A tax on carbon as a way to fight the climate crisis is increasingly looking insufficient on its own. But if you want to get on a war footing, you have to make a first step.
I’ve written before about the possibility of a carbon tax in Georgia. Groups as far apart as the Brookings Institution and the Niskanen Center have made the case for it one way or the other. And ever since Paris, the climate crisis is becoming more, not less, of a pressing issue. It’s time. Georgia needs a tax on carbon.
Carbon Taxes: Can They Be Done? (Yes)
In 2016, the Brookings Institution released a report called “State Level Carbon Taxes: Options and Opportunities for Carbon Taxes.” In that report, it finds that, based on 2013 emissions, Georgia would stand to gain $2.65 billion–in one year. That’s a lot of fire hydrants and stop signs.
But a carbon tax? In Georgia? This might seem like a stupid idea, considering Washington tried this in ’16 and lost by a 19-point margin (which was wider than Clinton’s victory). Trying to push this in Georgia, a state which went Red by 5 points, would seem to be lunacy.
But Initiative 732 didn’t fail because it was too expensive, or because it was too onerous. It failed because of “how the state proposed to use the $2.2 billion in revenues the plan was projected to generate.”
Where Washington Went Wrong
The Washington Plan would have set a cost on carbon at $15/ton in 2016, $25/ton in 2018, and would increase by 3.5 percent plus inflation every year until the cost per ton of carbon was $100 (adjusted for inflation).
Why the increases? Well, the thing about carbon taxes, or any kind of “sin tax,” is that it is purposefully distortionary (that is to say, the existence of the tax itself causes people to change their purchasing habits). If carbon is more expensive, less of it will be consumed, which means the revenue received from the tax will fall. In order to maintain a revenue stream, the price per ton needs to go up steadily. The cycle will continue, with fewer people buying gas (or whatever), and the tax getting higher to offset that, which will lead to fewer people buying gas, etc.
Initiative 752 would also reduce the state sales tax rate by 1 point (from 6.5 percent to 5.5 percent) over two years, and the state business and occupation tax from .484 percent to .001 percent. Finally, it would have created a new tax credit, available to working families who already qualified for the EITC, worth 15 percent or $100 (whichever was larger) of their EITC amount, going up to 25 percent or $100 in 2018.
So what was the problem? According to the Tax Policy Center, some of the objections to Initiative 752 were:
- The net loss in revenue (almost $800 million over the next six years);
- Not enough protections for vulnerable communities;
- It shifted the tax burden from businesses onto the people who are not able to “aggressively…lower their carbon emissions”;
- It failed to fund investments in clean energy.
According to the geniuses, revenue from a carbon tax can (or should) go to one, some, or all of four things: offsetting the new tax burdens the carbon tax introduces; investing in clean energy technology; helping the communities most impacted by the climate crisis; or unrelated public goods.
Effects In Georgia
“A carbon tax without tax relief for low-income households will ultimately be regressive.” (TaxVox)
An increase in the price per ton of CO2 emissions will disproportionately impact low-income families, as do all consumption taxes. Businesses that consume CO2 will certainly pay more than families will, but they have the option of passing on their costs to the consumer, who will ultimately bear the brunt of the tax. That’s why the Washington Initiative included a tax credit and a decrease in the sales tax: to provide some relief for the low-income families most affected by the tax increase.
Let’s take a look at what might–might–happen in the event of a $25/ton carbon tax. Fuzzy math incoming. It’s this way: ⇓⇓⇓
This is real back-of-the-envelope math here, but it’ll work for demonstration purposes. Let’s say that the tax per gallon on fuel in Georgia is $0.26 (horseshoes, hand grenades, etc), and the estimated revenue from the Motor Fuel Tax in 2017 is $1,653,200,000. That works out to 6.358 billion gallons of fuel. That means an extra $0.25/gallon would almost double the current tax revenue, from $1.65 billion to $3.24 billion.
