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Carbon Tax Aims to Cut Greenhouse Gases

April 11, 2007 at 6:40 PM EST
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RAY SUAREZ: One proposal for reducing greenhouse gases is to tax carbon dioxide emissions. It’s often referred to as a carbon tax. How would it work?

For that, we turn to Daniel Rosenblum, an environmental attorney and cofounder of the Carbon Tax Center in New York City, a group advocating taxing all CO-2 emissions.

And, Daniel Rosenblum, who would pay it, and how would you impose it?

DANIEL ROSENBLUM, Carbon Tax Center: Everybody would pay it. It would be a tax that’s imposed on carbon, on the carbon content of fuel. So if you have more carbon content of fuel, like coal, you pay a higher per-BTU price.

It will be passed through to the ultimate customers, but it will be imposed at the top of the supply chain. So whenever the refiners or the oil companies sell oil into the pipeline, there will be a tax imposed there.

When you take coal out of the ground, it will be taxed as it goes into commerce. The cost will then be passed on to the ultimate consumer. So when I buy electricity, when I buy gas for my car, I’ll pay the tax then.

RAY SUAREZ: How would that eventually reduce the amount of greenhouse gases released into the atmosphere?

DANIEL ROSENBLUM: There are costs society incurs when carbon is emitted. And nobody pays for it right now. Because it’s free, nobody cares about it.

So we put a price on carbon, and people start to use less. How? Electric generation. Electric generators will use less coal, more gas, more wind, more solar…

RAY SUAREZ: In order to pay less tax?

DANIEL ROSENBLUM: In order to avoid the tax on the coal, individuals will probably get a more-efficient car. They’ll drive less. They’ll do whatever they can to avoid paying for the carbon tax on their gasoline.

RAY SUAREZ: So how…

DANIEL ROSENBLUM: So we’re talking about a fairly low starter tax. We’re talking about a $37-a-ton-of-carbon tax, which would equate to roughly 10 cents a gallon of gasoline or, averaged across the country, maybe .72 cents a kilowatt hour, less than a penny of kilowatt hour.

And then we propose increasing the tax each year by that same amount, so it’s gradually phased in. One major advantage of that is it gives people time to adapt and gives people time to plan.

We’re talking about a very clear trajectory, so businesses trying to decide what to do with their future investments will say, “Well, we know prices are going up like this, so it makes good sense to invest in a high-efficiency motor,” which…

Giving consumers predictability

Daniel Rosenblum
Carbon Tax Center
Gasoline consumption has not grown as much as the economy, and that suggests there has, in fact, been a very real impact of higher prices. And that goes back and forth, and people are subject to kind of wide changes in the market recently.

RAY SUAREZ: So it gives them predictability, which they crave?

DANIEL ROSENBLUM: Exactly, which they wouldn't do otherwise. They need that predictability, and a carbon tax gives it.

RAY SUAREZ: Well, how do we know, then, that raising the tax will actually decrease usage or decrease emissions? Just in the past few years, we've seen gas go from 99 cents a gallon to $3.50, and it hasn't had too much an impact on the way people drive or how many miles they drive.

DANIEL ROSENBLUM: You expect to have gas and consumption rise with GDP. As the economy grows, gasoline consumption grows. Gasoline consumption has not grown as much as the economy, and that suggests there has, in fact, been a very real impact of higher prices. And that goes back and forth, and people are subject to kind of wide changes in the market recently.

But when you have a very clear trajectory going up, you're going to have a different message to consumers. Right now, they don't know if it's going to go up half a dollar next week and down a dollar next week or the week after. Under a carbon tax, they're going to know. They're going to know that a carbon tax is going up, and up, and up, and up.

There's no getting around it, so they're going to know they're going to have to respond to it, and they haven't had that information.

A revenue-neutral tax

Daniel Rosenblum
Carbon Tax Center
So, in fact, most customers, most people who use fuel for home or for driving will end up coming out ahead, but the economy benefits.

RAY SUAREZ: Tax is, in 21st-century America, a pretty dirty word. How would imposing a tax be the most efficient way of setting the market loose to use energy more efficiently?

DANIEL ROSENBLUM: Well, can I digress for a minute and talk about what a tough word it is to deal with? Because it's the t-word. People are very, very frightened of it. And people say, "Carbon tax? It may make very good sense, but politicians aren't going to want to vote for a tax."

What we're talking about is called progressive tax shifting. We're talking about a tax of the revenues used to offset payroll taxes or to be used to provide a rebate to all Americans. So it will be a revenue-neutral tax, a tax, but individuals won't pay any more because of it. So it's actually not something that you can relate to as a normal tax.

RAY SUAREZ: Do you have plans for that revenue? Is there something that that money collected for burning inefficiently gets spent on?

DANIEL ROSENBLUM: Oh, yeah. This is a revenue-neutral tax. We're proposing that all the monies that are received from the carbon tax go back to all Americans, either by offsetting the payroll tax or through a rebate to all Americans, kind of like the Alaska Permanent Fund. Alaska rebates all of the oil royalties they get.

So, in fact, most customers, most people who use fuel for home or for driving will end up coming out ahead, but the economy benefits. Under other programs -- for example, cap-and-trade. Cap-and-trade also has a price signal. It puts a price on carbon.

The big difference there is, under cap-and-trade, that money doesn't go back to the people who are paying it. It's going to go to the people in the market. It's going to go to the lawyers, the consultants, the economists who are all trying to make the market work. So it's a big difference.

But in a carbon tax, even though it has that "tax" word, the money actually goes back. It's called progressive tax shifting. Raise one tax, reduce another. You tax the bad, you tax pollution instead of productive work.

Global is the eventual goal

Daniel Rosenblum
Carbon Tax Center
We're starting national, and there is the issue of leakage or the border issue, that people will try to avoid it by going across state lines, if it's a state tax, or to another country.

RAY SUAREZ: But don't you have to set up a fairly complicated machinery in order to get that money back into people's hands?

DANIEL ROSENBLUM: Oh, on the contrary, no. Like I said, you can use it just to offset payroll taxes, and that's very easy. You just reduce the payroll taxes. That's just changing a couple of numbers in what businesses pay. And a rebate -- it's been done in Alaska. It's not a difficult project.

RAY SUAREZ: How do you set the level of tax? Because if you set it too high, that might just chase people to places where there is no tax.

DANIEL ROSENBLUM: We're starting national, and there is the issue of leakage or the border issue, that people will try to avoid it by going across state lines, if it's a state tax, or to another country. For example, industry may prefer to try to produce in another country without a carbon tax. So global is the goal eventually.

RAY SUAREZ: But is there any indication that the rest of the world is ready to sign onto this, a sort of "if you do it, then I'll do it" kind of relationship?

DANIEL ROSENBLUM: Not yet. There is a more and more of a recognition that we have to do something to reduce carbon emissions. And there, I think, are very good arguments that it's a whole lot easier to do a carbon tax than to do a cap-and-trade program, for example, internationally. And the important point is you have to put a price on carbon.

RAY SUAREZ: Does this work quickly? Or are we looking at a decades-long process of putting this in play?

DANIEL ROSENBLUM: There's more of a response to price over the longer period, because it takes a while to start to turn over your set of appliances, your car fleet. So, over a period of years, yes, you're going to have a very real effect. We're thinking of 4 percent the first year and going up from there.

RAY SUAREZ: Daniel Rosenblum, thanks for joining us.

DANIEL ROSENBLUM: My pleasure. Thank you very much.