The Carbon Emissions Tax Effect 60 comments
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Conor Clarke has a look today at Marty Feldstein’s recent Journal piece on how tax increases might derail the economic recovery. Conor notes that the increases aren’t due to start until 2011, but Feldstein is ready for that line of argument:
Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly.
Ok, but what if the tax increases don’t necessarily signal a permanent reduction in future incomes? For example, Feldstein isn’t happy about the cap-and-trade plan:
Mr. Obama’s biggest proposed tax increase is the cap-and-trade system of requiring businesses to buy carbon dioxide emission permits. The nonpartisan Congressional Budget Office (CBO) estimates that the proposed permit auctions would raise about $80 billion a year and that these extra taxes would be passed along in higher prices to consumers. Anyone who drives a car, uses public transportation, consumes electricity or buys any product that involves creating CO2 in its production would face higher prices.
CBO Director Douglas Elmendorf testified before the Senate Finance Committee on May 7 that the cap-and-trade price increases resulting from a 15% cut in CO2 emissions would cost the average household roughly $1,600 a year, ranging from $700 in the lowest-income quintile to $2,200 in the highest-income quintile. Since the amount of cap-and-trade tax rises with income, the cap-and-trade tax has the same kind of adverse work incentives as the income tax. And since the purpose of the cap-and-trade plan is to discourage the consumption of CO2-intensive products, energy or means of transportation by raising their cost to consumers, the consumer-price increases would be the same for a 15% reduction in C02 even if the government decides to give away some of the CO2 emissions permits.
Emphasis mine. Here’s the thing — the cap-and-trade “tax” doesn’t rise with income. If you get a raise at work or earn overtime pay, you don’t automatically pay more tax. The “tax” increases with the level of emissions embedded in your behavior. It is a consumption tax, but it’s not neutral — the tax shifts relative prices, which means that by changing behavior the burden of the tax can be reduced.
So the cap-and-trade “tax” plan only reduces future income to the extent that households can’t shift away from carbon-intensive goods and services, and of course, the entire idea of the tax is that eventually households will be able to entirely avoid the emission of carbon, and therefore the tax. There is not, then, a permanent reduction in future income.
But the other point that I like to make is that a perfectly rational household, faced with a cap-and-trade plan to take effect in 2011, has two options. It may reduce spending now to prepare for increased costs down the road. It may also invest in goods now that will reduce the impact of the tax in 2011 and beyond — more efficient automobiles or homes near transit, better insulation and double-paned windows, more efficient appliances, a bicycle. I see no reason why the net effect of the tax should be reduced current spending.
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say. I've been watching the carbon tax threats related to transportation controversies for some time here in California.
It is another frustrating aspect of our dire fiscal problems. The
upshot is we pay more taxes with less projects being completed.
It is another issue that tends to pit the rural counties against the
urban counties.
Also, pay attention to any effort by our federal representatives
in raiding or restructuring the 401k's and IRA's. Substitute FDR's
historic gold confiscation scenario with any modern attempt at raiding retirement accounts and taxing air molecules.
On May 18 06:19 PM FDM wrote:
> Are you kidding me? Has the entire country lost it's mind? This Cap
> and Trade bill is nothing more than a way to drive more tax revenue.
> There's nothing in the bill about using the tax for reducing CO2
> emissions or anything else. If this bill passes, you can say goodbye
> to any rally and hello to a severe depression. Is Obama and team
> using the FDR playbook on purpose?
You have somewhat restored my faith in the education of . . . well, at least the education of SA posters. This issue is something of a sore spot for me, and it's very comforting to know that not everyone is drinking the New Age coolaide.
A culture that embraces lies is in peril. A culture that embraces readily refutable lies deserves it.
Seriously, thank you.
Consider the behavior modification that will exist as a result of all of the spending. My preference would be to debate the merits of the spending orgy rather than the merits of one tax over another.
I cannot think of a more regressive form of taxation. Consider the percentage of income that someone in the lower middle class must dedicate to pay for transportation to/from work, utilities and groceries to feed their families. The cost of each of these items will increase significantly as a result of cap and trade.
On May 17 12:51 AM Sasha B wrote:
> I think the opinion in the Journal is highly biased. The author tries
> to save "long-term health of U.S. economy" but fails to offer solution
> for budget deficit. I think in the long-term budget deficit is much
> higher threat than higher taxes now and slower recovery.
