WWW.WRI.ORG/CARBONPRICING

GETTING SERIOUS ABOUT

CARBON PRICINGApril 30, 2015 Washington, DC

MICHAEL OBEITER WWW.WRI.ORG/CARBONPRICING

PUTTING A PRICE ON CARBON: A Handbook for U.S. Policymakers

WHY PRICE CARBON?

• Pricing carbon can be a core element of

U.S. long-term climate change strategy

• A carbon price can also serve other

policy goals

–Promote economic growth

–Support clean energy

–Transition assistance

www.wri.org/carbonpricing

OBJECTIVES

• Putting a Price on Carbon provides

an overview of carbon pricing

–Basic primer

–Refresher and reference work

• Future work from WRI will build on

this foundation

www.wri.org/carbonpricing

PAPER OVERVIEW

• Basics of Pricing Carbon

• A Brief History of

Carbon Pricing

• Key Design Features

• Uses of Carbon Pricing

Revenues

• Economic Effects of a

Carbon Price

www.wri.org/carbonpricing

CARBON PRICING PROGRAMS AROUND THE

WORLD

www.wri.org/carbonpricing

CARBON PRICING IN THE UNITED STATES

www.wri.org/carbonpricing

Federal proposals• McCain/Lieberman (2003)• Waxman/Markey (2009)• Whitehouse/Schatz (2014)• Delaney (2015)• …and many more

PROGRAM TYPE: CARBON TAX VS CAP-AND-TRADE

• Both incentivize emissions reductions

• Similar design and revenue decisions

• Carbon tax offers administrative

simplicity and price certainty

• Cap-and-trade offers emissions

certainty

www.wri.org/carbonpricing

CARBON PRICE DESIGN: KEY QUESTIONS

• Which gases?

• Which sectors?

• Where to impose the regulation?

• What price or cap level and trajectory?

• Include a border tax adjustment?

• How to monitor and enforce?

• What complementary policies?

www.wri.org/carbonpricing

CARBON PRICE DESIGN: EXAMPLES

• Regional Greenhouse Gas Initiative

– Electricity CO2

– Most revenues go to energy efficiency

– $2.9 billion in lifetime savings to 3.7 million households

• British Columbia Carbon Tax

– Started at C$10, now C$30

– Covers ~3/4 of GHGs

– Most revenues used to reduce taxes

www.wri.org/carbonpricing

REVENUE USE

• Revenue can be used to accomplish

various objectives:

– Promote economic growth

– Offset adverse impacts

– Investment in climate change protections

• Substantial revenue opportunity

– $15 / tonne price could generate ~$100 billion

www.wri.org/carbonpricing

REVENUE NEUTRAL TAX SWAPS

• Taxes on labor/capital discourage

productive activity we want more of

• A carbon tax discourages activity we want

less of

• Why not tax destructive instead of

productive activities?

– For example, use revenues to reduce income or

payroll taxes

www.wri.org/carbonpricing

LUMP SUM DIVIDEND

• Send every household a check

• Key advantages:

–Relatively simple

–Revenue neutral (or nearly neutral)

–Ensures low-income taxpayers are not

negatively impacted

www.wri.org/carbonpricing

ADDITIONAL REVENUE USES

• Various other policy objectives:

– Deficit reduction

– Transition assistance

– R&D for low-carbon technologies

– Climate change adaptation

• Different uses of revenue are of interest to

different stakeholders

www.wri.org/carbonpricing

ECONOMISTS OVERWHELMINGLY SUPPORT A

CARBON TAX

Source: http://www.igmchicago.org/igm-economic-experts-panel/poll-

results?SurveyID=SV_8oABK2TolkGluV7; weighted by confidence

Statement: Government should raise revenue with a carbon tax instead of labor income taxes

ECONOMIC IMPACT STUDIES

• Winners and losers in short run

• Smart use of revenue can offset

negative impacts

• Trade-offs exist between revenue

options

www.wri.org/carbonpricing

CONCLUSION

• A carbon price can be the

cornerstone of long-run U.S.

climate policy AND achieve

multiple additional objectives

• Designing a carbon pricing

policy involves a number of

important decisions that can

broaden support

www.wri.org/carbonpricing

FUTURE RESEARCH

• WRI aims to promote dialogue on why and

how to implement a carbon price

• WRI will delve deeper into key issues:

– Basic economics and incentives underlying a

carbon price

– Regional disparities and how to address them

– How a carbon price can drive innovation

Keep an eye on www.wri.org/carbonpricing for new research

PUTTING A PRICE ON CARBON: A HANDBOOK FOR U.S. POLICYMAKERS

THANK YOU

WWW.WRI.ORG/CARBONPRICING

WWW.WRI.ORG/CARBONPRICING

GETTING SERIOUS ABOUT

CARBON PRICINGApril 30, 2015 Washington, DC