared to our current $0.31 gas tax.

So, we could eliminate all taxes in WA, and still pay European prices for gas. If we are serious about pollution control, basing our taxes on pollutants makes sense. Creating a new bureaucracy to empower more extortion/political contributions, not so much so.

BTW, US tax revenue per capita is $4295, or $3.66/gallon. Just sayin'

[Riggerjack]

I only broke out the gas tax. clearly, there would be a strong price increase on everything as the fuel costs worked through the pricing system. But that is the whole point. by tying pricing to fuel use, pollution costs are all figured in to the system. No free riders. Everyone is incentivized to reduce fossil fuel use, and the further the reduction, the more concentrated the costs become on fuel use. Suddenly, green power is not competing against cheap energy.

Of course, this would be a "tax cut for the rich", because even Al Gore can't use fuel at the same proportion to Joe Sixpack as his wealth.

[jacob]

First, it is well-known (sort of) that mitigation costs are still quite small (studies by McKinsey, The World Bank, etc.), so any solution you're going to calculate is not going to appear that expensive ... but try telling any voter that their COL expenses will go up by 2% because of some legislation that you enact.

Second, ultimately there's no economic difference between carbon tax and cap and trade. Cap and trade fixes the supply quantity, then lets the market set the price, and the system would be run by the financial system just like any other such system is already run by the financial markets for corn, weather, oil, silver, ... Carbon tax sets the price, then lets the market set the supply/quantity, and the system would be run by the IRS. Both preferences are described by typical left/right "philosophies". The economic outcome is identical though. Hence, this is mainly an issue of political wrangling/circus. The end-consumer will ultimately be paying the same _in the aggregate_. And that price would be the few percent of GDP mentioned above.

Third, for WA in particular, this particular issue (of the power plants) will trend towards less relevance because the power companies will not be able to generate as much power as they do now due to the lack of water. Currently the world is heading for the RCP8.5 situation. The agreement that the US and China are talking about possibly, potentially, agreeing to will lock us into the RCP4.5 situation by the time it'll be implemented (2030). The resulting change in precipitation patterns (which you are already seeing in WA) will mean that there will be materially less cooling water (a decrease in rainfall disproportionally decreases the streamflow of the rivers) for the hydroplants and also for the thermal plants (electric turbines) increasing electricity prices in the summer. This will become a material issue over the next 10+ years.

In conclusion, these are the realistic choices:
1) Carbon tax which raises prices.
2) Cap and trade which raises prices.
3) A reduced ability to produce electricity which raises prices (the current choice).

There are other choices as well but I don't see those as being realistic as they require voluntary action and/or short-term costs for long-term benefits/reduced long-term costs.

[Riggerjack]

First, it is well-known (sort of) that mitigation costs are still quite small

Honestly, I don't know. What are these cheap mitigation costs? I've heard some crazy schemes involving airliners spraying aerosols in the upper atmosphere, burying carbon, etc. None seemed what I'd call cheap or easy. I lost interest when I looked at the projected changes in my lifetime.

Second, ultimately there's no economic difference between carbon tax and cap and trade. Cap and trade fixes the supply quantity, then lets the market set the price, and the system would be run by the financial system just like any other such system is already run by the financial markets for corn, weather, oil, silver, ... Carbon tax sets the price, then lets the market set the supply/quantity, and the system would be run by the IRS. Both preferences are described by typical left/right "philosophies". The economic outcome is identical though. Hence, this is mainly an issue of political wrangling/circus. The end-consumer will ultimately be paying the same _in the aggregate_. And that price would be the few percent of GDP mentioned above.

Here, I disagree. Maybe I wasn't clear enough about this in my OP. If your goal is the reduction of CO2 from fossil fuels reach the atmosphere, "Cap and Trade" doesn't work. It has been tried, this isn't just my negative views of the political process, this is established history. While in theory, cap and trade should move the costs of pollution reduction to consumers (like any tax), in reality, it becomes just another source of political haymaking. In some cases, it even causes older, more polluting power plants to crowd out investment in new, less polluting power plants. From http://www.google.com/url?sa=t&rct=j&q= ... 1339,d.cGU

The issue came to life when the United Kingdom recently decided to impose
a tax on carbon dioxide emissions by electric power generators in the country. For
each unit of emissions, these generators will need to pay this tax in addition to the
price that they pay for emissions allowances from the EU Emissions Trading System
(ETS). Although the tax will likely cause greater abatement by generators within the
United Kingdom, it will not cause greater overall abatement in Europe, since overall
European abatement is determined by the Europe-wide cap under the ETS. The
UK initiative will reduce the UK’s demands for emissions allowances from the ETS,
putting downward pressure on allowance prices and prompting increased emissions
in the rest of Europe. CDC Climate Research (2011) offers a quantitative assessment
of the impacts.

Further, and cap and trade system places all pollution costs on pollution past a certain threshold, the cap. These costs are often avoided by politics, or regulatory "squirming". The company will change it's behaviors to escape the cap, rather than to reduce pollution. "We're going to be over the cap next year? Well, it's time to sell off the X division." Then there is no reduction in pollution, just a change in ownership. Pollution costs below the cap are unchanged, thus the pollution is unchanged.

Whereas with a direct tax on fossil fuels is easy to administer, isn't easily avoided, and the costs are directly tied to use. This maximizes the behavioral change proponents claim to want. If you want people to ride a bike or drive a prius, instead of a F-350, tax the fuel. If you want political contributions from ALCOA, start a cap and trade system.

I'm in no way advocating a new tax, I think we are already taxed more than is needed. I am saying that a cap and trade system does not address the issue proponents claim, with any kind of efficiency. That means they must have other reasons for wanting to set it up.