June 26, 2008

It's called *Revenue Neutral Carbon Tax* and It's a Good Thing!

Not "Tax and Dividend." And certainly not "Cap and Dividend."

This is getting ridiculous. On an popular blog ('It's Getting Hot in Here') someone named Alisha Fowler, who, by her own admission, doesn't understand one bit of economics, is lashing out at James Hansen for supposedly suggesting a "Cap and Dividend" scheme to reign in CO2 emissions.

Only problem is, Hansen made no such proposal.

Hansen did not propose "Cap and Dividend", the term he used was "Tax and Dividend" something entirely different. I suggest Fowler looks up Hansen's testimony again. What Hansen has proposed is actually more commonly known as a revenue neutral carbon tax. This what it should be called. I don't know who re-invented this term but calling it "tax and dividend" is evidently a very bad idea as people confuse it with "cap and dividend".

To understand Carbon Tax visit Carbon Tax Center (CTC), an excellent resource on the topic.

Carbon Tax refers to a stipulated amount (such as a starter tax of $37 / ton) of tax applied to carbon content in fuels. Applied at the top most level of fossil fuel chain, i.e., - at the point they are extracted from earth. At the retail level, the starter tax would translate into about 10 cents/gallon of gasoline.

Revenue neutral because the collected amount is returned to the public. This is how it'll work, according to Carbon Tax Center:
Each individual’s receipt of dividends or tax-shifts would be independent of the taxes he or she pays. That is, no person’s benefits would be tied to his or her energy consumption and carbon tax “bill.” This separation of benefits from payments preserves the incentives created by a carbon tax to reduce use of fossil fuels and emit less CO2 into the atmosphere.
How would Carbon Tax reduce emissions? The same way high gasoline prices are doing that - by reducing consumption and generating investment into alternatives. That said, it would be foolish to depend upon oil prices because they tend to fluctuate depending on a number of factors. Carbon tax on the other hand will grow by a predictable amount year after year, as CTC proposes. The $37/ton tax would become $74/ton the second year, $111 the third and so on until it reaches $370 by the tenth year.

It is simple economics that a high and constantly increasing price of energy would create incentives for conservation and efficiency. Industries would go all out to reduce their consumption and pursue alternatives. Money would begin pouring in to find cheaper sources of energy. It's a market driven mechanism and not one that relies on the governments or politics.

A carbon tax has nothing to do with a cap and trade. A large number of people have shown that cap and trade doesn't work. But don't confuse it with carbon tax. There is no cap applied anywhere and no emission credits traded with anyone. Cap and trade schemes such as the Clean Development Mechanism, are very complex, highly susceptible to corruption, take years to implement and have failed miserably in the past as a BBC investigation recently exposed.

Carbon tax on the other hand is a transparent way of putting a price on carbon. It has been applied very successfully in Sweden and elsewhere as well. It's no surprise therefore that so many economists and other eminent people support a carbon tax. In his book, Plan B 3.0, renowned environmentalist Lester Brown calls it an exciting new option.

I briefly met Mr. Brown couple of weeks ago when he visited India to launch his book and deliver a talk. I've been a big believer in Carbon Taxation for a long time so it was great to see him endorse it. I asked him about the support that Cap and Trade traditionally gets versus Carbon Tax which is much less understood by the general public. He responded that almost all economists of the world agree beyond doubt that carbon tax can be a very effective solution in reducing emissions.

When I pointed out that Nick Stern isn't a proponent, his response was that Nick was a supporter earlier but more recently he's changed his position perhaps in view of the political opposition that any taxation scheme receives.

Some of the prominent economists that support carbon tax include Paul Volcker, former chairman of the U.S. Federal Reserve; Lawrence Summers, former president, Harvard University; Nobel laureate Joseph Stiglitz and Jeffrey Sachs, director of the Earth Institute.

Al Gore is another longtime supporter of carbon taxation and in fact he even tried to introduce a version of it during the Clinton administration.

I think the blogosphere is full of far too many people talking authoritatively on issues related to climate change when in fact they have no clue what they're talking about. This is a classic example. The blog where this was posted - It's getting hot in here - is a popular team blog so it's all the more surprising that Fowler wasn't led to the corner and politely told that she's a little off in her evaluation. A day after the post, it still stands without a correction or an update.

For further evidence, check out comments to Alisha Fowler's post. Commentor after commentor goes on and on about why she's wrong and why "cap and dividend" "as proposed by Hansen" is a great idea! None of them have any idea that what Hansen proposed was quite different from what they're talking about.

More Cluelessness Courtesy The Breakthrough Blog

Fowler has cross posted her entry on The Breakthrough Blog where even more cluelessness prevails. Her colleague, Teryn Norris has another post on similar lines vehemently attacking Hansen titled "Is James Hansen Undermining his Credibility." In which he says: "Dr. Hansen declared he would fight against any agenda other than cap-and-dividend." Really Teryn? Did he say that?