Carbon PACE Bond by geoff

Hey geoff thanks for your contribution, this is a very interesting proposal. Can you tell us where the $8/tonne CO2 carbon tax and the 6% interest rate on PACE bonds come from? In other words, why $8 and 6%, why not $20 and 4%? What might be the tradeoffs concerning the efficacy of the proposal if these figures were to be altered? How might it affect the costs?

Hi! Thanks for the comments and questions. @rdc8j - The 8$ tonne carbon tax came from the original proposal which was more directed at the current British Columbia carbon tax. The BC carbon tax is offset through reductions in income taxes for individuals and businesses. There was a portion of the carbon tax (equal to 8$/tonne) that was unevenly redistributed back. We also thought that 8$ was a relatively low amount to start with, and that would be easier to gain support for. In the full proposal that we wrote it was assumed that in time the carbon tax would regularly increase in price. Of final point on the $8 per tonne carbon tax, is that A transition will take time, but at this point in time there are huge gains inefficiency and cost-effective renewable energies for implementation. Therefore the price signal to start can be low as there is lots of opportunity available right now. Through much discussion and consultation we came to the 6% interest rate because it approximately matches a generous and conservative return on investment. Anything more might seem to be overly generous and anything less becomes uncompetitive for investments. Additionally, the higher the interest rate, the more capital from the carbon tax that is used up. This reduces the effective leveraging power of the bond and makes it less efficient on the side of government. @fannythornton - I agree the political feasibility of implementing a carbon tax in some regions is quite low. I know very well the unfortunate situation which occurred in Australia. The British Columbia carbon tax was framed as revenue neutral for the government, carbon tax imposed and income taxes reduced. Granted BC is one of the more progressive provinces in Canada, but eventually carbon pricing (A better way of saying carbon taxing) is eventual in one way or another. This will come through regulation on industry which will have to raise prices, insurance rates being increased to offset the unpredictability when dealing with extreme weather patterns due to climate change, or my preferred because it allows us the capital to transition, A carbon tax that is used to facilitate our transition. In all, we tend to forget that alcohol and tobacco are taxed for their social and health impacts. Essentially anything that has been demonstrated to cause harm eventually is taxed to recuperate the costs that are imposed on society, unless it is out right banned, which will not happen with fossil fuels. I feel that it is eventual that we will increasingly implement carbon pricing around the world. In many cases a carbon tax will be a permanent addition, however in some cases, such as Australia's, own political ideology will trump facts. I hope I adequately answered the questions you had! And thank you for inquiring!

Geoff, You also need to think about primary risks and potential mitigants for the carbon PACE bond, especially counterparty risk and cash flow/performance risks. How do you intend to address these risks? Also given issues related to institutional arrangements, how do you intend to implement the bond? PACE financing mechanism have faced opposition from some residential/commercial building owners. Best!

Overall, the main weakness is it imposes a broad tax but concentrates relief to real estate. The increment is also very slow, and wonder how meaningfully this proposal would shift carbon pollution levels.