getting serious about carbon pricing: putting a price on carbon #priceoncarbon
TRANSCRIPT
MICHAEL OBEITER WWW.WRI.ORG/CARBONPRICING
PUTTING A PRICE ON CARBON: A Handbook for U.S. Policymakers
WHY PRICE CARBON?
• Pricing carbon can be a core element of
U.S. long-term climate change strategy
• A carbon price can also serve other
policy goals
–Promote economic growth
–Support clean energy
–Transition assistance
www.wri.org/carbonpricing
OBJECTIVES
• Putting a Price on Carbon provides
an overview of carbon pricing
–Basic primer
–Refresher and reference work
• Future work from WRI will build on
this foundation
www.wri.org/carbonpricing
PAPER OVERVIEW
• Basics of Pricing Carbon
• A Brief History of
Carbon Pricing
• Key Design Features
• Uses of Carbon Pricing
Revenues
• Economic Effects of a
Carbon Price
www.wri.org/carbonpricing
CARBON PRICING IN THE UNITED STATES
www.wri.org/carbonpricing
Federal proposals• McCain/Lieberman (2003)• Waxman/Markey (2009)• Whitehouse/Schatz (2014)• Delaney (2015)• …and many more
PROGRAM TYPE: CARBON TAX VS CAP-AND-TRADE
• Both incentivize emissions reductions
• Similar design and revenue decisions
• Carbon tax offers administrative
simplicity and price certainty
• Cap-and-trade offers emissions
certainty
www.wri.org/carbonpricing
CARBON PRICE DESIGN: KEY QUESTIONS
• Which gases?
• Which sectors?
• Where to impose the regulation?
• What price or cap level and trajectory?
• Include a border tax adjustment?
• How to monitor and enforce?
• What complementary policies?
www.wri.org/carbonpricing
CARBON PRICE DESIGN: EXAMPLES
• Regional Greenhouse Gas Initiative
– Electricity CO2
– Most revenues go to energy efficiency
– $2.9 billion in lifetime savings to 3.7 million households
• British Columbia Carbon Tax
– Started at C$10, now C$30
– Covers ~3/4 of GHGs
– Most revenues used to reduce taxes
www.wri.org/carbonpricing
REVENUE USE
• Revenue can be used to accomplish
various objectives:
– Promote economic growth
– Offset adverse impacts
– Investment in climate change protections
• Substantial revenue opportunity
– $15 / tonne price could generate ~$100 billion
www.wri.org/carbonpricing
REVENUE NEUTRAL TAX SWAPS
• Taxes on labor/capital discourage
productive activity we want more of
• A carbon tax discourages activity we want
less of
• Why not tax destructive instead of
productive activities?
– For example, use revenues to reduce income or
payroll taxes
www.wri.org/carbonpricing
LUMP SUM DIVIDEND
• Send every household a check
• Key advantages:
–Relatively simple
–Revenue neutral (or nearly neutral)
–Ensures low-income taxpayers are not
negatively impacted
www.wri.org/carbonpricing
ADDITIONAL REVENUE USES
• Various other policy objectives:
– Deficit reduction
– Transition assistance
– R&D for low-carbon technologies
– Climate change adaptation
• Different uses of revenue are of interest to
different stakeholders
www.wri.org/carbonpricing
ECONOMISTS OVERWHELMINGLY SUPPORT A
CARBON TAX
Source: http://www.igmchicago.org/igm-economic-experts-panel/poll-
results?SurveyID=SV_8oABK2TolkGluV7; weighted by confidence
Statement: Government should raise revenue with a carbon tax instead of labor income taxes
ECONOMIC IMPACT STUDIES
• Winners and losers in short run
• Smart use of revenue can offset
negative impacts
• Trade-offs exist between revenue
options
www.wri.org/carbonpricing
CONCLUSION
• A carbon price can be the
cornerstone of long-run U.S.
climate policy AND achieve
multiple additional objectives
• Designing a carbon pricing
policy involves a number of
important decisions that can
broaden support
www.wri.org/carbonpricing
FUTURE RESEARCH
• WRI aims to promote dialogue on why and
how to implement a carbon price
• WRI will delve deeper into key issues:
– Basic economics and incentives underlying a
carbon price
– Regional disparities and how to address them
– How a carbon price can drive innovation
Keep an eye on www.wri.org/carbonpricing for new research