Tax and Dividend?

Its Jim Hansens plan (or is it copied from someone else? who cares) and its pushed again here. The idea: carbon tax, to be returned diurect to the public. As he sez: Principles must be crystal clear and adhered to rigorously. A tax on coal, oil and gas is simple. It can be collected at the first point of sale within the country or at the last (e.g., at the gas pump), but it can be collected easily and reliably.

Sounds good, though notice that the principles don’t allow you to decide exactly where to tax it, so there is plenty of room for argument there.

Later on, it gets murky too: The entire carbon tax should be returned to the public, with a monthly deposit to their bank accounts, an equal share to each person (if no bank account provided, an annual check – social security number must be provided). No bureaucracy is needed to figure this out. If the initial carbon tax averages $1200 per person per year, $100 is deposited in each account each month (Detail: perhaps limit to four shares per family, with child shares being half-size, i.e., no marriage penalty but do not encourage population growth).

So what in the crystal-clear principles allows you to decide if it should be limited to n shares per person? And looking harder, what allows you to decide it should be an equal share per person? Is it only the lack of any other method of division?

Comments

  1. #1 silence
    2008/06/05

    Hansen’s document explicitly mentions Peter Barnes, who has been pushing something similar under the name “Sky Trust”.

  2. #2 Paul Murray
    2008/06/05

    There’s no reason why this particular tax should not go into general revenue, like any other tax, apart from maybe the feelgood factor.

  3. #3 mugwump
    2008/06/06

    Sounds like a recipe to encourage coal, oil and gas consumption. Given that most of us have very little control over the amount that is consumed, receiving a check every month that is proportional to their consumption is just going to encourage us to lobby for more.

    Eg, “Let’s convert all the nuclear plants to coal – it will double our carbon tax rebates!”

    methinks Mr Hansen could do with a lesson in human psychology.

  4. #4 Steve Bloom
    2008/06/06

    So we should expect to see those tax rebate checks being spent on gas, which doesn’t seem to be happening.

    OT: William, is that ice bet still open? BTW, the latest is that the front of older ice looks to have broken for the first time on record.

    [Not looking great, is it? Its still open though, with my option to accept or not, if you care to pile in -W]

  5. #5 Lubos Motl
    2008/06/06

    All these plans are crisply and accurately analyzed in “Blue Planet in Green Shackles”,

    [linkspam removed -W]

  6. #6 Nathan Rive
    2008/06/06

    There’s no reason why this particular tax should not go into general revenue, like any other tax

    If the revenue of blanket carbon taxes is not recycled back in full, it is regressive – it hits poorer households proportionally harder than richer ones.

    The difficulty, though, is that we already have so many programs (i.e. the EU emissions trading scheme) that it can be tricky to avoid double taxing.

    This plan isn’t new (Hansen’s not an economist, after all) Greg Mankiw discussed in the NYT last year:
    http://www.nytimes.com/2007/09/16/business/16view.html

    And OT, good to see Lumo’s back to his shilling… ;)

  7. #7 Magnus W
    2008/06/06

    Well in sweden we try to tax CO2 and then just lover the incomtax, mostly for thous with low income….

  8. #8 Nathan Rive
    2008/06/06

    Magnus – indeed, the easiest way to recycle the carbon tax in the UK would just be to increase the personal allowance (the part of your income that isn’t taxed).

  9. #9 J
    2008/06/06

    Mugwump writes: Sounds like a recipe to encourage coal, oil and gas consumption. [...] receiving a check every month that is proportional to their consumption is just going to encourage us to lobby for more. [...] methinks Mr Hansen could do with a lesson in human psychology.

    Who said anything about a check proportional to their consumption?

    In the basic idea, the total revenue is returned on a straight per-capita basis.

    If you work on reducing your own carbon consumption, you’ll pay much less in tax, but get the same rebate check (well, nearly the same — it would be reduced trivially insofar as your own savings reduces the total pool of tax money to be rebated nationwide).

    Thus, people have a clear financial incentive to reduce their own carbon use.

    As our esteemed host points out, there are other ways of dividing the money up for rebates … but I’ve not heard anyone suggest it should be proportional to consumption. That would be a really silly idea.

  10. #10 J
    2008/06/06

    Oh, I see … in the part of his/her comment that I didn’t include, mugwump wrote: Given that most of us have very little control over the amount that is consumed.

    In other words, he/she is assuming that people won’t change their personal consumption downward, despite a clear financial incentive for doing so. And then he or she proceeds to leap to the bizarre conclusion that they’d push for increased national consumption, despite the lack of a financial incentive.

