Why is a broad-based carbon tax with dividend so politically difficult?

Great Debates
1

I’ve always wondered why a broad-based carbon tax with 100% of the proceeds refunded to the populace is not a more common approach for attempting to address climate change. It seems like as long as you agree that climate change is a problem that needs to be addressed, you should be supportive of such a scheme. IMO, the simplest and most fair way would be to simply divide the revenue generated from such a tax and write a cheque to every adult in the country for the same amount. To ease the transition and allow people to be able to make meaningful changes to improve their carbon footprint, this tax could start lower but would have to ramp up to pretty significant levels in order to achieve the desired change across the population that it is being applied - ideally, globally.

Perhaps some people on the political left would be concerned that this could lead to situations where poor people struggle to maintain their current lifestyles - but the entire point of this is that they would be incentivized to shift to a lower carbon footprint lifestyle, not maintain a wasteful one. Poor people have lower carbon footprints than rich people, unsurprisingly, so such a scheme would still ultimately result in some net transfer of wealth from richer people to poorer people. But more importantly, the incentives would be there for everyone to reduce their carbon footprint, regardless of socio-economic class.

I am not sure what reasonable objections might exist on the political right - carbon taxes are one of the easiest ways to incentivize market-based solutions and are even supported by many large fossil fuel companies. Which is why it is bizarre to me that, for example, the Canadian Conservative party wants to go to a soft cap style system instead of sticking with a carbon tax.

The biggest challenge I see is it being a coordination problem between countries - if all countries applied this evenly, there would be no issue with companies being incentivized to leave to another country with lower carbon tax. I can see it being pretty tempting for developing countries to ask for lenience and allow for them to not have to have the taxes in order to allow them to catch up - but a lot of developing countries are also the ones that will be the worst affected by climate change, so it is really in their best interests to have a high carbon tax to ensure that all the first world countries maintain their carbon taxes at a high level as well. If developing countries had high carbon taxes, there would be zero excuse for any developed countries to not have them as well.

Is the issue that the general population simply doesn’t take climate change seriously enough to want to accept anything that could negatively affect them in the short term? There are certainly a few deniers left, but it seems like people across the political spectrum in most countries now acknowledge that climate change is a problem that needs to be addressed. Perhaps, globally, we are only at a point where people are willing to talk the talk but not walk the walk.

2

Because so many of the people who oppose a carbon tax are idiots who can’t do math.

No, literally. I just saw a Facebook post from a friend that claimed gas went from $1.37/l to $0.97/l in one day after Alberta “cancelled the carbon tax”.

First off, if gas prices dropped by 39 cents a liter anywhere in Canada, that would have made national news. Secondly, there’s no way in hell a carbon tax made up about 25% of the pump price for a liter of gas. It was more on the order of 6-7 cents per liter. But to the people posting this meme, it made sense. Because they can’t do math.

3

James Baker and George Shultz have in fact proposed a carbon dividend policy. Given their stature within the Republican party it suggests that something along those lines is at least feasible.

Why is it still politically difficult? There is a large segment of the Republican party which flatly denies the reality of climate change and they would be opposed to literally any policy to tackle the issue.
The left is also lukewarm on carbon dividend because they would prefer to use that money to pay for other green policies. Also it is a somewhat strange policy: what is the purpose of taxing carbon
if you are giving all the money back ? (The answer is that you are changing the relative price of carbon but that is not an easy concept to explain. Kevin Drum, who is one of the smartest commentators around, had a post on the carbon tax some time back which seemed to miss the point)

4

I don’t think anyone who is already opposed to any tax, especially those designed to curb pollution, will be swayed by a dividend which they will try to paint as more government intervention. They’re opposed to taxes because they’re taxes.

Our deficit is so high, we should use the tax for general revenue. That’s not an easy decision, but much easier than if there were a large chunk of people who could be swayed by the argument that you will get some of the tax back. People aren’t swayed by the argument that government-funded health care will be cheaper overall either, and that is positive-sum rather than zero-sum.

5

The main reason is it contains the word “tax”.

Other reasons are that carbon taxes impact rural residents more than urban residents, and proportional to their income, the poor more than the middle class or upper class. You’re proposing a refund which would theoretically provide relief for the poor from that cost impact, at least for the low-polluting poor. However, when is that refund going to be provided? If someone is living paycheque to paycheque, an increased cost that occurs now isn’t going to be relieved by a future payment to recompense that cost.

