If Colorado were to approve a carbon tax, as some local activists are urging, it would not only be the first of its kind in the nation, but it would represent a major change in taxing philosophy in the state.
Colorado has some incentive taxes, which encourage people to do a “good” thing, like buy an energy saving vehicle. But in general state taxes are designed to raise revenues, not to accomplish social or economic goals.
But a carbon tax would be exactly that: An effort to use the tax structure not simply to raise revenues, but also to accomplish a social goal, the reduction of greenhouse gas emissions. This use of tax policy is common at the federal level, but rarer among the states.Coloradans are notoriously sensitive about taxes of any kind. The proponents of the carbon tax initiative — the Colorado Carbon Tax Initiative, led by School of Mines Prof. J. Thomas McKinnon — have carefully crafted their proposal so that it is “revenue neutral.” Under the proposal, a carbon tax would not raise additional money for the state, nor would it cost taxpayers more than they’re already paying.
For instance, while a driver would pay more for gasoline, he’d pay less in sales or income taxes or some other levy. The more carbon-based fuel one used, the more he or she would pay.
As the tax increased, the cost of using conventional fuels would rise. Eventually, they’d reach the point where other sources — wind, solar, biomass — would be cheaper. A carbon tax would affect all fuels across the board, but the one hit the hardest would be coal.
After a very short period of levying a tax of $6 per metric ton of carbon per year — about ten years — Colorado Carbon Tax Initiative economic modeler Sue Radford says wind power becomes cheaper than coal-fired power plants. “This will kill coal, like that,” she says, snapping her fingers. Which makes it unlikely to be popular in the traditional energy markets. “You’re not going to have new coal plants,” she says. “It will make renewable energy into the Wild West.” Coal would be most affected because it spews the most carbon dioxide into the atmosphere.
As far as I know, there haven’t been any polls in Colorado to measure the likely public acceptance of a carbon tax. The nonprofit group Resources for the Future and the British magazine New Scientist (full disclosure: I occasionally write for New Scientist) conducted a national poll released last month to evaluate the American public’s willingness to pay the costs of dealing with climate change. Their poll included questions about a carbon tax.
Unsurprisingly, when costs were low, clear majorities of Americans were willing to pay to address climate change. More surprisingly, though, half of the people surveyed said they were willing to see their monthly electricity bill rise by 80 percent to address climate change.
But the option of a carbon tax policy did not fare so well. While economists and politicians like to use market-based mechanisms to achieve complex goals, the person-in-the-street prefers old-fashioned regulation. Not only was the carbon tax unpopular, but a cap-and-trade policy –which is included in just about every bill currently before Congress to deal with climate change — was equally unpopular.
People’s attitude toward traditional government regulation is like a professional hockey player’s attitude toward his helmet. No, really, it is. Stick with me on this.
In 1972, Harvard University Professor T.C. Schelling wrote a seminal economics paper entitled “Hockey Helmets, Concealed Weapons, and Daylight Saving: A Study of Binary Choices with Externalities.” He started it off thus:
Shortly after Teddy Green of the Bruins took a hockey stick in his brain, Newsweek (October 6, 1969) commented, “Players will not adopt helmets by individual choice for several reasons. Chicago star Bobby Hull cites the simplest factor: “Vanity.” But many players honestly believe that helmets will cut their efficiency and put them at a disadvantage, and others fear the ridicule of opponents. The use of helmets will spread only through fear caused by injuries like Green’s — or through a rule making them mandatory.
One player summed up the feelings of many: “It’s foolish not to wear a helmet. But I don’t — because the other guys don’t. I know that’s silly, but most of the players feel the same way. If the league made us do it, though, we’d all wear them and nobody would mind.”
In other words, as long as everybody has to do it, it seems fair. Traditional regulation accomplishes this evenhandedness because the regulations apply to everyone. In a market-based solution, people who have enough money can evade the restrictions simply because they have enough money to do so.
Most people who are looking into dealing with climate change are calling for a goal of an 80 percent reduction in global carbon emissions by the year 2050. It will come as no surprise that achieving this (if it’s possible at all) may be costly, especially to providers of conventional fuels that are primarily responsible for the emissions in the first place.
According to the “2007 Colorado Greenhouse Gas Inventory,” the state is currently responsible for 117.7 million metric tons of carbon dioxide emissions annually. 87.7 million of those tons, about 75 percent, are from three sectors: electrical generation (42.9 mmt); non-aviation transportation (24.8 mmt); and residential, commercial and industrial oil and natural gas use (20.0 mmt).