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Posts tagged ‘Carbon Tax’

Why a carbon tax is good

I found a really good article on why BC’s carbon tax is the way to go (links removed and emphasis added):

If the goal was to reduce global warming pollution, then the B.C. carbon tax totally works. Since its passage, gasoline use in British Columbia has plummeted, declining seven times as much as might be expected from an equivalent rise in the market price of gas, according to a recent study by two researchers at the University of Ottawa. That’s apparently because the tax hasn’t just had an economic effect: It has also helped change the culture of energy use in B.C. “I think it really increased the awareness about climate change and the need for carbon reduction, just because it was a daily, weekly thing that you saw,” says Merran Smith, the head of Clean Energy Canada. “It made climate action real to people.”

It also saved many of them a lot of money. Sure, the tax may cost you if you drive your car a great deal, or if you have high home gas heating costs. But it also gives you the opportunity to save a lot of money if you change your habits, for instance by driving less or buying a more fuel-efficient vehicle. That’s because the tax is designed to be “revenue neutral” — the money it raises goes right back to citizens in the form of tax breaks. Overall, the tax has brought in some $5 billion in revenue so far, and more than $3 billion has then been returned in the form of business tax cuts, along with over $1 billion in personal tax breaks, and nearly $1 billion in low-income tax credits (to protect those for whom rising fuel costs could mean the greatest economic hardship). According to the B.C. Ministry of Finance, for individuals who earn up to $122,000, income tax rates in the province are now Canada’s lowest.

We out to be taxing things we want to discourage (besides carbon, this ought to include things like fast food and sugar, and financial transactions like high–frequency trading) and reducing or eliminating taxes on things we want to encourage (like high–density living and transit use).

And a big thumbs down to Oklahoma for taxing solar energy.

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How to simplify the tax system

Considering that yesterday was the day that most Canadians were supposed to have filed their tax returns, I see the usual complaints about it being complicated. With that in mind, here are two possible ways to simplify the tax system. They offer features that should appeal to people from all across the political spectrum.

The first one is known as a “negative income tax“. About four in every five economists (79%) agree (possibly with provisos) that “the government should restructure the welfare system along the lines of a ‘negative income tax.'” The features of a NIT are as follows (I’ve explained them in comments elsewhere, but this is the first time in a post at this blog):

All income, whatever the source, is taxed at a flat rate. This includes incomes that are currently exempt, taxed differently, or deferred, such as capital gains and inheritances. Second, all deductions, whatever the basis, are eliminated. This includes ones like charitable donations, political party donations, or hazardous jobs. The result of this is that everyone with the same nominal income pays the same tax. Third, all welfare systems, like social assistance or unemployment insurance, are eliminated and instead converted into a refundable tax credit of some amount. Each taxpayer subtracts the refund from the income tax they paid. If the result is negative, they get a refund from the government. If the result is positive, they pay the difference to the government.

Let’s use examples to demonstrate. For the sake of this example, we’ll assume that the flat rate is 20%, and that the refund is $5000. There is nothing special about these numbers; they are examples only.

Alice’s T-slips indicate that she earned $20000 last year. She pays 20% of that ($4000) in taxes. She gets a refund of $5000, which means that she actually gets a net $1000 from the government. The same year, Bret earns $25000. He pays 20% of that ($5000) and gets a $5000 refund. Therefore, he actually pays no net taxes and gets no money from the government. The same year, Chris earns $30000. This taxpayer pays 20% of that ($6000) in taxes. After the refund, $1000 is still owing, so this taxpayer actually pays a net tax of $1000.

As can be seen from the examples, by tinkering with the rate or the refund, a guaranteed minimum income can be maintained, and any arbitrary no tax payable point can be chosen. Update (2013–05–05): And it goes without saying that certain “special circumstances” can be given a slightly different refund, such as dependents or disability.