6

I’m not completely convinced on what the best way is to put a price tag on carbon dioxide emissions. My personal preference is for cap-and-trade, but I could be persuaded otherwise on that.

I am, however, completely convinced that we need to put a price tag on carbon dioxide emissions somehow. Put this, or any other reasonable price scheme, up for a vote, and I’ll support it.

7

Trust, as in few people trust the government enough to introduce a tax-neutral solution.

About ten years ago in Canada, Stephane Dion, an ardent environmentalist and Quebec federalist, surprised himself by winning the leadership of the Liberal Party. He ran on a Green Shift platform, which would result in significant cuts in income tax and a hefty carbon tax, together being revenue neutral. Mr. Dion was not exactly charismatic. His Conservative opponent depicted him as a clueless professor type. Nobody knew what impact the Green Shift would have on them; some people would pay more taxes, and some less, but everyone thought they would pay more taxes. Spoiler: Dion lost, big time.

Canada has greater trust in its government than the United States does.

Changing the tax system (something basic to governments everywhere) used to spark rebellions, and while that happens far less often in democracies, it still sparks anger. Of course the tax system changes every year, but these are usually incremental changes, with advertising exaggerating who would be better off. Obamacare had an impact on taxes (it had to) which, of course, reduced its appeal.

That’s what Canada did in the last tax season. People got a small amount and it’s very difficult to measure the impact on higher gas taxes (since gas prices vary so much). The scheme was implemented only in non-cooperative provinces, such as mine (the largest). I don’t know how it worked in provinces that cooperated.

Probably.

Of all the species on Earth, humans are the least likely to suffer direct impacts of climate change. We have technology and adaptability. We already practically cover the Earth, which very few other species do. We can deal with flooding, higher crop prices, heat waves, and so forth. Lots of people who believe in anthropogenic climate change think a 2 degree increase in average temperatures are nothing serious.

Furthermore, climate change is almost invisible. Temperature varies by day (more than 2 degrees); to see the average temperature increase, you need to look at a chart. Your memory is not sufficient. Hurricanes and floods happen every year, and that’s rising, but unless you’re looking at numbers on a chart the increase in numbers is not very visible. There’s less snow (where I live, anyway), but unless you look at a chart that’s hardly noticeable. There’s much less snow in the Arctic, but the population there is very small, so not very visible to many people. (For instance, the capital of Nunavut, one of Canada’s three Arctic territories, skyrocketed… to just over 8,000 people. My neighborhood has more people than that. I think the entire territory has only one MP, so there can’t be much political representation either.)

More than a few. The green movement has done such a terrible job trying to educate people on climate change that vast numbers of people (especially in the US) think it’s fake. A higher number than a few decades ago, so they’re going backwards. And no, I don’t think saying “oil companies and Republicans lied to people” is a sufficient explanation for this. Environmentalists don’t think like other people, so they don’t know how to convince other people. Instead of paying the same green advertisers, they should pay the most skillful advertisers instead. The advertisers don’t have to believe the message, they just need to get results.

Like everything else, climate has become partisan. Before it used to be just Republicans (and similar parties and interests elsewhere) telling whoppers about climate change. Now there’s a “study” saying 51% of greenhouse gas emissions are caused by raising cattle, which is at least double what I’ve seen in any previous study. A significant change in diet is more “basic” than a significant change in taxes, so of course there will be resistance.

Governments have done a bad job in promoting solutions. Due to weaknesses in the green movement, people don’t like nuclear power. (While that’s not renewable, it’s far superior than coal-fired plants.)

Governments and green movements have also done a poor job of managing rational fears.

Some decades back, biofuel became quite popular in Brazil, and biofuel-only users were on the rise… and then they ran out of biofuel. They have some now, but pretty much nobody in Brazil uses only biofuel. They always use a mixture of biofuel and nonrenewable fuel because nobody trusts the biofuel supply anymore.

Electric vehicles have less range, and recharge stations aren’t plentiful either. There’s a legitimate fear of getting stranded. Governments should be helping gas stations install recharging stations (as gas stations must be common, to prevent gas-powered vehicles from being stranded). There may have been such initiatives, but I’ve not heard of them. Instead, I just hear “their ranges are getting longer” and “you don’t need that much range”.