    That’s completely backwards.

    Let’s say Mr/Ms mugwump convinces people in his county to build a new coal-fired plant (“Hey, it’ll increase our monthly rebate checks!”) Two years later, when the new plant is on line, mugwump’s neighbors are all paying higher taxes for their electricity. But the rebate checks only go up by a penny or so … because the tax dollars are rebated nationwide, and more sensible people in other counties didn’t build new coal-fired plants. Result: people who encouraged conservation in their communities reap a financial benefit, people in mugwump’s community end up paying for their profligacy, and the mugwump household is shunned by angry neighbors.

    It’s a win-win scenario!

  11. #11 outeast
    2008/06/06

    Tax and invest – in renewables and energy efficiency, which would then lower fossil fuel consumption and hence reduce energy expenditure for individuals – makes much more sense to me. This sounds a really, really silly plan…

  12. #12 mugwump
    2008/06/06

    J, it’s a national grid – a tax on coal-fired power stations will be spread across everyone to a certain extent. (of course California, with the most “progressive” state government in the land already pays more than everyone else for electricity even without carbon taxes or any improvement in the environment. That’s greenies for you).

    People are not going to compare their electricity bills with their carbon rebate checks – but they are going to push for bigger checks. What’s the easiest way to do it? Increase CO2 output!

    Personally, I can’t wait. Judging by the number of people who live there, large parts of the planet are far too cold.

  13. #13 cce
    2008/06/06

    Per-capita electricity use in California has been flat for over 30 years.
    http://www.nrdc.org/onearth/06spr/images/ca_chart2.jpg

    It’s also one of the cleanest grids in the country.
    http://www.energy.ca.gov/html/energysources.html

  14. #14 J
    2008/06/06

    mugwump writes: J, it’s a national grid – a tax on coal-fired power stations will be spread across everyone to a certain extent.

    Dunno what nation you’re describing, but it isn’t the US, which is the nation Hansen was talking about. In the US, prices are set by utilities and state regulators, and vary from state to state and utility to utility (as you yourself point out!)

    If one utility relies on coal, that utility will pass the cost of carbon taxes along to its customers. The revenue from the tax, collected by the federal government, will be rebated to people all over the US. Eventually, the citizens of mugwumpville will tire of paying inflated prices for electricity while subsidizing the rest of the US’s rebate checks, and will either vote for statewide candidates who promise to appoint more conservation-minded public service commissioners, or they’ll vote with their feet and move to a county or state that isn’t run by morons.

    Your whole argument is silly. By arguing that people will ignore obvious and powerful economic incentives, you sound like a pre-1991 economist from the Soviet bloc. What’s next, a defense of Lysenkoism?

  15. #15 J
    2008/06/06

    outeast writes: Tax and invest – in renewables and energy efficiency, which would then lower fossil fuel consumption and hence reduce energy expenditure for individuals – makes much more sense to me. This sounds a really, really silly plan…

    The plan is not silly. There’s a political advantage to doing it this way — you make a carbon tax more palatable in a country that has a longstanding aversion to taxation. It still produces a reduction in GHG emissions, because the tax gives people a strong economic incentive to do so.

    I agree that we ought to invest much more in renewables and energy efficiency. On the other hand, to play Devil’s Advocate, if you rebate the money to individuals, they can find efficient ways of reducing their own carbon footprints (and thus their exposure to the tax) … but if you let the agribusiness-dominated US congress spend the money on “renewables”, they’ll probably pour it all into corn-based ethanol in midwestern states.

    Why am I turning into the libertarian on this thread? Let me hand this role off to someone else, please!

  16. #16 Brian Schmidt
    2008/06/06

    This group is pushing the idea:

    http://www.capanddividend.org/

    I babbled about it here:

    http://backseatdriving.blogspot.com/2008/04/cap-and-dividend-sounds-fine-to-me.html

    The reasons for doing this instead of treating it like any other tax is to address regressivity and to obtain political support. Disadvantage is that you lose a potential revenue stream that could be dedicated to renewables, conservation, etc. Disadvantage could be overcome by stricter caps than would otherwise be the case.

    I think it’s a decent idea, along with Gore’s idea of using a carbon tax to replace regressive payroll taxes we Americans use.

    To answer William, Hansen isn’t proposing n shares per person but n shares per family. Half shares for children is appropriate I think given the reduced need to offset children’s relatively smaller energy expenditures (all energy expenditures increase as a result of caps, this fund balances it out). Limiting the half-shares to two pits population control against equity, and I’d disagree with Hansen about doing that.

