Sightline’s newest Fellow, economist Yoram Bauman, has authored a white paper for us called “Carbon Pricing in Washington.”
Yoram lays out the core elements of a revenue-neutral carbon tax, demonstrating how a policy modeled on British Columbia’s carbon tax could be implemented in Washington. It’s got elasticity figures, fuel price estimates, and a discussion of mitigating regressivity. In other words, you’ll like it.
As insightful as Yoram’s current stab is at the 20+ year old notion of tax shifting, it’s still a hard sell politically. The complexity of stakeholders who would be drawn in by such a debate would be impossible to predict, except by guessing that it would be everyone. My feel for what might fly are user fees (fuel taxes, tolls, etc) that fund identifiable & desirable benefits and carrots (tax breaks, startup discounts, cheap capital, etc) that encourage energy-supply transition.
Quite frankly, the Alaska hybrid is much simpler, is completely transparent, and elevates carbon taxing above political favoritism and fashion. It’s simple: You have a certain amount of carbon credits available each year. You start off with available credits at slightly below current usage, then ramp down to the goal level at some point in the future. All credits are auctioned publicly. The money raised goes directly, ala Permanent Fund Dividend, to every resident.It is revenue neutral, except for the cost of the auctions and the admin of the carbon rebate program.This directly and perfectly rewards conservation and efficiency, returns the benefits to those who bear the cost of polution without prejudice, reimburses the average person for every cost of carbon taxing, and promotes efficiency competition. Other taxing, cap-and-trade, etc. programs leave the benefits to politicians and their programs, and the costs to the general public. Money apportioned to every individual is almost impossible to end politically, and by removing the political element from deciding what to do, you get support from individuals resistant to increasing the power of government, but who may be quite favorable to policies that improve our environment.
Morgan, maybe “tax shifting” has been around for 20+ years but Yoram is proposing a revenue recycling policy much like the one currently implemented in BC Canada. The difference between your suggestion (using the tax revenue for directed incentives) and the paper is subtle but important. I think you agree that the Pigouvian tax creates disincentive for use of polluting fuels and thus, incentive for alternatives that emit less CO2. However, using the tax revenue to fund “start-up discounts” and “cheap capital” create economic distortions (deadweight loss). When that revenue is used to reduce (already distorting) taxes on capital and/or labor, those very distortions are mitigated.I think the key to the success of such a policy lies within these discussions. If people understand and accept the logic behind a revenue recycling policy, support should be a natural result. Look at the polls for the policy in BC Canada.