Sightline is very pleased to be hosting a new analytical paper and model, “Washington State Carbon Tax: Fiscal and Environmental Impacts” by Keibun Mori, a recent graduate of the University of Washington’s Evans School of Public Affairs. He created the Carbon Tax Analysis Model (C-TAM), for the Washington State Department of Commerce.
It’s an impressive piece of work on several levels. Mori’s analysis, which centers on a British Columbia-style carbon tax, is almost certainly the most comprehensive published treatment of a state-level carbon tax in Washington, and maybe anywhere. Even better, his spreadsheet-based C-TAM model manages to be open-source and comprehensible, but still allow for a remarkable degree of complexity and user input. Mori includes a terrifically thorough treatment of fuel prices and demand elasticity (which is a subject of much debate and confusion in climate geek circles). The result is a solid look at the economic effects and environmental benefits of a state carbon tax in Washington.
The work is doubtlessly on solid ground quantitatively, but it’s less clear that all of the political diagnoses are as well-grounded. For example, revenue-neutral taxes tend to win the hearts of economists and policy wonks (and Yours Truly), but in BC and many other places rebated revenues have proven less popular than direct expenditures on specific programs. And there’s little reason to believe that carbon taxes should be mutually exclusive with cap-and-trade programs. Indeed, they go well together in theory, just as they soon will in practice in BC.
These are quibbles worth having, but they’re really just quibbles. Mori’s work is, overall, a first-rate piece of analysis that makes an excellent contribution to our understanding of carbon taxes. Go read it here.
Update 8/20/12: Mori’s piece is published in the journal Energy Policy.
Barry Saxifrage
Two comments. First, Sightline deserves a share of the credit for the BC Carbon Tax as I understand Gordon Campbell was influenced by your “Tax Shift” book and work. Kudos.
Secondly, I disagree that in BC and elsewhere that rebated revenues are less popular than direct expenditures. Regardless of what people tell pollsters, the fact is that only BC has managed to pull off a carbon tax and keep it popular. And the hallmark of it was revenue neutrality…a true “tax shift”.
My personal preference is for some direct expenditures. However I’ve lived in BC for years now and followed this very closely. I’ve definitely come to appreciate that revenue neutrality has been totally essential to it getting passed and staying popular.
Many other national and provincial folks in Canada have tried to do a broad carbon tax or carbon price. Only BC has succeeded…and only BC tried a revenue neutral “tax shift”.
People just don’t trust new taxes at this point. Giving more money to “government” is a very uphill battle even for things like education and healthcare. Forget carbon. I really think any carbon pricing has to be totally simple, transparent, no-new-bureaucracy and no money going to government for a carbon tax to get traction and stay popular.
I really wish other provinces and states would model their efforts on what actually worked in BC rather than what they want to happen or what people tell pollsters. If we did that I think we would have lots more carbon pricing in North America today.
Half the battle is just getting carbon pricing in place so citizens can live with it and see that the sky doesn’t fall and the economy crash. Once we get acceptance and normalcy it will be much easier to get traction on climate mitigation policies.
Sightline got it right with “Tax Shift” years ago.
Barry Saxifrage
For those that prefer cap-and-trade to a carbon tax (and there are some good wonky reasons to do so)…I would just say look at the BC experience. Both a carbon tax and a cap-and-trade plan were signed on to at the same time in BC. The carbon tax has been law and collecting carbon pricing across the entire economy for many years now. It has featured prominently in elections and survived with high voter support.
The cap-and-trade process however is still in committee meetings. Not a dime of carbon pricing has been paid via it yet. And crucially, it hasn’t been tested in the political waters yet. Maybe it will be a better system in the long run…but in the short run it has proven to be very inferior to carbon tax on getting a price onto carbon quickly and with support of citizens.
Keibun
I agree. Cap and trade is way too complicated, and the price is largely unpredictable, like stock market. This significantly undermines the effect of “price signal.” After all, what motivates people most is monetary incentives.
Eric de Place
Keibun,
I think you’re overlooking the fact that cap and trade already works, both in carbon and non-carbon contexts. In fact, a good deal more carbon is covered under cap and trade than under carbon taxes!
With carbon taxes you get price certainty; with cap and trade you get carbon certainty. Each has its advantages and it strikes me as odd to focus only on the price predictability of taxes. After all, businesses successfully deal with price uncertainty in a huge array of decisions.
Eric de Place
Barry,
It’s true the cap and trade hasn’t yet been rolled out in BC, but it’s important to bear in mind that it works rather well in both the northeast US and also Europe for carbon. And of course the US-based air quality cap and trade programs have been extremely successful for decades now.
I tend to think of cap and trade and carbon taxes as somewhat complementary to one another, so it will be interesting to observe BC as the programs continue to develop.
spit in the ocean
Check out http://www.thestoryofstuff.com / capandtrade
Eric Hess
We’ve seen it. Here’s a response.
Clyde
I have one other quibble about Mr. Mori’s paper: what’s with all the dropped articles? Surely “the” and “an” are still affordable . . .