> Bailout money are spent by now and we need to figure out how to pay
> for it. I will have to pay higher taxes one way or another. I think
> any tax that will modify behavior and make people more conscious
> about their choices is a positive thing. Behavior modifying tax is
> my tax of choice, but it still sucks ass.
1) The climate change scientists are probably right - we need to not destroy our planet's ability to sustain humanity.
1a) Consider Australia - climate change has shifted the rainfall patterns 70 miles south, causing increasing droughts since the 1970's. Read "The Weather Makers".
1b) A lot of the people confused about climate science are thrown off by the effects of our own air pollution on the planet. The US Clean Air Act greatly reduced the amount of soot & other gunk pumped into the atmosphere in the mid-1970's, which turned around a 30 year trend of global cooling, leading to increasingly warmer temperatures for the past 30 years. Now that China is burning more fuels without regulating air pollution, this may be affecting some of the recent data. My money's still with the climate change crowd.
1c) The "polluter pays" principal is the only equitable way to deal with the problem. Yes, this means those of us consuming more may need to pay more. But view it as a fee on a percentage of what you spend, and you have the power to reduce this fee through purchasing different items or changes in behavior.
2) Climate change can be used as a proxy for peak oil, and is currently the clearest motivater to get off fossil fuels. In terms of solutions, there's about an 80% overlap. We need to electrify the transportation grid, and whether you believe it's to stop greenhouse gasses from cooking the planet or to get energy from a non-oil-based fuel to preserve our way of life, it doesn't matter. The solution is the same.
2a) Oil is costing the US economy a ton of money, with a lot of it going to regimes that don't like us much. Keeping that money within the US is much more attractive.
2b) Before anyone brings up Canada's tar sands, ethanol, or US coal extraction rates, please read Richard Heinberg's book "The Party's Over", which talks about the "net energy" extracted from each source. The fossil fuels look much more bleak in this context. (And for those believing in the Russian non-fossil basis for oil, well, I'd love to hear that theory arrive at rates of oil production & at what rate oil raises to an extractable part of the Earth's crust.)
2c) Fossil fuels, especially coal, are just downright dirty. You end up with mercury (a neurotoxin), benzene (causes cancer), and all sorts of other unpleasant chemicals in your air. Plus you get the giant TVA coal sludge disaster flooding small towns & contaminating water supplies, repeated every decade or two.
3) There's an excellent chance that reducing our energy use as a society is inevitable (due to ANY COMBINATION of climate change, peak oil, or simply higher prices from OPEC & Russia). The cheapest way there is to improve energy efficiency, and this is generally more acceptable than conservation (ie, changes in individual behavior). A carbon cap & trade system or a separate carbon tax drives investment towards lowering O&M costs. It saves people money, and the payback period is pretty short on most efficiency measures. This makes financial sense for businesses & homeowners.
3a) Coolest, simplest idea I've heard of in a while: Gravity-film heat exchangers. Use hot water draining out of your shower to warm up cold water going into your hot water tank. Simple & cost-effective - just brilliant.
BTW, to anyone above calling a cap & trade system a carbon tax should be aware that all the economists are pushing for a carbon tax instead of a cap & trade system, because it can't be gamed as much in each state legislature or by Wall Street people buying derivatives on carbon allowances. Please keep a carbon tax and this potentially more cost-effective cap & trade system separate in your discussions.
If Bechtel, Chevron and Lockheed Martin are now getting into solar you can absolutely bet government money is available!
On May 18 10:38 PM DarkStealth wrote:
> Here are a few reasons to accept a cap & trade system, from different
> perspectives. If you don't like one, skip to the next:
>
> 1) The climate change scientists are probably right - we need to
> not destroy our planet's ability to sustain humanity.
> 1a) Consider Australia - climate change has shifted the rainfall
> patterns 70 miles south, causing increasing droughts since the 1970's.
> Read "The Weather Makers".
> 1b) A lot of the people confused about climate science are thrown
> off by the effects of our own air pollution on the planet. The US
> Clean Air Act greatly reduced the amount of soot & other gunk
> pumped into the atmosphere in the mid-1970's, which turned around
> a 30 year trend of global cooling, leading to increasingly warmer
> temperatures for the past 30 years. Now that China is burning more
> fuels without regulating air pollution, this may be affecting some
> of the recent data. My money's still with the climate change crowd.
