Comment Log Display

Abstract:
	The goal of the cap and trade system in the ARB scoping plan is to
reduce our greenhouse gas (GHG) emissions. The ARB must now attempt
to lower our emissions during tough economic times. An
incrementally increasing, revenue-neutral carbon fee assessed
upstream with 100% of proceeds returned evenly to Californians as a
monthly check can lower our emissions less expensively than
cap-and-trade while simultaneously helping the economically
vulnerable. Seeing such a "green check" arrive in the mail each
month also holds the potential to precipitate a paradigm shift in
the way the Californian public views and acts with regard to the
causes of climate change. For all these reasons, I urge the ARB to
implement such a revenue-neutral fee and dividend in the place of
cap and trade. 

Effectiveness of a carbon fee vs. cap and trade:
	In a 2008 study (1), the Congressional Budget Office (CBO) found
that a carbon tax was more efficient (i.e. achieved the same
reductions in emissions at a lower cost) than any iteration of a
cap-and-trade system considered ("Summary Table 1" in this document
is particularly helpful). This included an inflexible cap system,
and various iterations of a flexible cap with a safety valve. True,
this analysis was made for the United States as a whole. But since
California accounts for 12% of the US population (2) and a roughly
comparable portion of US GDP (3), I make the assumption that
lessons applicable to the US are also applicable to California.
	Salient highlights from this report include: 

- A tax could achieve a long-term emissions targets at roughly a
fifth the cost of an inflexible cap.  
- A tax is comparatively simple to implement, as it could build on
already existing infrastructure for levying and collecting existing
taxes. 
- A tax avoids year-to-year fluctuations in price, significantly
aiding businesses in long-term planning. 
- Because it has a single price in any given year, a tax is simpler
to harmonize internationally, or to assess at our borders for
interstate or international commerce. 

	The next most efficient incarnation in this report, a
cap-and-trade system with a price ceiling and a price floor, is
essentially a tax. If there is a high price limit, and a low price
limit, why not take the average price and skip all the bureaucracy
associated with setting up, monitoring, and regulating the
exchange? 

Benefits of returning the proceeds evenly to all Californians:
	It is widely acknowledged that the poor spend a higher percentage
of their income on fossil carbon, but less than the rich on carbon
overall (4, 5, 6). Indeed, this makes intuitive sense. The poor
tend to take public transportation more often, travel by air less,
and tend to own fewer Hummers. This means the poor would be
disproportionately affected by a price on carbon. In other words, a
carbon price on its own is regressive. It is a good idea at any
time to make sure that our most vulnerable citizens do not bear the
brunt of a price on carbon. It is especially true in these tough
economic times with bloated unemployment numbers and cuts to
government safety nets. It is therefore desirable that any carbon
pricing mechanism be progressive, not regressive.
	If we accept that a price on carbon should be progressive and not
regressive, what is the best way to do this? Of 5 policies
considered, Butraw (4) found 3 policies progressive (expansion of
the Earned Income Credit, and direct return of the money as taxable
or non-taxable income) and 2 regressive (reducing income or payroll
taxes). The CBO (5) found similar results. The Carbon Tax Center
(6) has a readable and relatively condensed analysis of this with
thought-provoking numbers.
	Of these progressive options, I urge the ARB to adopt returning
100% of the proceeds as either a taxable or non-taxable dividend
each month directly to California households. Firstly, a monthly
dividend will save poorer Californians from having to bear the
costs of higher carbon prices the entire year before getting
relief. Instead, they would be able to keep up with the higher
bills, and have some extra money left above their costs. Extra
money in the hands of the poor is more likely to generate revenue
than money put in the hands of the rich, as it is more likely to be
spent on things such as clothes and food rather than saved. It may
be considered a type of unemployment insurance, which generates
$1.62 in economic activity for every dollar spent (7). Thus, not
only will returning the proceeds from the fee in this way help the
poor while reducing our emissions at minimal cost to the
government, it may also stimulate the economy. 
	
Eliciting a paradigm shift:
	What may prove to be the most important piece of this proposal is
the potential of this monthly "green check" to precipitate a
paradigm shift in the way Californians think and make decisions
about their own carbon emissions. When people see that check every
month, they will very quickly realize that by changing their
behavior, they can "get under" the fee. That is, by embracing
lower-carbon activities, they will be making money. 
	This monthly check thus adds a carrot to the end of the stick that
is higher carbon prices. Recall the significant change in behavior
we all witnessed during the gas price spikes of 2008. The high gas
prices were all stick and no carrot, but still people made
significant changes in the way they acted and what they purchased.
The carrot of more money in their pocket on top of the higher
carbon prices that we know can change behavior can only speed our
journey to lower carbon emissions. 

Conclusions:
	In summary, an incrementally increasing, revenue-neutral carbon
fee assessed upstream with 100% of proceeds returned evenly to
Californians as a "green check" is a superior policy to
cap-and-trade. Due to its price stability and ability to piggy-back
on top of existing government infrastructure, it imposes lower
costs on businesses and government for the same emissions
reductions. It helps the poor at a time when they need all the help
they can get. By putting money in their hands, it is likely to
actually stimulate the economy while still cutting carbon. Finally,
by returning the money as a monthly "green check", it offers every
Californian "carrot" incentives to change their habits on top of
the "stick" incentives imposed by any price on carbon. Perhaps more
than anything, this will place California in the lead both in the
nation and in the world in the race to regain a stable climate. 

Thank you for reading my comment. 



References:
1. Congressional Budget office. "Policy options for reducing CO2
emissions". 2008. URL:
http://www.cbo.gov/ftpdocs/89xx/doc8934/02-12-Carbon.pdf
2. United States Census Bureau. "State and County QuickFacts". Last
accessed: 7/24/11. URL:
http://quickfacts.census.gov/qfd/states/06000.html
3. EconPost. "California Economy Ranking in the World". Posted
2/3/11. Last accessed: 7/25/11. URL:
http://econpost.com/californiaeconomy/california-economy-ranking-among-world-economies
4. D. Butraw, R. Sweeney and M. Walls. "The Incidence of U.S.
Climate Policy: Where You Stand Depends on Where You Sit". 2008.
Resources for the future. URL:
http://www.rff.org/documents/RFF-DP-08-28.pdf
5. The Congressional Budget Office. "Trade-Offs in Allocating
Allowances for CO2 Emissions". 2007. Economic and Budget Issue
Brief. URL:
http://www.cbo.gov/ftpdocs/80xx/doc8027/04-25-Cap_Trade.pdf
6. The Carbon Tax Center. "Demographics". Last updated: 3/22/11.
Last accessed: 7/24/11. URL:
http://www.carbontax.org/issues/softening-the-impact-of-carbon-taxes/
7. The Economist magazine. "The Struggle to Eat". Issue: July 14th,
2011.