Articles by Ken Johnson

More perspectives on tax/auction revenue allocation

This post makes a point that I already made last Monday, but it bears repeating -- this time in the context of cap-and-trade.

Chaz Teplin gave some approximate numbers for how much Obama's cap-and-trade plan would raise energy prices (based on a $14.30/MT carbon price):

Effect of the Obama carbon price

• Petroleum fuel: adds 15¢/gallon
• Electricity: adds 0.8¢/kWh (compare to 7-10¢/kWh residential rates)
• Natural gas: adds 8¢/therm (compare to 85¢/therm residential rates)

The conclusion: "... energy prices would increase by about 10 percent. It's a start, but a very slow one." But that's not the whole story.

Some perspective on tax-and-dividend and a better alternative

James Hansen has again been lecturing Congress on the virtues of tax-and-dividend. I'm no policy expert, but neither is Dr. Hansen, so I'm going to share some of my own amateur observations for the benefit of fellow Grist wonks.

Hansen did some calculations and came up with the following dividend estimates for a $115/ton (equivalent to $1/gallon) tax:

Single share: $3000/year ($250 per month, deposited monthly in bank account)

Family with 2 children: $9000/year ($750 per month, deposited monthly in bank account)

Wow! Free money! That sounds enticing. Of course, the money has to come from somewhere, so people's energy costs would, on average, increase by the same amount. But with that much money sloshing around there are bound to be huge inequities. For example, I live in northern California, where we have a mild climate and little coal power, and I don't need to drive much, so I might see my net income rise by maybe a couple thousand dollars. That would be nice, but folks back east who are paying more wouldn't like it one bit.

The tax rate and dividend should increase with time. ...

[The tax rate should increase until fossil fuel energy is not competitive with clean energy.]

Nothing's going to happen until the tax rate is high enough to overcome the price barrier. Once it does, there will be a "tipping point" at which clean energy will start to overtake fossil fuels and a variety of positive feedback mechanisms (competition, technology, economies of scale, learning by doing) will make the transition self-sustaining and gradually less dependent on price supports. So what is needed is a high price incentive right away -- not a gradually escalating incentive.

However, a high price incentive does not imply a high tax; it is possible to have an initially high and declining carbon price incentive implemented through an initially low and increasing carbon tax.

Two questions for James Hansen

Following are two questions for James Hansen and Grist readers, relating to Dr. Hansen's tax-and-dividend proposal in his recent policy recommendations to Obama:

1. Would it not be advantageous to use dividends to give consumers an equity stake and interest in decarbonization?

This could be achieved by investing carbon tax revenue in renewable energy and clean technologies in exchange for equity, and distributing equity shares to the public on an equitable per-capita basis. The shares would yield dividends that increase -- not decrease -- as carbon is phased out.

2. Is tax-and-dividend fundamentally incompatible with cap-and-trade?

Many of the ills of cap-and-trade ("special interests, lobbyists, ...") are associated with free allocation, but allowance auctioning (which Obama favors) would be similar to a tax in terms of revenue generation and potential for consumer dividends. Moreover, an auction with a price floor would be equivalent to a carbon tax as long as there are sufficiently many allowances to satisfy market demand at the price threshold. (The price would only increase if the tax incentive is insufficient to achieve the cap.) A recognition of the commonality between carbon taxes and cap-and-trade could help overcome political barriers to action on climate change.

RGGI auction: CO2 trading at $3 per ton

The RGGI held its second auction for carbon allowances on Wednesday. As noted on the RGGI website: States will sell emission allowances through auctions and invest proceeds in consumer benefits: energy efficiency, renewable energy, and other clean energy technologies. RGGI will spur innovation in the clean energy economy and create green jobs in each state. […]