EBC Climate Change Program. The Case for Putting a Price on Carbon

Transcription

1 EBC Climate Change Program The Case for Putting a Price on Carbon

2 Welcome Ruth Silman Chair, EBC Climate Change and Air Committee Managing Partner, Nixon Peabody LLP Environmental Business Council of New England Energy Environment Economy

3 Welcome to WilmerHale Bonnie Heiple Counsel WilmerHale Environmental Business Council of New England Energy Environment Economy

4 Program Purpose and What You Will Learn David Billo Program Co-Chair Office Manager Sovereign Environmental Environmental Business Council of New England Energy Environment Economy

5 The Economic Case for a Carbon Tax Gilbert Metcalf John DiBiaggio Professor of Citizenship and Public Service Professor of Economics, Tufts University Environmental Business Council of New England Energy Environment Economy

6 The Economic Case for a Carbon Tax Gilbert E. Metcalf Tufts University EBC Climate Change Program The Case for Putting a Price on Carbon Friday, October 26, 2018

7 Outline of Talk Why price carbon? Why price carbon with a carbon tax? Who else is pricing carbon? How do we guarantee we cut emissions? 7

8 Climate Change Greenhouse gas emissions lead to a build up of gases in the atmosphere Contribute to warming and to more extreme weather A classic pure externality My emissions affect you as your emissions affect me This is a global externality Doesn t matter where emissions occur 8

9 1.5 Degrees Not So Far Off IPCC (2018) 9

10 Recent IPCC Report Changes in temperature extremes and heavy precipitation indices are detectable in observations for the period compared with , when a global warming of approximately 0.5⁰C occurred. 10

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13 Recent IPCC Report Demand-side measures are key elements of 1.5⁰C-consistent pathways. 13

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15 Econ 101 Markets are efficient when the price of goods reflect their true cost The price we pay for fossil fuels reflects the private costs of their production But not their social cost (damages) If prices are too low, we will overconsume Pricing pollution can achieve same outcome as regulation at half the cost Price signals incentivize millions of decision makers to cut their carbon pollution 15

16 Pigouvian Pricing Cap and Trade or Carbon Fee? Both are examples of Pigouvian pricing! ARTHUR PIGOU,

17 Why a Carbon Tax? Price volatility with cap and trade 17

18 Price Volatility in the EU-ETS 35 Dec 09 Settlement Contracts Euros per ton CO /6/2006 4/4/2006 Source: European Climate Exchange 6/5/2006 8/1/2006 9/27/ /23/ /01/ /03/ /05/ /07/ /09/ /11/ /01/ /03/ /05/ /07/ /08/ /10/ /12/ /02/2009

19 Why a Carbon Tax? Price volatility with cap and trade Cap and trade has not been able to set an ambitious price Complimentary policies are not so complimentary 19

20 World Bank (2018) 20

21 Why a Carbon Tax? Price volatility with cap and trade Cap and trade has not been able to set an ambitious price Complimentary policies are not so complimentary Administrative complexity Do we really need a new financial derivative? Most fossil fuels already taxed. Easy for a carbon tax to piggy back Risk of fraud and abuse 21

22 Financial Times (2009) 22

23 Carbon Pricing Policy Goals Carbon tax provides price certainty Important for business planning Need to ensure we achieve significant emission reductions Balance to be struck: Price certainty Emission reductions Policy updating flexibility 23

24 Emissions Assurance Mechanism Emissions reduction target included in carbon tax law Designed to achieve a set reduction in emissions by target date An emissions pathway tracks progress Carbon tax rate grows according to a standard escalator if cumulative emissions on or below the emissions pathway Tax rate grows according to an accelerated escalator if cumulative emissions exceed emissions pathway 24

25 EAM as a Policy Thermostat Tax rate adjusts automatically to keep economy on track towards emissions goals Transparent and predictable adjustment process Facilitates business planning Provides greater certainty of emissions reductions Target constructed in terms of an end-period reduction Progress tracked according to cumulative emission reductions along the target emissions pathway Focus on cumulative emissions Allows credit for early emission reductions Recognizes importance of cumulative emissions as opposed to a snapshot of emissions in a given year Provides stability to mechanism 25

26 Summing Up Carbon tax is efficient Least costly way to reduce our emissions Could eliminate a number of costly federal energy subsidies Revenue can be used in various beneficial ways Transition relief Tax cuts Household rebates Allows the U.S. to regain its leadership position on the international stage 26

27 Want to Learn More? G. Metcalf and D. Weisbach (2009). The Design of a Carbon Tax, Harvard Environmental Law Review 33(2): G. Metcalf, An Emissions Assurance Mechanism: Adding Environmental Certainty to a Carbon Tax, Resources For the Future, June