8

A few reasons it’s difficult:

  1. People deeply distrust the government about taxes. I would bet that it’s difficult to get even half of the populace to understand the concept of a “revenue neutral tax”.
  2. A revenue neutral carbon tax looks a lot like income redistribution, which many people are opposed to.
  3. Fossil fuel producers make large donations to politicians.
9

To me, a carbon tax would be an excellent example of libertarian economics at its best! Instead of government coercion, prices are adjusted to reflect otherwise unafforded (i.e. “external”) costs. This was discussed at some length in a recent thread. One of the Board’s libertarians argued strenuously against this libertarian solution, beginning with

I posted my own views in yet another thread.

10

I think this points up an issue with a carbon tax.

In addition to Kimera757’s very cogent point about marketing, those who propose a carbon tax are subject to the temptation to say “while we’re at it, let’s fix the rest of the system” and then it is harder to debate the carbon tax on its own merits. Witness the Green New Deal, which was supposed to be a proposal to address climate change and turned out to be intended to rewrite the US economy (cite).

“Let’s use a carbon tax to address AGW and we will give it all back in rebates” is one thing. “Let’s use a carbon tax to address AGW and get more money from billionaires and reduce the deficit and increase spending on solar subsidies and reduce income inequity and…” is quite another.

Regards,
Shodan

11

Canada implemented its Carbon tax as its own policy. 90% of the revenue is returned through income tax rebates (the remaining 10% goes towards green initiatives). That’s hasn’t stopped the right wing in Canada from screaming bloody murder about it being a huge tax grab.

12

:smack: I managed to delete the link to that previous thread.

13

I feel like your first paragraph doesn’t really jibe with your second paragraph. I think if you used carbon taxes as general revenue, you would DEFINITELY get more opposition from the “anti-tax” people compared to if you refunded it all - if it’s otherwise, then it comes down to people not understanding how the tax and refunds work. If it’s general revenue, then governments will be incentivized to hike or cut the tax to manage their budget in the way they want, which is NOT how you should be setting your carbon tax rates - they should be set to achieve the target emissions reductions, and refunding all the proceeds from the tax will ensure that politicians are not swayed to fiddle with the tax rate for other reasons.

This is actually a good point, and seems like a legitimate issue with respect to the management of such a program. More frequent disbursement of funds (eg. monthly) could help with this, but it likely would be difficult to balance taxes collected with dividends issued on a monthly basis. Ultimately, this could result in disproportionate impact to poor people, but if the tax is raised slowly it should allow people to adapt, as poor people adapt to things like sales tax increases. I am not sure how hard the poor were hit when the GST was implemented in Canada.

Good post, and I think the issue of trust is certainly a big one, and is a real shame. The slow onset of the visibility of the impacts of climate change are also a big factor in why people in general likely aren’t internalizing the seriousness of the issue. With regards to many of the other comments on other things like eating meat, biofuels, electric vehicles, etc. - that’s why I’m such a big fan of broad based carbon taxes, because then the government and people don’t have to make the right decisions on these things by themselves. With appropriate taxes, these things will naturally sort themselves out - people want to keep eating their steak? Go nuts, you’ll just have less money to spend on flying around the world now. Electric recharge stations not plentiful enough? Electric cars will easily become more economical for city driving with high gas prices, and with a critical mass of people using electric cars in the city, companies will start to see a market for more chargers, etc.

  1. Yeah it seems to be a common thread in this discussion, and it’s quite unfortunate
  2. That could be said about any sort of tax - are those same people opposed to taxes on cigarettes?
  3. Sure, but many fossil fuel producers have also come out in favour of carbon taxes - of course, mainly because it provides more cost certainty compared to cap and trade, but also because many of them (at least publicly) acknowledge that climate change is a real issue to be addressed.

