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Everything You Need To Know About Carbon Pricing Explained in Cartoon

This article was originally published on PBS Newshour’s Making Sen$e blog May 30, 2014, reprinted here with permission.

One of my goals in life as an environmental economist is to harness market forces to fight climate change. And I like to find innovative ways to communicate that message: hence the stand-up economist gig, which started as a hobby and is now my full-time occupation.

Another innovative communication approach is cartooning, and I’m delighted to share with you a chapter from my new book, The Cartoon Introduction to Climate Change, co-authored with and illustrated by Grady Klein. Grady and I also wrote the two-volume Cartoon Introduction to Economics, and both of those books touched on climate issues a bit. The new book provides an expanded treatment of climate science and policy using the same engaging cartoon format. (For more on our collaborative artistic process, see our Island Press Field Note that follows a page from idea to printed page.)

Cartooning has a bit of a bad reputation here in the U.S. in that people think it’s “just for kids” silliness. But in fact, cartooning is a terrific way to convey information, and my books with Grady are based on the idea that something can be fun and intellectual at the same time. That’s also true of my stand-up comedy career, and both the comedy and the books involve boiling down complicated topics and making them accessible to high school and college students and the general public.

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Event: Yoram Bauman at Town Hall Seattle

Sightline Institute fellow and stand-up economist Yoram Bauman will introduce his new book, The Cartoon Introduction to Climate Change, at a talk at Town Hall Seattle on Monday, June 9. The author of the popular two–volume Cartoon Introduction to Economics is back with what Kirkus Reviews found “an often amusing graphic primer about an issue … Read more

The Carbon Pricing Café

Welcome to the Carbon Pricing Café! Do you have a reservation? Let’s see… oh yes, here you are: Washington State, table for 7 million. Right this way, please; we’ve got a spot for you by the window.

My name is Carbon Tax, and I’ll be your server today. You may know my twin sister, Cap-and-Trade, who sometimes covers for me. Some diners seem to have a strong preference between us, but in truth it really doesn’t matter that much; we can both deliver the goods.

(Besides, with all due respect to servers everywhere, when was the last time the most memorable part of a good meal was the service?)

We aim to provide a top-notch dining experience, and in order to do that our menu is limited. All we serve is carbon pricing, there are only a few really good entrées, and you only have to make two big decisions. (Remember, carbon tax and cap-and-trade are not entrée choices, and they don’t factor into the big decisions. People seem to forget that we’re your servers, not your meal.)

Two big decisions

Your first big decision is portion size: How high a carbon price do you want? Your answer will, of course, help determine how much carbon reduction you’ll get, but it will also help determine your carbon pricing revenue. (For the sake of comparison, a carbon price of $30 per ton CO2—as in British Columbia—will generate about $2 billion a year in revenue. A carbon price of $12 per ton CO2—as in California—will generate closer to $800 million a year.)

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17 Things to Know About California’s Carbon Cap

While Cascadian climate hawks have been fighting rearguard actions against proposed pipelines and coal trains, California has been rolling out an ambitious carbon cap. Such a cap is the principal alternative to a carbon tax—such as British Columbia’s carbon tax shift—as a method for putting a price on carbon in Oregon and Washington. It’s an option Oregon will consider next year in its impending revenue-reform debate. In Washington, the Golden State’s cap appears to be the model that Governor Jay Inslee favors: he recently convened a panel of leaders to design a state “Cap and Market” system.

The panel, after deliberation, may conclude that the best choice is for Washington to simply photocopy California’s rules and join the Golden State’s system. California actually designed its carbon market so that other states can plug themselves into it. Or the panel could opt to design its own system. Either way, Cascadia’s climate warriors would do well to study how their southern neighbor put a price on carbon, because the Golden State’s rules form the dominant carbon trading market in North America. Just last week, the state auctioned more than 20 million carbon-emission permits at $11.50 apiece.

Here are 17 things worth knowing about that market. Some of them are details, even arcane ones, but the details of a carbon pricing system matter enormously. They matter more than whether the underlying mechanism is a tax or a cap. (Sightline laid out the details of good design in Cap and Trade 101.)

1. The cap is strong . . . until 2020.

California’s carbon cap—the flagship in an armada of global warming policies launched in 2006 as Assembly Bill 32 (AB 32)—came into force in January of 2013, initially covering the electric-power sector and large factories with giant carbon footprints. Next year, it expands to the carbon dioxide from gasoline, diesel, natural gas, and other fossil fuels (and to other greenhouse gases such as methane). By then, the Cali cap will be the most comprehensive, though not the most aggressive, carbon-pricing regime in the world.