    [Hmmm. My objection was that Hansen is suggesting that this is clear and transparent, with the implication (I thought) that there were no fiddly details to argue over. But thats not true. There are; and digging deeper would probably uncover yet more -W]

  17. #17 J
    2008/06/06

    cce writes: [California] is also one of the cleanest grids in the country.
    http://www.energy.ca.gov/html/energysources.html

    You can also compare states’ electricity profiles here:
    http://www.eia.doe.gov/cneaf/electricity/st_profiles/e_profiles_sum.html

    Click on the Excel link at the bottom right corner of the table, from whence you can get data on CO2 emissions.

    FWIW, I took the net generation (MWh) and divided by CO2 emissions (1000 metric tons) and ranked states based on how many MWh they generate per 1000 tons of CO2 emitted. The top 10 are:

    #1 Vermont 708434
    #2 Idaho 15298
    #3 Washington 10444
    #4 Oregon 7525
    #5 California 3650
    #6 Connecticut 3137
    #7 New Hampshire 3123
    #8 New Jersey 3056
    #9 Maine 2984
    #10 New York 2792

    Vermont gets most of their power from hydro and nuclear, which is probably why their emissions rate is an astounding 46 times better (!) than the #2-ranked state. Whether importing power from Hydro-Quebec is really “green” I’ll leave up to you to figure out.

    California is up there at #5, but not at the top of the list. Interesting that 6 of the 10 border on Canada and all except California are in the north. (Of course, the worst-ranked state, #50 North Dakota, also fits both these descriptions….)

  18. #18 silence
    2008/06/06

    Pretty amazing how Hansen has shifted this whole group from talking about how bad the problem or haggling over details of the historical temperature record to discussing about what the United States can do to limit CO2 emissions.

    I’m not sure that his specific proposal is the right one, but the fact is: debating the merits of specific proposals to limit greenhouse gas emissions is what Americans need to be doing between now and January. That way, with the new administration and new congress, there can be a reasonably effective proposal ready to pass within a couple months of inauguration day.

    Let me propose a few evaluation criteria here:
    1. How effective is the proposal going to be at limiting greenhouse gas emissions? Presumably, we want a proposal which effectively limits climate change to modest effects.
    2. How likely is the proposal to pass in 2009? Unless it gets though congress, a bill is nothing but hot air.
    3. What are the economic and social consequences of the proposal being implemented? Depending on how things are done, we could end up redistributing wealth upward, downward, or not at all. Americans are probably going to have to live with whatever system gets passed for decades, so lets make sure it doesn’t have some nasty consequence for a whole lot of people.

    [2. Not the remotest hope. Anyone want to disagree, I've got $1000 that says so -W]

  19. #19 Steve Bloom
    2008/06/06

    Oh, I’d say there’s a remote hope, but we’d need a confluence of events along the lines of:

    1) Arctic sea ice collapse this summer

    2) Big acceleration in Greenland/Antarctic ice loss

    3) Evidence that the ESS clathrates are starting to go

    Even two out of three of those might do it if they’re obvious enough. A combination of several Katrina-scale disasters would probably do the job as well.

    But I think we’re talking on the order of 1000-1 odds for something like that, so since my prior 20 pound bet on the sea ice is looking good (as is the associated exchange rate trend), I’m good for a buck. It’s still way better than lottery odds.

  20. #20 big
    2008/06/08

    I think J has it more or less correct. I’d love for say half of the revenues to be spent on conservation/renewables, but in reality the political palatability is of paramount importance here. We need to recruit a lot of relatively low information voters who may not care much about global warming to the cause, and bribery can be pretty effective. Also, if you assume that zero adaptation happens, the net cost to the economy is zero, we simply redistribute money from above average consumers to below average consumers. Then, as adaptation happens, the invisible hand should guarantee that it is pretty cost effective. The biggest fly in the ointment, is computing (or ignoring) the embodied carbon cost of imported goods.

  21. #21 Hank Roberts
    2008/06/08

    > the tax dollars are rebated nationwide

    While I can’t imagine how it could work in practice, imagine, at least briefly, this applied globally rather than nationally.

  22. #22 a lurker
    2008/06/08

    I really like this idea and I like it a lot.

    1) No doubt that any kind of energy or carbon taxation can and will hurt lower income people. This would be about the simplest way of giving relief that can be imagined. It also prevents the tax from being a potential drain on the economy.