>
> 1c) The "polluter pays" principal is the only equitable way to deal
> with the problem. Yes, this means those of us consuming more may
> need to pay more. But view it as a fee on a percentage of what you
> spend, and you have the power to reduce this fee through purchasing
> different items or changes in behavior.
>
> 2) Climate change can be used as a proxy for peak oil, and is currently
> the clearest motivater to get off fossil fuels. In terms of solutions,
> there's about an 80% overlap. We need to electrify the transportation
> grid, and whether you believe it's to stop greenhouse gasses from
> cooking the planet or to get energy from a non-oil-based fuel to
> preserve our way of life, it doesn't matter. The solution is the
> same.
> 2a) Oil is costing the US economy a ton of money, with a lot of
> it going to regimes that don't like us much. Keeping that money
> within the US is much more attractive.
> 2b) Before anyone brings up Canada's tar sands, ethanol, or US coal
> extraction rates, please read Richard Heinberg's book "The Party's
> Over", which talks about the "net energy" extracted from each source.
> The fossil fuels look much more bleak in this context. (And for
> those believing in the Russian non-fossil basis for oil, well, I'd
> love to hear that theory arrive at rates of oil production &
> at what rate oil raises to an extractable part of the Earth's crust.)
>
> 2c) Fossil fuels, especially coal, are just downright dirty. You
> end up with mercury (a neurotoxin), benzene (causes cancer), and
> all sorts of other unpleasant chemicals in your air. Plus you get
> the giant TVA coal sludge disaster flooding small towns & contaminating
> water supplies, repeated every decade or two.
>
> 3) There's an excellent chance that reducing our energy use as a
> society is inevitable (due to ANY COMBINATION of climate change,
> peak oil, or simply higher prices from OPEC & Russia). The cheapest
> way there is to improve energy efficiency, and this is generally
> more acceptable than conservation (ie, changes in individual behavior).
> A carbon cap & trade system or a separate carbon tax drives investment
> towards lowering O&M costs. It saves people money, and the payback
> period is pretty short on most efficiency measures. This makes financial
> sense for businesses & homeowners.
> 3a) Coolest, simplest idea I've heard of in a while: Gravity-film
> heat exchangers. Use hot water draining out of your shower to warm
> up cold water going into your hot water tank. Simple & cost-effective
> - just brilliant.
>
> BTW, to anyone above calling a cap & trade system a carbon tax
> should be aware that all the economists are pushing for a carbon
> tax instead of a cap & trade system, because it can't be gamed
> as much in each state legislature or by Wall Street people buying
> derivatives on carbon allowances. Please keep a carbon tax and this
> potentially more cost-effective cap & trade system separate in
> your discussions.
The best to your investing! AD
On May 18 08:35 PM Jasper M wrote:
> To most of the posters on this thread; THANK you!
> You have somewhat restored my faith in the education of . . . well,
> at least the education of SA posters. This issue is something of
> a sore spot for me, and it's very comforting to know that not everyone
> is drinking the New Age coolaide.
> A culture that embraces lies is in peril. A culture that embraces
> readily refutable lies deserves it.
>
> Seriously, thank you.
On May 18 07:22 PM Valley Boy wrote:
> No, he and the other urban elites are not kidding, I'm sorry to<br/>say.
> I've been watching the carbon tax threats related to transportation
> controversies for some time here in California.
> It is another frustrating aspect of our dire fiscal problems. The
>
> upshot is we pay more taxes with less projects being completed.<br/>It
> is another issue that tends to pit the rural counties against the
>
> urban counties.
> Also, pay attention to any effort by our federal representatives
>
> in raiding or restructuring the 401k's and IRA's. Substitute FDR's
>
> historic gold confiscation scenario with any modern attempt at raiding
> retirement accounts and taxing air molecules.
Damn good points! Thank you for them!
-AM
reason.com/topics/topi...
The AGW debate will continue much longer than the acid rain and ozone depletion debates - as the CO2 emissions experiment continues. I do not agree that there are many scientists, on either side, that are politically motivated. That’s not what they’re about. By the way, I’ve never seen Al Gore’s film - and don’t plan to. The climate doesn’t care what we “believe”.
