Earth Equity News

The Case for a Carbon Tax to Control Climate Change (Part I). By Robert J. Shapiro, The Globalist, August 10, 2009. "Finally, the United States is prepared to act on climate change... The current legislation, however, embodies a cap-and-trade approach to addressing greenhouse gases. Most economists and many environmentalists, at least privately, no longer support this approach, especially compared to the alternative of a refundable, carbon-based tax. Their concerns were only heightened by the rampant horse-trading to win votes for the Waxman-Markey bill in the House, which substantially weakened its effective cap on emissions. Whatever plan the U.S. Congress ultimately approves, with whatever flaws it contains, will become the U.S. response to climate change for a decade or more... Under cap-and-trade, the price of carbon depends on the relationship between energy demand and the supply of permits... [which] introduces a new layer of price volatility in energy, and such additional domestic volatility would often amplify the price swings in international energy prices we already live with. The contrast to a carbon usage fee is clear: By definition, the carbon tax provides a known price for carbon which can be set at whatever level scientists believe will enable us to meet the necessary goal of reducing greenhouse gas emissions. Supporters of cap-and-trade counter that the carbon tax approach lacks a cap, so if the summer is hotter or the winter colder than expected, emissions will increase with rising energy demand. That's correct -- but every carbon tax proposal includes provisions to adjust the tax rate periodically to ensure that we stay on a path of sustainable emissions reductions...

(Part II) "A carbon-based tax addresses people's resistance to bearing additional costs directly... In most versions, the revenues are recycled as tax relief - for example, through cuts in the payroll tax or lump sum payments to households. In this way, the strategy can change the relative price of different forms of energy based on their effects on the climate, without making people poorer. This refundable feature protects families, especially lower- and middle-income households, as well as the overall economy. In theory, cap-and-trade could auction all of its permits -- as President Obama urged -- and return the proceeds to households as well. In practice, the Waxman-Markey bill gives away 85% of its permits, providing great windfalls for greenhouse-gas producers and failing to protect most households... Sweden, which currently holds the presidency of the EU, recently called on other EU countries to enact their own carbon taxes. It noted that since the tax was enacted in 1990, the country's carbon emissions have fallen 8% while its GDP has increased 48%. In France, President Sarkozy is also considering a carbon tax on fuel. For more than a decade, cap-and-trade has been the policy embodiment of that public commitment to address climate change. It has served its purpose as a symbol -- but now that we turn to the business of actually reducing emissions, cap-and-trade is no longer good enough. The best option -- and it's not even a close call -- is the policy promoted by Al Gore in his Nobel lecture: A revenue-neutral carbon-based tax." Robert J. Shapiro is co-founder and chairman of Sonecon, LLC, a private firm that advises U.S. and foreign businesses, governments and non-profit organizations. He served as U.S. Under Secretary of Commerce from 1998 to 2001.