Another Decent Op-Ed in the Wall Street Journal

Former Republican cabinet member George P Schultz, along with economist Gary Becker, have a reasonable stance in an op-ed piece which appeared yesterday in the Wall Street Journal. It’s available outside the paywall. They call for a revenue-neutral carbon tax, and refer approvingly to the British Columbia experiment.

… In any case, checks to recipients should be identified as “Your carbon dividend.”

The right level of the tax for the United States deserves careful study, but the principle of a lower starting rate with scheduled increases to an identified level has proven to be a good one in the five-year experience of a similar carbon tax in British Columbia. This gives time for producers and consumers to get accustomed to a carbon tax, and to discover how they can respond efficiently.

The tax should also further increase over time if the apparent severity of the climate effects is growing and, alternatively, the tax should fall over time if the severity appears to be decreasing. Finally, to equalize the present and future burdens, the carbon tax rate should rise over time approximately at the real interest rate (say, the real return on 10-year Treasurys), so that the present value of the burden would be the same to future consumers and producers as it is to present ones.

Comments:

  1. Can someone explain that last bit to me?

    "Finally, to equalize the present and future burdens, the carbon tax rate should rise over time approximately at the real interest rate (say, the real return on 10-year Treasurys), so that the present value of the burden would be the same to future consumers and producers as it is to present ones."

    Inflating a rate? My dimensional analysis nodes are made queasy by this.

    Does it make any sense?

  2. I have been trying to work out how such a start-low-and-rise-slowly revenue-neutral carbon tax could be introduced in countries that currently have high petrol and diesel taxes. I thinks yours are about 10p per litre. Here in the UK, they're about 80p per litre, or about 60% of the price of fuel at the pump. (It was 85% in 1999, so mustn't grumble.) Not all of that can be considered an existing carbon tax. Tim Worstall says (without explaining why) that about 25p of the current price is there to encourage carbon frugality. Petrol apparently kicks out about 2.4 kg CO2e per litre, so that gives a current carbon tax on fuel of about £100 per tonne CO2e.

    Setting a starting price that high for all carbon emissions would be too abrupt a change but reducing the carbon tax on petrol and diesel to a more sensible starting level would encourage transport emissions. (If the starting price was set at the current price in the EU's Emissions Trading Scheme, the pump-price of petrol would drop by 24p.)

    What to do? Pretend that none of the existing fuel duty is a carbon tax? That would contradict stated govt policy (fuel duty increases were introduced specifically to meet Britain's Rio commitments) and, as our fuel is already the most expensive in Europe, would probably cause riots. Exempt fuel from the new carbon tax and freeze above-inflation duty increases until the new tax's carbon price has caught up with the carbon price for fuel? That'd take forever.

    (There might also be clashes with other mitigatory measures. The existing carbon taxes could just be scrapped but what about the EU's crappy ETS? Membership is mandatory.)

    I'm stumped. I quite like the idea of the Shultz tax but I can't see how to get there from where we are.

    (Shultz was my ultimate boss in the early 80s and always carried some of my numbers on a card in his breast pocket. Or so I was told. Perhaps I should start billing myself as an advisor to world statesmen.)

  3. Well I remember. 85p on the pound and going up, so they cut it back. A dose of that worldwide would wake people up, but unfortunately poor people would starve; we're set up to need cars and public transit is both inefficient and expensive, and getting worse. Existing tax being a little under 50 cents per gallon with price around $3.50, so 5 x $3 would be $15! Just thinking out loud ...
    http://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States

  4. mandas, if your comment was a reply to mine then the Australian carbon tax doesn't include road fuels. (Nor does it even if it wasn't.) The Oz tax is the usual patchy mess.

    Some gas will, some gas won't
    Some gas needs a lot of lovin' and some gas don't

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