TLP, You correctly point out that I only assume that “most scientists say it’s true”. I suppose that one’s perception of “most” depends upon which echo chamber we live in. I will try to validate that statement.
Valley Boy, The government reaches into our pockets when it SPENDS the money. Government’s role, effectiveness and efficiency are whole ‘nother cans of worms. In the meantime, I’d prefer that they find ways to generate revenue other than more taxes on income and more debt.
ArtfulDodger,
en.wikipedia.org/wiki/...
dels.nas.edu/dels/rpt_...
www.ccser.caltech.edu/...
www.ccser.caltech.edu/...
www.economics.harvard....
www.ucsusa.org/global_...
www.nasa.gov/centers/g...
www.ipcc.ch/pdf/presen...
www.ucsusa.org/global_...
Enjoyed it. Catch you on a future post.
Regards…
> Say what? All this is fine if the private market can seek a profit,
> and all this is not government coercion... but of course it is. Follow
> the government money! '
Yes this is government coercion, and it's necessary to fix a market failure. And private companies can profit from it.
The market (outside of some specific growing portions of sectors) has been woefully unmotivated by any of these issues. Climate change is the largest market failure ever - the cost of living unsustainably is an external cost, not included on anyone's balance sheets, though over time governments at all levels will be forced to pick up the tab for adapting to a new climate. That's the motivation for this government coercion - the market's rules need to be changed to motivate companies to act in their enlightened self-interest (without putting themselves at a competitive disadvantage). Of course we must use the market & let companies do what they do best (which is just gradient searches in some multi-dimension cost curve), but they need to be optimizing within a broader framework (ie, a curve with one more dimension) than they currently do. The only common unit of measurement the market seems to respect is money, hence the idea of placing a price on greenhouse gasses.
Government intervention to correct market failures is the most complete solution, and much better than the "voluntary" (ie, ineffective & unbalanced) efforts championed by industry. Just as many may agree that regulation is required to keep banks & insurance companies from destroying themselves, some cost for carbon pollution is necessary to keep industry from destroying the planet (or our society through using all our liquid fuels before we have replacements). Or if you don't believe in AGW, China's government is pushing ahead with electric cars simply to avoid the worst of Peak Oil.
If the AGW and Peak Oil arguments don't motivate you, companies of any size can save money by buying more efficient equipment that uses less energy, anywhere from a better jet engine or hybrid locomotive, to improved building HVAC systems, to those compact flourescent lightbulbs. Once again, a cap & trade system will help encourage this.
BTW, private companies that really "get" this should make a lot of money off this. Witness the wind & solar industries, as well as corporate pushes in large companies like General Electric. The truth is we'll need to shift somewhere around $2 trillion of investment in the US economy over the next 40 years to rebuild our energy infrastructure & transportation grid. If any company or investor isn't aware of this or paying attention, they need more vision.
Now we go the next step and step on reducing energy, and what comes from the US, absolute resistance. The US is absolutely the last country qualified to dictate any procedures on this earth. They will always learn the last.
Please try to find an intelligent way to reduce your energy consumption, there are other people on this earth besides you.
On May 17 11:31 AM American in Paris wrote:
> Opposition to the carbon tax is largely limited to right ring extremists
> - the Dick Cheney and George Bush crowd.
>
> Western Europe has much larger taxes on gas than are being contemplated
> in the carbon tax proposals and Western Europe has a quality of life
> that is the envy of most Americans (overweight, struggling to get
> by on seven hours of sleep a night, and living in ranch houses in
> souless suburbiaf).
>
> Indeed, there is nothing in economic theory that says the carbon
> tax will be totally pushed on the end users. That depends on the
> elasticities and supply and demand.
>
> In fact, it would only be the case that the demand elasticity was
> zero. Not plausible in the least ...
>
> A carbon tax is absolutely from the point of economic efficiency
> - it is necessary to make people take into account the impact of
> their buying decisions on the environment.
>
> Bottom line is that economics suggest a carbon tax is absolutely
> necessary.
>
>
The same as with cars in US happening again, it is just the blunt stupid greed of US citizens.
On May 18 10:38 PM DarkStealth wrote:
> Here are a few reasons to accept a cap & trade system, from different
> perspectives. If you don't like one, skip to the next:
>
> 1) The climate change scientists are probably right - we need to
> not destroy our planet's ability to sustain humanity.
