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Thursday, August 9, 2007

How about a Carbon Tax in California?

While global warming has been a problem for quite some time, it is getting heightened attention today, particularly in California which now has a goal to reduce greenhouse gas (GHG) emissions by 25% by 2020. That's ambitious. How can that goal be acheived?

There are a few different techniques for resolving environmental problems.
  1. “Command and Control” - enacting laws to require action with some type of penalty imposed for failure to comply. This is the "stick" approach.
  2. Incentives - the “carrot” approach to entice people to do something or not do something.
  3. Market-Based Approaches - allows economic principles, such as supply and demand, to prevail. These techniques let the polluter decide the best way to meet an environmental goal. Examples include a tax on the use of plastic shopping bags, the gas guzzler tax, and a system of trading pollution rights. Market-based approaches provide incentives, but also mandates. For example, while a tax on plastic shopping bags will lead to a better consideration of the true cost of using such bags, it is also a mandate because if the bags are used, the tax must be paid.
  4. Education and Information – providing more and better information to people so that they may be more likely to do the “right thing.”
  5. Personal and Corporate Values - Individuals and businesses may decide to act and behave in ways that protect the environment because they believe it is the right thing to do. Businesses may adopt some type of code of social responsibility that affects their purchasing, hiring and other decisions. Similarly, individuals may decide to follow a specific course of action because of a strong belief in something or a concern over something.
  6. Development and Use of New Technologies - to eliminate or significantly reduce a problem. This technique should benefit the economy.

Taxes are a market-based incentive because they affect pricing. For example, a few years ago, Ireland imposed a tax on plastic shopping bags in order to reduce the waste they create. This tax is reported to have led to a 90% drop in the use of plastic bags.

When something is taxed, people tend to want less of it. A tax should also help people see that there are costs associated with using an item and make them pay for it.

What would the government do with the funds from an environmental tax? Possibilities include:

  1. Reduce some other tax (a "tax shift").
  2. Provide information to the public on how to reduce greenhouse gas emissions.
  3. Fund research to help produce better technologies that result in fewer greenhouse gases.
  4. Clean up the environment.
  5. Some combination of these options.

Taxes can be used to help California reach its emission reduction target. The biggest contributor to global warming are carbon emissions, such as are generated by burning coal and oil. An energy tax could be imposed on energy produced from these sources as a way to encourage people to reduce their energy consumption or shift to energy sources that do not produce greenhouse gases. The gasoline tax could be increased as well.

Or, a tax could be imposed on vehicles that get less than a certain mpg. It could be simple by just adding it to the annual vehicle registration fee.

Carbon taxes are not new. Sweden, Finland, and a few other European countries have had them for years. There is even one in the US because citizens of the city of Boulder, Colorado passed one into law in November 2006.

Governor Schwarzenegger says he wants to use market-based incentives to reach the emission reduction target. Environmental taxes should be considered in this effort.

What do you think?

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Anonymous said...

I think this is a great idea, who's time has come. The funds raised should go towards investing in renewable energy. Do you know how much could be raised through a carbon tax in California? What would be the process to create such a tax? Thanks

Anonymous said...

Lets tax government. Then we would have less of it.

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