Charles Komanoff


Carbon Taxes: A Green Priority

I wrote this in 2003, at the request of renowned eco-stalwart (and long-time friend and colleague) Lorna Salzman. Though originally directed at Green Party activists (with the somewhat turgid title,Green Organizing Starts with Replacing Sales Taxes with Carbon Taxes), it should strike a chord in everyone concerned about rescuing Earth's climate from global warming pollution. -- C.K., June 13, 2005

A Green Party that does not target climate destruction is pointless. A climate-protection strategy that does not "internalize'' the myriad costs of fossil fuels is toothless. Ergo, the Green Party must make full-cost pricing of fossil fuels not just a priority but a fundamental principle.

The best way to price fossil fuels at their full social cost is to tax their carbon content. Such a tax directly addresses the buildup of carbon dioxide in Earth's atmosphere that is causing global warming. The tax revenues would also let fiscally pressed state governments eliminate regressive sales taxes while maintaining vital services, making carbon taxes palatable to otherwise hostile constituencies and officials.

Based on the chemical make-up of fossil fuels, a carbon tax would be lightest on natural gas, around 40% higher on petroleum products like gasoline, and another 20% higher on coal. All three fuels would become more costly - which is precisely the point.

Opportunities abound to use fossil fuels more sparingly right away, and even more so in the future. Here are some of the immediate ones: buying higher-mileage cars, biking instead of driving, relocating to areas served by transit, selecting closer destinations, replacing ordinary incandescent bulbs with compact fluorescents, caulking windows, turning thermostats down in winter and up in summer, downsizing McMansions, building windmills, installing solar cells, re-using plastic bags. Yet these and similar options are languishing, primarily because America's low energy prices are a standing invitation to consume instead of conserve.

Most big "green groups'' don't seem to have figured this out. They lobby for regulatory mechanisms like energy-efficiency standards and mandated use of wind and solar power - worthy ideas, but cumbersome and often ineffectual. Enacting just one such measure over corporate objections and obfuscations takes Herculean effort. And even the occasional victory is frequently undermined by gaming - witness the notorious "light truck'' loophole in the auto mileage standards that helped spawn SUVs.

But even a perfect regulatory system sprinkled with all the right incentives would fall short. The U.S. economy is too sprawling, and price is too central a factor in the daily and long-term decisions that determine energy use, for standards alone to reach all sectors and bring about the universal reductions required to put a serious dent in carbon dioxide levels.

What's needed is higher prices for carbon-containing fossil fuels - with the premiums not siphoned off by the corporate sector as higher profits but captured by government as revenue to finance public services. Carbon taxes are the ideal vehicle for doing so, since they touch every molecule of carbon fuel and directly address an acknowledged environmental catastrophe, climate destruction and global warming.

Carbon taxes would cut carbon dioxide emissions across the board. Based on estimated fuel "elasticities,'' a "starter'' tax of $37 per ton of carbon (equivalent to 10 cents gallon of gasoline) would reduce U.S. CO2 emissions by 5%, although not all the reduction would occur overnight; some elements would take months and years, as families and businesses "traded up'' to energy-efficient buildings, cars and locations. [Note: my "$37/ton of carbon" starter tax is better expressed as its equivalent rate of "$10/ton of CO2." My 5% guesstimate is fairly close to the 4% reduction that my carbon-tax spreadsheet model now projects from such a tax, though of course the idea is to raise the tax level steadily, each year. -- C.K., July 2014]

Nationwide, this levy would raise an estimated $60 billion in revenue - an amount approaching the 50 states' aggregate FY 2004 budget deficits. Taxes are never popular, but a phased-in carbon tax could be "sold'' as less burdensome than the alternatives.

And the 10-cent a gallon charge on gasoline (which also equates to 10 cents per gallon of jet fuel and heating oil, and three-quarters of a cent per kilowatt-hour of electricity) is just a down payment. Over time, carbon taxes would ramp up to progressively higher levels, creating ever-greater incentives to diminish use of fossil fuels, and accumulating ever-larger revenue. As budget deficits became surpluses, carbon tax revenues could eliminate sales taxes and other regressive levies altogether.

Indeed, by providing the wherewithal to maintain education and other public-sector functions that middle- and lower-income people use most intensively, and by substituting for the most regressive taxes, carbon taxes qualify as relatively "progressive'' with regard to income. They also create net jobs, as capital-intensive industries like petroleum give way to labor-intensive public-sector and energy-efficiency work.

Skip ahead to 2014. The last of ten annual 10-cent increments in carbon taxes has just taken effect (the first came in 2005). Here's what we might see:

*The carbon tax has lifted the cost to operate coal-fired plants to the point where it's economical to substitute wind power. Hundreds of "wind farms'' dot the Midwest, eliminating dozens of giant coal-fired power plants that once consumed whole strip-mines' worth of coal, and creating rental income for farmers and secure jobs in wind-turbine manufacture, installation and maintenance.

*The carbon tax discourages air and highway travel and provides the "market pull'' to attract private investment and government support for a national rail system using Mag-lev technology and providing 300 mph service to New York, Chicago, Houston and Los Angeles, with dozens of smaller cities to follow.

*Sedans are back in, SUVs are out, thanks to the dollar-a-gallon boost in pump prices.

*Higher gas prices spark a bicycle revival, and bicycling's share of urban trips multiplies ten-fold to 10%, close to the level in Germany. Cyclists' increased presence on the road commands respect for their right-of-way by motorists, improving safety, and leading, in a virtuous rather than vicious circle, to yet more cycling.

*For the first time in a century, cities add to their share of U.S. population, as higher fuel prices increase the comparative advantage of compact development, and city schools are revitalized by carbon tax revenues.

*U.S. CO2 emissions are down by a quarter from 2003 levels, slowing the rate of global warming and easing America's pariah status in the world community. A one-third drop in U.S. oil use, more than 6 million barrels a day, pulls the rug out from America's imperial petroleum adventures.

How to get from here to there? The states are the natural arena, and none more than New York. To close a massive budget deficit, both Albany and New York City are raising sales and income taxes. The two-year "sunset'' provision for the higher sales tax is ample time for organizing to substitute a carbon tax.

Ideally, parallel efforts would be launched in several other states. Once enacted and successful in one state, the "demonstration effect'' would cause the idea to spread.

Carbon taxes need a Green cadre. For all their lip service to the environment, conventional liberals are unlikely to embrace a tax that doesn't exclusively target corporations and the ultra-rich, even if it is relatively income-progressive. (Liberal apathy toward East River bridge tolls during New York City's fiscal meltdown is a case in point.) Only Greens have the focus and passion to put carbon taxes on the political agenda.

In turn, a carbon tax is a once-in-a-generation organizing opportunity for Greens. A carbon tax is no abstract principle but a concrete expression of concern for Earth's future as well as a here-and-now way to revive crumbling public-sector finances. The world is waiting for us. What are we waiting for?