> 1a) Consider Australia - climate change has shifted the rainfall
> patterns 70 miles south, causing increasing droughts since the 1970's.
> Read "The Weather Makers".
> 1b) A lot of the people confused about climate science are thrown
> off by the effects of our own air pollution on the planet. The US
> Clean Air Act greatly reduced the amount of soot & other gunk
> pumped into the atmosphere in the mid-1970's, which turned around
> a 30 year trend of global cooling, leading to increasingly warmer
> temperatures for the past 30 years. Now that China is burning more
> fuels without regulating air pollution, this may be affecting some
> of the recent data. My money's still with the climate change crowd.
>
> 1c) The "polluter pays" principal is the only equitable way to deal
> with the problem. Yes, this means those of us consuming more may
> need to pay more. But view it as a fee on a percentage of what you
> spend, and you have the power to reduce this fee through purchasing
> different items or changes in behavior.
>
> 2) Climate change can be used as a proxy for peak oil, and is currently
> the clearest motivater to get off fossil fuels. In terms of solutions,
> there's about an 80% overlap. We need to electrify the transportation
> grid, and whether you believe it's to stop greenhouse gasses from
> cooking the planet or to get energy from a non-oil-based fuel to
> preserve our way of life, it doesn't matter. The solution is the
> same.
> 2a) Oil is costing the US economy a ton of money, with a lot of it
> going to regimes that don't like us much. Keeping that money within
> the US is much more attractive.
> 2b) Before anyone brings up Canada's tar sands, ethanol, or US coal
> extraction rates, please read Richard Heinberg's book "The Party's
> Over", which talks about the "net energy" extracted from each source.
> The fossil fuels look much more bleak in this context. (And for those
> believing in the Russian non-fossil basis for oil, well, I'd love
> to hear that theory arrive at rates of oil production & at what
> rate oil raises to an extractable part of the Earth's crust.)
> 2c) Fossil fuels, especially coal, are just downright dirty. You
> end up with mercury (a neurotoxin), benzene (causes cancer), and
> all sorts of other unpleasant chemicals in your air. Plus you get
> the giant TVA coal sludge disaster flooding small towns & contaminating
> water supplies, repeated every decade or two.
>
> 3) There's an excellent chance that reducing our energy use as a
> society is inevitable (due to ANY COMBINATION of climate change,
> peak oil, or simply higher prices from OPEC & Russia). The cheapest
> way there is to improve energy efficiency, and this is generally
> more acceptable than conservation (ie, changes in individual behavior).
> A carbon cap & trade system or a separate carbon tax drives investment
> towards lowering O&M costs. It saves people money, and the payback
> period is pretty short on most efficiency measures. This makes financial
> sense for businesses & homeowners.
> 3a) Coolest, simplest idea I've heard of in a while: Gravity-film
> heat exchangers. Use hot water draining out of your shower to warm
> up cold water going into your hot water tank. Simple & cost-effective
> - just brilliant.
>
> BTW, to anyone above calling a cap & trade system a carbon tax
> should be aware that all the economists are pushing for a carbon
> tax instead of a cap & trade system, because it can't be gamed
> as much in each state legislature or by Wall Street people buying
> derivatives on carbon allowances. Please keep a carbon tax and this
> potentially more cost-effective cap & trade system separate in
> your discussions.
On May 19 10:24 PM Valley Boy wrote:
> C Zeller, I thought I was spending the money when government reached
> in my pocket. Logical, no?
Now then, how do go about reducing that spending?
On May 20 12:45 PM C Zeller wrote:
> Continuing with another metaphor, my point was that the government
> spends using one of your credit card accounts - the federal deficit.
>
>
> On May 19 10:24 PM Valley Boy wrote:
Intuitively, plan B would be to reduce costs in the same way we do it in the business world. Clarify its role and mission: security, infrastructure, research, the financial system, education, entitlements/welfare, etc. Review all programs for relevance. Transparently track costs and performance. Gates is taking on the lowest hanging fruit - defense contractors. That needs to be done across the board - not just by the executive branch but also by the congress - despite their special interests.
On May 20 02:08 PM Valley Boy wrote:
> OK, fair enough, the point is taken about the deficit spending.<br/>Now
> then, how do go about reducing that spending?