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Carbon Tax

Carbon Tax. Andrew Jope PA 395 – Green Tax September 14, 2004. What is a Carbon Tax?. Excise tax levied on fossil fuels in proportion to the CO2 emissions which they produce, roughly equivalent to carbon content. Assessed as $ per ton of carbon or $ per ton of CO2 emissions.

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Carbon Tax

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  1. Carbon Tax Andrew Jope PA 395 – Green Tax September 14, 2004

  2. What is a Carbon Tax? • Excise tax levied on fossil fuels in proportion to the CO2 emissions which they produce, roughly equivalent to carbon content. • Assessed as $ per ton of carbon or $ per ton of CO2 emissions. • Currently no carbon tax at the federal or state level in the US.

  3. States Considering Carbon Taxes • Maine – convened tax-shifting advisory committee • Michigan – industry tax credits for energy conservation, fleets of alternative fuel cars, purchase/installation of recycling equipment • Minnesota – 1996 Economic Efficiency and Pollution Reduction Act – Pollution tax offset by $1.5 billion/year reduction in payroll and property tax. Defeated in committee. Public support for tax shift , opposed by Teamsters, airline and mining industries.

  4. States Considering Carbon Taxes (Cont.) • Oregon – 1998 Governor convenes Environmental Taxation Subcommittee. • Vermont – 1996 – Act 60 adds $.04/gallon in state gas tax to fund education. • Policy window in late 1990’s closed with little success.

  5. Federal Excise Tax Rates on Fuel

  6. Vermont Fuel Taxes

  7. Cap + Trade vs. Carbon Tax-Case for Cap + Trade • Fixes amount of CO2 emitted, allows price to float. • Enable reductions where least costly. • More appealing to private industry. • Can be designed to deal with all GHG’s defined in Kyoto. • Permit prices adjust automatically to inflation/price shocks.

  8. Cap + Trade vs. Carbon Tax-Case for Carbon Tax • Taxes externalities directly/sends clear price signals. • Influences broader scope of behaviors- consumers, transportation + service sectors. • Fewer transaction costs in implementation. • Permanent incentive to reduce emissions and innovate. • Earns revenue / able to be recycled.

  9. Northeastern States Approach • 9 States committed to regional strategy to reduce CO2 (NY,CT,VT,NH,DE,ME,NJ,PA,MA,RI) • Will establish emissions trading for power producers. • April, 2005 – agreement to be finalized.

  10. Issues – Competitive Disadvantage • Globally – Industrial relocation to developing countries follows labor costs, NOT ENERGY COSTS. • State to State – More problematic. Easier and less costly to relocate to another state

  11. Issues – Regressivity • Carbon tax applied in isolation IS REGRESSIVE (transportation/residential costs). • Can be addressed through revenue recycling (progressive income tax restructuring, direct benefit payments, etc.)

  12. Issues – Winners and Losers • WINNERS • Nuclear Industry (Vermont Yankee) • Hydropower (Hydro Quebec) • LOSERS • Traditional Industry • Agriculture • Forgive portion of tax liability? (Scandinavian model)?

  13. Issues – Timing and Adjustment • Short term costs to workers and communities. • Phase in over time – allow industry to adjust at rate closer to traditional market conditions. • Recycle revenue to buffer adjustment costs- worker retraining, partial compensation, efficiency subsidies. • Index to inflation – tax base shrinks by design.

  14. Is it Right for Vermont? • Rural state with little industry and power production. • CO2 Emissions • 47% Transportation • 20% Residential • 33% Commercial, industrial, utilities • 70% of air pollution from gasoline combustion – dispersed sources, hard to regulate. • A new policy window? (VT Yankee 2012 / Hydro Quebec 2016)

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