Friday, May 6, 2016

Carbon tax in the policy spotlight

The idea of introducing a tax on carbon in the United States has returned to the policy spotlight.  Two papers by David Roberts on have advanced the discussion considerably.  The first paper (here) argues that a carbon tax is not a policy panacea for curbing climate change, which will, in the author’s view, require a whole bunch of very aggressive, activist policies.  But it is still worth doing.  The second paper (here) directly addresses the political constraints on enacting a carbon tax.
Now, we all know that there are rigid political constraints on doing anything at the federal level these days, perhaps beyond naming post offices for deceased former congressmen.  Roberts doesn’t flinch from facing these constraints, laying out a crisp critique of various proposals and putting forth his own.  The crux of the issue, he says, is not to focus on the tax itself but on what to do with the revenue raised by a tax.
He correctly – in my view – points out the defects in the “revenue neutral” approach favored by many analysts.  I would add one more argument against a revenue neutral approach: the federal government needs more revenue.  The fact is that today the federal government doesn’t have enough revenue to comfortably operate its existing programs, much less undertake the work needed to attack this country’s serious social and economic problems and to do the public sector work that needs to be done to make us a successful 21st century nation. 
Roberts argues, on political as well as policy grounds, that a more successful approach would be to earmark revenue from a carbon tax for popular and effective clean energy programs.  The program would sell the tax.  His suggested narrative:
“First: We want to accelerate the technological development, early market commercialization, and wide deployment of clean, renewable energy, so that America can innovate, create jobs in some of the 21st century’s most promising industries, and spur economic development.  We’ll also set aside some money to make sure no one is left behind or left out of the new energy economy.  Then: Oh, and guess what: It’s paid for, entirely funded by a tax on fossil fuel energy.”
One side note on the politics of a carbon tax: Roberts mentions the experience of British Columbia, which has the best-known carbon tax in North America, one that has survived the push and pull of party politics (my earlier comments on the BC tax here).  In fact, many in BC, including local politicians, are arguing for increasing the carbon tax (news story here).
Now, some thoughts on what all this has to do with the transportation sector.
Roberts suggests, in the first paper, that a carbon tax will have little effect on transportation: “It’s a blunt-force tool.  It will do wonders in some sectors (driving coal out of electricity) but very little in others (driving oil out of transportation).”  I would note, however, that driving coal out of electricity would add great value to the increased proliferation of electric vehicles.  The overall benefits of EVs depend a lot on how the electric power they use is generated.
A more important point goes to the use of carbon tax revenues.  Why not use some of these revenues to advance the electrification of the transportation network?  Some possibilities:
·      Subsidize EV sales – a proven strategy
·      “Electrify” the Interstate highway system – install “fast chargers” at regular intervals on the network, enabling long-distance EV travel and allaying consumer “range anxiety”

·      Subsidize the rapid transit New Starts program – We will need a lot better transit as part of an overall climate change policy, and today’s program for system expansion is woefully underfunded.

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