28 Available this December! 28

29 Understanding the Design Fundamentals of Carbon Taxes Janet Milne Director, Environmental Tax Policy Institute Professor of Law, Vermont Law School Environmental Business Council of New England Energy Environment Economy

30 The Design Fundamentals of Carbon Taxes Janet E. Milne Professor of Law Director, Environmental Tax Policy Institute Vermont Law School Environmental Business Council of New England October 26, 2018

31 Environment Taxation

32 Climate Change Taxation Carbon tax Carbon pollution tax Carbon pollution fee Carbon charge Greenhouse gas emissions charge

33 Carbon Tax Tax Base x Tax Rate = Tax Revenue British Columbia has done it very simply.

34 Tax Base x Tax Rate = Tax Revenue Fossil fuels CO2-e Limited Exemptions

35 Tax Base x Tax Rate = Tax Revenue Fossil fuels CO2-e Limited Exemptions $10/ton 2008 $30/ton 2012

36 Tax Base x Tax Rate = Tax Revenue Fossil fuels CO2-e Limited Exemptions $10/ton 2008 $30/ton 2012 Revenue neutral tax reform

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38 Tax Base x Tax Rate = Tax Revenue Fossil fuels CO2-e Limited Exemptions $10/ton 2008 $30/ton 2012 $35/ton 2018 Revenue neutral tax reform + Pan-Canadian Framework

39 Tax Base x Tax Rate = Tax Revenue Fossil fuels CO2-e Limited Exemptions Other Policies $10/ton 2008 $30/ton 2012 $35/ton 2018 Comprehensive Simple Quick Stable pricing Effective Revenue neutral tax reform +

40 Tax Base x Tax Rate = Tax Revenue Climate and tax reform British Columbia (2008) $35 CAN

41 Tax Base x Tax Rate = Tax Revenue Other policies Fiscal crisis British Columbia (2008) $35 CAN Ireland (2010) $23

42 Tax Base x Tax Rate = Tax Revenue Long term commitment British Columbia (2008) $35 CAN Ireland (2010) $23 Sweden (1991) $137

43 Tax Base x Tax Rate = Tax Revenue Adjustable rate to achieve climate goal British Columbia (2008) $35 CAN Ireland (2010) $23 Sweden (1991) $137 Switzerland (2008) $96

44 Tax Base x Tax Rate = Tax Revenue Policy and politics Other policies Environmental effect Equity Economic impact Administrative ease

45 Snapshot of Carbon Pricing Around the World Source: World Bank, State and Trends of Carbon Pricing 2018, Figure 2

46 State Carbon Tax Bills Tax Base x Tax Rate = Tax Revenue Connecticut Massachusetts New Hampshire New York Rhode Island Vermont Washington

47 State of Washington Ballot, November 6, 2018 Initiative Measure No Initiative Measure No concerns pollution. This measure would charge pollution fees on sources of greenhouse gas pollutants and use the revenue to reduce pollution, promote clean energy, and address climate impacts, under oversight of a public board. Should this measure be enacted into law? Yes No

48 The Design Fundamentals of Carbon Taxes Thank you. Janet E. Milne Professor of Law Director, Environmental Tax Policy Institute Vermont Law School

49 Source: World Bank, State and Trends of Carbon Pricing 2018.

50 The Yale Carbon Charge Using the University as a Laboratory for Testing an Internal Carbon Fee / Dividend Program Casey Pickett Director of the Carbon Charge Yale University Environmental Business Council of New England Energy Environment Economy

51 Industry Perspectives Dan Dolan President New England Power Generators Association Environmental Business Council of New England Energy Environment Economy

52 The Case for Putting a Price on Carbon EBC Climate Change Program New England Power Generators Association October 26, 2018

53 New England transportation & power plant CO2 emissions from 1990 to Transportation: 6% Increase since Transportation Power Plants Power Plants: 40% Decrease since 1990 Source: released October 24,

54 Massachusetts transportation & power plant CO2 emissions from 1990 to Transportation: 3% Increase since Transportation Power Plants Power Plants: 56% Decrease since 1990 Source: released October 24,

55 New England electricity fuel mix Energy Supply in 2017 Coal 1% Renewables 16% Net Imports 17% Natural Gas 40% Nuclear 26% Source: ISO New England Resource Mix

56 It s time to address transportation - now Source: Source: 56

57 Questions? Follow us on

58 Legislative Perspectives Senator Michael J. Barrett Democrat Third Middlesex Massachusetts Senate Environmental Business Council of New England Energy Environment Economy

59 Moderator: Moderated Discussion Joseph Famely, Program Co-Chair, Woods Hole Group Panelists: Senator Michael J. Barrett Dan Dolan, New England Power Generators Association Gilbert Metcalf, Tufts University Janet Milne, Environmental Tax Policy Institute Casey Pickett, Yale University Environmental Business Council of New England Energy Environment Economy