    2) The incentive to reduce one’s carbon footprint will be still quite real. The more one reduces emissions the less one will be taxed. The only way to reduce the tax is to reduce the footprint and thus new innovative means will be generated by market forces.

    3) One problem with “sin” taxes is that the government benefits financially from the “sinning” and thus might not actually want to the “sin” to go away. By making the whole thing revenue neutral will prevent the government from becoming addicted to the extra revenue.

    For the sake of simplicity I would divide the revenue by the number of citizens who filed and/or are dependents. Those who retired, etc. can file just to get the benefit in a similar way those retirees who filed this year just to get the economic stimulus check. I would send out payment only once a year and only after some version of the 1040 has been filed and would forbid states from taxing it.

  23. #23 mugwump
    2008/06/08

    J writes:

    mugwump writes:

    J, it’s a national grid – a tax on coal-fired power stations will be spread across everyone to a certain extent.

    Dunno what nation you’re describing, but it isn’t the US, which is the nation Hansen was talking about. In the US, prices are set by utilities and state regulators

    Uhuh, and how do the state regulators and utilities set those prices when a significant fraction of their power is purchased interstate? Very very stupidly in California’s case, but nevertheless, the cost to in-state consumers is affected by out-of-state wholesale prices.

  24. #24 mugwump
    2008/06/08

    big:

    We need to recruit a lot of relatively low information voters who may not care much about global warming to the cause, and bribery can be pretty effective.

    If you can’t persuade them by argument, try fear. If that fails, bribe them.

    Exactly how does environmentalism differ from religion?

  25. #25 Nick Barnes
    2008/06/09

    Re the sea ice bet (Steve Bloom @ 2008-06-06 01:48):
    Check out the Beaufort Sea and Amundsen Gulf this week:

    http://manati.orbit.nesdis.noaa.gov/ice_image21/D08160.NHEAVEH.GIF

    Compare with the same date last year:

    http://manati.orbit.nesdis.noaa.gov/ice_image21/2007/D07160.NHEAVEH.GIF

    But the Chukchi Sea and East Siberian Sea looked worse last year than this. Overall I think there’s nothing to choose between them (and this is borne out by the area and extent numbers), so whether or not we get an extreme melt this year remains a question of weather. I have very grave concerns for the first-year ice around the pole. Interesting times.

  26. #26 zayiflamashop.com
    2008/06/20

    If you can’t persuade them by argument, try fear. If that fails, bribe them.

    Exactly how does environmentalism differ from religion?

  27. #27 Hank Roberts
    2008/06/25

    >zayiflamashop
    linkspammer

  28. #28 Sean Egan
    2008/06/29

    As non carbon based energy also have environmental costs. We need to measure/cost the other environmental impacts of nuclear, dams, and tidal. Here in Calais, France, the greens use noise, ugliness and bird deaths against wind. How do you cost that in?

    In most EU countries petrol is heavily taxed compared the USA and it is typically about 20% government revenue. So on the basis that government services have to paid for by one tax or another. it is Hensen’s carbon tax more or less.

    The difference is that the Hensen credit is per person or family does not take into account the difference between rich and poor. People on a pension spend a lot of their income on food and heating, both have reduced fuel taxes at present. Would the poor be winners or losers?

    In short, I am happy with the current petrol cost as it will make the transition to post carbon easier. it pays to find more reserves and convert slowly. But, it is leading to Europe wide strikes. I would like to see Hensen explaining to fishermen that they are paying too little for fuel. Anything tax more blunt is likely to lead to pole tax like riots.

  29. #29 Jon H
    2008/07/05

    ” Interesting that 6 of the 10 border on Canada and all except California are in the north. (Of course, the worst-ranked state, #50 North Dakota, also fits both these descriptions….)”

    That might be due to homes in northern states using gas or oil for heat during much of the year. This wouldn’t involve generation of electricity, so would reduce that side of this calculation.

    Southern states would use less heat, and more air conditioning, which would require more electricity.

  30. #30 Jon H
    2008/07/05

    “People on a pension spend a lot of their income on food and heating, both have reduced fuel taxes at present. Would the poor be winners or losers?”

    If their expenses (and thus their carbon tax level) are close to the national average (regardless of what % that is of their income) then they’ll come out approximately even.

    Poor folks saddled with particularly inefficient appliances or drafty homes would lose out. For that reason it would probably be necessary to only refund 90% or so of the carbon tax, and use that 10% to assist the poor in reducing their energy use.

    Another way to make this easier on people would be to rebate the money quarterly rather than annually.

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    2011/11/02

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