So because it is a libertarian solution, it is a bad thing? I’m not quite sure what you are getting at - but if you are suggesting that we shouldn’t have a carbon tax unless it comes part and parcel with social justice, I’m going to have to disagree with you. If a revenue neutral carbon tax is on the table, you better take it and run, and try to work towards a “less regressive” tax after it’s already enacted. Otherwise, you are partly to blame for the inaction that is occurring on climate change. You say that “change should be evaluated on its own merits” - which I agree with, but somehow come to a completely different conclusion to you about whether the tax should be refunded. A revenue-neutral carbon tax IS the one that is solely for its own merits - it’s only objective is to achieve a reduction in carbon emissions. If that results in some poor people suffering, so be it if that is what is necessary to achieve the required reduction in emissions. Poor people will be suffering far more in the future if action isn’t taken.

Yes, which is why I feel like a lot of left-wing people simply aren’t as serious about addressing climate change as they claim they are. The amount of suffering that poor people could experience if we have >2degC warming could be tremendous - and yet people are willing to take that risk so that you can push for a deal that is slightly better for poor people now, despite that drastically lowering the likelihood of the deal occurring? An inability to compromise leaves us where we are now - complete inaction, and thus continuing on our trajectory towards higher warming.

14

My coworker adamantly believes certain things about the carbon tax:

  1. It is not revenue neutral. Don’t kid yourself, it’s just a cash grab by the government.
  2. It will cost her a lot of money, even though she has a very efficient house and drives a car with reasonable mileage. Showing her the carbon tax line on utility bills and doing the math to show she’s wrong has no impact.
  3. It won’t change people’s behaviour. Energy usage is apparently 100% inelastic in demand.

She steadfastly believes that it will cost some families so much money that it will put them in serious financial difficulty, but that these same families won’t do anything whatsoever to decrease their carbon tax exposure. I’m reasonably confident that she won’t be voting for the Liberals in the upcoming election.

15

Sure, but it’s a much more apt description of revenue neutral taxes, which are literally redistributive.

And think about how they redistribute, too: Largely from poorer rural people to relatively richer urbanites.

16

So the solution the OP is proposing is that the tax that is paid for by consumers, be refunded back to consumers? Am I understanding that correctly? Seem like the primary beneficiary of that type of scheme is the employees hired by the government to administrate the collection and refunding of the tax.

17

If we are going to go to the trouble of implementing and collecting a carbon tax, let’s spend that money on research and development of carbon neutral and carbon negative technologies, and not use it to offset income tax.

And don’t implement your carbon tax as a sales tax on consumers, rather do it as an excise tax on industry. Excise taxes aren’t 100% translatable into price increases.

18

The idea is that you collect a carbon tax but redistribute it in some way (either per capita or via income tax reductions or whatever) to fix the problem that carbon has externalized costs without increasing the total tax burden.

On average, the government won’t have more money to do whatever, but people will be incentivized to use less carbon-polluting things.

It’s a great idea! But the specifics of how the redistribution is done are difficult.

19

Tragedy of the Commons.

If one nations doesnt do it, it gains a edge over all the nations that do.

20

The specifics of how to do the redistribution are key.

The idea of imposing a tax on carbon, and then giving the proceeds back so it is revenue-neutral from the point of view of the government, doesn’t make a lot of sense if you give the proceeds of the tax to those who used the carbon. Raise your electric bill by $100 a month and cut a check to you for $100 every month, doesn’t do much to discourage me using electricity. It also doesn’t work, because somehow you have to pay for the administration of collecting the tax and sending it back.

As said above, the temptation is to use this to redistribute income. This can be done in ways that offend everyone :slight_smile: - tax everyone on their electricity/gasoline/energy in general, then send it back in income tax rebates, so people who don’t pay income tax get nothing or less and people who pay income tax get more. Or send checks back to everyone, regardless of their energy use, which disproportionately benefits a different group.

Or just treat it as general revenue to the government and spend it on subsidies for non-GHG emitting technologies, or anything else the government wants. Which means it isn’t revenue-neutral any more, and is just another sales tax.

Taxing industries instead of consumers makes it a regressive sales tax - which subjects government to the temptation of sending rebates just to poor people, so it is income redistribution again.

As I said, it is hard to get the government to do just one thing. Because “if we can get people to sit still for a tax increase, there are all kinds of worthy causes that should be funded!”

A new source of revenue, which the government agrees not to spend. It could happen, but I am not sanguine.

It doesn’t mean the carbon tax is necessarily a bad idea, in and of itself, but there are reasons why it hasn’t happened already.

Regards,
Shodan