The negative income tax system has a number of significant advantages over the current regime (after the jump). In no particular order:

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Perhaps it’s time to start the alternative

The Arbourist has a post about a small company that has a proposal to create liquid fuels out of water and carbon dioxide from the air. While the proposal looks promising, since, as far as I can tell, it takes more energy to create the liquid fuel than is released by burning that fuel, and that any carbon extracted from the atmosphere while creating the fuel will ultimately be re–emitted when that fuel is used, I have difficulty seeing how much of a difference this particular technology would make. (See also my comments at the Arbourist’s post). However, if new evidence or technology emerges that allows this technology to make more of a difference, I will certainly change my mind about it.

And The Arbourist’s post got me thinking. Since there has been much resistance to making more than a token effort to reduce greenhouse gas emissions, perhaps it is time to put geoengineering on the table. That might potentially be the best hope for avoiding disaster. While I am not actively suggesting we start geoengineering, I am suggesting we put it on the table. This is important considering our collective failure to make much effort towards mitigation of global warming and climate change.

Geoengineering is not science fiction. Several of the proposals have analogues that happen naturally. And it is not decades away. As far as I can tell, the following proposals are pretty much shovel ready, and we could start tomorrow if there was a serious effort, and with no significant research yet to be done or technology to be developed:

  • Atmospheric sulphur aerosols
  • Grassland restoration
  • Cool roofs
  • Enhanced weathering

These proposals each have a number of advantages and disadvantages (discussed after the jump):

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Why a carbon tax is the way to go

An editorial in the New York Times got me thinking about why a carbon tax is a better way to fight global warming and climate change than either cap–and–trade or efficiency regulations.

Here are several reasons I can think of:

  • Carbon taxes always provide an incentive to pollute less and use less energy. Even if you cut carbon emissions by half, you still are paying taxes for the carbon you do emit, and therefore still have an incentive to eliminate it. Compare this with efficiency regulations, where someone has no incentive to reduce energy use once the regulation is met. In addition, all too often regulations are designed by businesses themselves, so as to prevent competition (rent seeking). Also compare this with cap–and–trade, where a source of carbon credits may well allow heavy polluters to continue, just because they have deep pockets. A lot of money will not allow someone to avoid paying a carbon tax.
  • Carbon taxes drive both individuals and companies to use less energy. Cap–and–trade is usually done by businesses, and efficiency regulations only impact new products (unless old ones are mandated to be destroyed).
  • According to the editorial, a carbon tax is far cheaper than efficiency standards once a global view of costs is taken into account.
  • Carbon taxes (especially those on fuel) make people drive less and live in denser environments. On a per capita basis, cities are more energy–efficient than suburbs. For example, recycling and public transit are more feasible in densely–populated areas. And people who drive less are less sedentary and therefore healthier.
  • It is possible that cap–and–trade and efficiency standards alone will not do enough to mitigate climate change.
  • A carbon tax is easier to offset as part of a green tax shift than other methods. It can even lead to lower tax levels overall, such as here in British Columbia (cite).
  • Efficiency improvements are subject to the rebound effect, where the decreased cost of using a resource partially offsets gains from using it more efficiently. A carbon tax does not generate perverse incentives.
  • A carbon tax is easier to adjust. If too many pollution permits are issued, cap–and–trade will not have much of an effect since it is harder to eliminate privately–owned pollution permits.
  • Many countries that export oil are rentier states, which means that they earn most of their revenue from natural resource royalties. Those royalties pay for oppressive paramilitary forces that enforce authoritarianism in those countries. A carbon tax will eventually reduce revenues received by those countries, improving freedom there and those countries’ human rights situations.

Hence, for all of the above reasons, a carbon tax is the way to go. My preferred offset is to payroll taxes. But such has virtually no chance of being enacted in the United States (a better chance in Canada [I hope]), due to the extreme polarization and total irrationality (and far worse!) of a number of politicians there. And since climate change is a major danger, Christian conservatism’s climate change denialism makes it, in the long run, the world’s most dangerous ideology.

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