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The Canadians Are Coming!

It’s common knowledge near the US-Canada border that lots of things are cheaper down south. Head to Whatcom County, Washington, and the locals will complain about Canadians holding up the line at the gas station: “They’re even filling up black plastic garbage bags!” They will point you to a video of Canadian piranhas devouring a crowd of Bellinghamsters (or at least their milk supplies at Costco). They will tell you about the Facebook page called “Bellingham Costco Needs a Special Time Just for Americans.” They may even regale you with stories of Pirate Joe’s, whose business model is to buy out the Trader Joe’s stores near the border and then resell everything to Canadians desperate for pomegranate vinegar.

All of this brings to mind two questions. One, of course, is why don’t companies in Whatcom County expand their stores? (Answer: The smart ones are expanding. For example, Costco is seeking permits for a new store in Bellingham. As for Trader Joe’s… well, instead of opening a branch near the border, the company is still trying to sue its best customer.)

The second question is about the British Columbia carbon tax: How much of the reduction in petroleum consumption in British Columbia (see graph below) is caused by Canadians filling up south of the border?

The answer: not much.

Original Sightline Institute graphic, available under our Free Use Policy.
Original Sightline Institute graphic, available under our Free Use Policy.

Before I’m attacked by enraged Hamsters, let me be clear: I feel your pain, and your eyes don’t lie: cross-border trade is a huge economic player in Whatcom County, accounting for almost half of all credit-card transactions in Bellingham, according to one estimate.

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Will Oregon Cook Up a Carbon Tax?

The BC recipe for carbon pricing looks something like this: Take a carbon tax and mix it with corporate and personal income tax reductions; keep it simple; slowly shift the tax burden from income to carbon pollution over time.

Is Oregon the next place this dish will show up on the menu? Governor Kitzhaber is running for re-election on a platform that prominently includes tax reform. “It’s got to be on the agenda,” he told state business and labor leaders, “and it’s my intention to put it squarely on the table.” Kitzhaber has not yet committed to proposing a carbon tax, but he’s considering it.

Last year, the legislature in Salem passed a study bill specifically focused on “the feasibility of imposing [a fee or tax on greenhouse gas emissions] as a new revenue option that would augment or replace portions of existing revenues.”

The study itself will not be completed until November, but the state has awarded the contract to Northwest Economic Research Center (NERC), headed by Portland State University economics department chair Tom Potiowsky, who previously spent a decade as the Oregon state economist. NERC has already conducted a preliminary report on carbon pricing in Oregon.

The key takeaway from that report was that environmental tax reform can benefit the economy and reduce emissions. “The report shows that putting a price on carbon in Oregon can result in reductions in harmful emissions and have positive impacts on the economy,” it says. Elsewhere, it notes, “[A] BC-style carbon tax and shift could generate a significant amount of revenue and reduce tax distortions while creating new jobs and reducing carbon emissions. The specifics of the tax shift program are key to ensure equitable distribution of costs and benefits, as well as preserve the strength of the price signal.”

Here are some targets to keep an eye on as the state moves forward:

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All You Need to Know About BC’s Carbon Tax Shift in Five Charts

Author’s note:The graphs in this post were updated in August 2015 to include the most recent available data. 

When British Columbia enacted a carbon tax shift in 2008, many thought other jurisdictions would follow soon with their own ways of cashing in their carbon. Seven states and four provinces were working out the details of a huge carbon cap-and-trade market called the Western Climate Initiative. Candidates Barack Obama and John McCain were campaigning for president with promises of clean energy on the double quick; Senator Obama even pitched carbon pricing in his stump speech. Ottawa was murmuring about following the lead of Washington, DC, with a carbon cap or tax of its own.

Then history took a turn: financial collapse, bailouts, Tea Party, climate science denial, 2010 midterms, the fiasco at Copenhagen. The front in the war on climate disruption shifted from grand policy to fighting Keystone XL, coal trains, and other dirty-fuel infrastructure. Momentum abated for comprehensive laws at the state, provincial, and federal level that would gradually but persistently wean companies and households from fossil fuels by charging a small but rising fee for carbon pollution.

British Columbia then found itself alone: the only jurisdiction in North America with an appreciable, economy-wide price on global warming emissions. With this post, we launch a new series of articles on pricing carbon in Cascadia. Our ultimate focus will be Oregon and Washington, which sit between British Columbia, with its carbon tax, and California, with its new carbon cap (which we’ll discuss another day). But the best place to begin is where Cascadian carbon pricing began: in Canada.

What’s the latest on what BC’s carbon tax shift has done to carbon pollution, the provincial economy, and public revenue?

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