The price of coal-fired electricity would work out to $0.025/Kh, and $0.01/Kh for electricity produced by natural gas. That’d work out to about $0.134/Kh on electricity bills in Atlanta. As for gas, I’ve seen a $0.13/therm increase, so tacking that on to the numbers from that same chart would give us gas rates that look like $1.66/therm.
According to the Residential Energy Consumption Survey, the average Georgian spent $2,067/month on all energy consumption (except for transportation). Average electricity consumption was about $1,600/month. Using Atlanta’s rates, that works out to about 14,678 kilowatt-hours. So if their consumption stayed the same, they would see their bills go up by about $366 (14,678×$.134=$1,966.97).
This would be as good a time as any to remind readers that I have an English degree. My math skills extend to calculating tips. For what it’s worth, in 2013 the National Association of Manufacturers wrote that a $20/ton carbon tax would kick electricity prices up by 9.4%, which is a little less than half of my estimate ($144 vs $366). We’ll split the difference at $222.
If we just average the rough estimate of gallons of gasoline consumed, based on my extremely scientific method of “looking at how often I fill up my truck,” we get to about 400. That’s an extra $100 a year at the pump right there.
Based on these (very rough) assumptions, Georgians would spend about $450-$500 extra a year in the first year of a $25/ton carbon tax, going up from there. A well-done carbon tax would have to offset those increases, either by decreasing taxes elsewhere or providing cash rebates.
One possibility would be the expansion of the EITC, which we already know would help a lot of Georgians anyway. Implementation of the Georgia Work Credit, starting at 10% and increasing from there as the Carbon Tax increases, would go a long way towards offsetting the increased price at the pump. I would advocate making the GWC a monthly dividend, but that’s just because I’m a big fan of UBI.
Of course, simply giving money back to the people doesn’t do anything to grow a green infrastructure. According to the piece I just linked to, the proposed increase to the EITC at the state level would cost $308 million a year, which means Georgia could fully fund that increase with the revenue from the carbon tax and still have more than $2 billion left over for other environmental projects. And don’t forget, the Brookings Institute numbers are based on a $20/ton tax–who knows how much we’d get if it scaled up to $100/ton?
Another way to deal with the regressive nature of this tax would be to lower taxes elsewhere. Again, the GBPI has a suggestion here. Their proposal (a higher tax shield, a sales tax on digital sales, and decreased itemized deductions, among other things) would see taxes for the lower half of the income scale drop by a few hundred dollars, while raising additional revenue from the higher-income earners.
If you did it this way, it might be a wash–you could put the revenue gained from the Carbon Tax towards either green infrastructure or environmental justice and hope that the lower taxes wash out the extra cost on the heating bill. There’s probably a way to change the tax rates even more to try harder to offset that cost, but it might be a bad idea to lower taxes too much, because then you’re losing revenue elsewhere.
Questions That Need To Be Answered
The biggest–how much would it cost–is also the easiest, because we can get the geniuses to work on that. Data is data, numbers are numbers, people are people. We can run the models until we get one that we like, but in the end, we’ll just do whatever we want anyway, right?
The loss in revenue from businesses leaving the state is more troubling to me. I can easily see the energy lobby leaning on the Gold Dome hard on this one. If Georgia was the first state to implement a carbon tax, it would become less competitive overnight, with companies pulling up stakes to go to more hospitable locales. That’s not a small thing. Of course, having a few million dollars to throw around to bring in a solar panel factory might make that sting a little bit less.
And would it help? British Columbia is kind of the best example we have of this, and reports are mixed. In 2014, the Economist wrote that “Over the past six years, the per-person consumption of fuels has dropped by 16% (although declines levelled off after the last tax increase in 2012). During that same period, per-person consumption in the rest of Canada rose by 3%.” But a year later, HuffPost reported that, “B.C.’s emissions actually increased by 2.4 per cent in 2013 (to 63 million tons of greenhouse gases, from 61.5 in 2012.”
So who knows? But this shouldn’t mean we should decide it’s too hard. It means we have to figure out how to make it work.
We have questions that need to be answered, but we can answer them. Let’s get to it.
Categories: Policy Recommendations