The Need for a Tax on Carbon Emissions and Forum Announcement

A forum on carbon taxes will be hosted by 350MA/Metrowest in at the Trinitarian Congregational Church, Concord on Thursday,  July 17th at 7:00 PM;  A Massachusetts Carbon Tax:  Putting the Market to Work to Solve the Climate Crisis.

The need to curtail carbon emissions is urgent. Relatively small investments now in alternative energy sources coupled with broad changes in public behavior will avoid huge investments later in rebuilding from - and adapting to - the destructive and disruptive effects of global warming. A growing chorus of financial experts, scientists and public figures are calling for revenue neutral carbon tax to add a market based catalyst to speed the transition to a low carbon future. Such a “fee and dividend” carbon tax imposes a fee on carbon collected at the point of sale and returns the revenue to consumers in the form of direct payments or reductions in other taxes. Unlike typical taxes, the primary goal of this tax is to change behavior, not to raise revenue. Carbon taxes are not new ideas: a carbon tax was proposed in the current MA legislative session (H2532); a bipartisan federal “cap and dividend” approach was proposed by US Senators Collins and Cantwell in 2010; the Canadian province British Columbia (BC) enacted a carbon tax which has been in effect since 2008.

What principals should guide the details of a carbon tax in Massachusetts (MA) or nationally? It should be set a high enough cost to make a real difference; it should be spread fairly across the entire economy; it should return the revenue to individuals, businesses and other entities; it should seek to aid the transition of job losses in carbon-based industries, e.g., coal-fired power plants; it should protect business competitiveness.  Unfortunately, the current bill in the MA legislature, H2532, falls short of these principals. The proposed cost of carbon is negligible: it starts at $5 per ton and increases by 1% plus inflation annually. The bill is not revenue neutral: after its first year it allocates revenue to transportation and other projects.

British Columbia’s version of a carbon tax would serve as a good model for MA. It works: BC’s carbon emissions from 2008 to 2013 were been reduced by 10% while its gross domestic product outperformed all other provinces. It’s fair: its revenue was returned 50% to individuals through income tax reductions and direct payments, and 50% to businesses through tax reductions. The tax was introduced gradually, from $10 per ton to its current value of $30 per ton (about 25 cents per gallon of gasoline). It will remain at the current price level until neighboring provinces and states implement a tax to preserve competitiveness. The tax has become popular, because corporate and personal income taxes are the lowest in Canada and the revenue allocations have been transparent.

The effect of a revenue neutral carbon tax for MA was evaluated by Regional Economic Models Inc, commissioned by the Committee for a Green Economy. A 50/50 split of revenue sharing between households and businesses after an allocation to an infrastructure fund was modeled. The study considered three price scenarios; all showed an increase the state’s GDP and job creation. A $45 per ton alternative showed a added reduction of greenhouse gases by about 10% while increasing GDP by $10B and the net creation of 11,000 jobs by 2035.

MA has enacted legislation to reduce greenhouse gases by 80% in 2050, the 2008 Global Warming Solutions Act. A substantial and fair carbon tax enacted in the next legislative session will enable MA to meet this goal.