The Little Engine That Could: Revenue Neutral Carbon Fee and Dividend by CitizensClimateLobby
Please find below the
Congratulations! Your proposal, "The Little Engine That Could: Revenue Neutral Carbon Fee and Dividend" in the U.S. Carbon Price contest, has been selected to advance to the Finalists round.
Be proud of your accomplishment – more than 350 proposals were submitted and only a very small number have been advanced through these two rounds of judging.
As a Finalist, your proposal is eligible for the contest’s Judges Choice award, as well as the contest’s Popular Choice award, which is determined by public voting.
If you haven’t already, you will soon receive an email from the Climate CoLab staff with details about the voting period. If you don’t receive that email within the next day, or have other questions, please contact the Climate CoLab staff at email@example.com
All winners will be announced the week after the voting period ends, on September 12, 2015 at midnight Eastern Time.
Both Judges Choice and Popular Choice will receive a special invitation to attend selected sessions at MIT’s SOLVE conference and present their proposals before key constituents in a workshop the next day, where a $10,000 Grand Prize will be awarded. A few select Climate CoLab winners will join distinguished SOLVE attendees in a highly collaborative problem-solving session. Some contests have additional prizes given by the contest sponsor.
Thank you for your work on this very important issue. We’re proud of your proposal, and we hope that you are too. Again, congratulations!
2015 Climate CoLab Judges
We would like to congratulate the CCL team for the most coherent and well-presented proposal of the collection. This was a strongly framed proposal with huge potential. Idea of full pass-back of fees is politically attractive. It's well-argued, and the policy is ambitious and clear. We also applaud CCL on its growth as an organization, and its overall strategy of outreach to policymakers and thought leaders.
However, a main hesitation about this proposal is its political tin ear. A standalone climate policy, with no strategy to use revenue or regulatory reform to improve its appeal to climate skeptics, or even moderate Republicans, in Congress strikes me as the least likely form of carbon price to be enacted (how to deal with this opposition is not discussed). We are also a little skeptical of a carbon tax that rises so steeply, but I respect the ambition.in terms of specifics your proposal may have little appeal to business (therefore depriving it of the ability to attract bi-partisan support) and virtually no path to congressional enactment regardless of potential political changes in public attitudes toward climate change. Issues of compliance are assumed to be trivial - as are issues of monitoring and verification of emissions (around which we still have some real uncertainty). No revenues are provided to facilitate transition to decarbonization - which may cost money.
Congratulations! Your proposal, The Little Engine That Could in the U.S. Carbon Price contest, has been selected to advance to the Semi-Finalists round.
You will be able to revise your proposal and add new collaborators if you wish, from July 1st until July 14, 2015 at 23:59pm Eastern Time.
Judges' feedback are posted under the "Evaluation" tab of your proposal. Please incorporate this feedback in your revisions, or your proposal may not be advanced to the Finalists round. We ask you to also summarize the changes that you made in the comment section of the Evaluation tab.
At the revision deadline listed below, your proposal will be locked and considered in final form. The Judges will undergo another round of evaluation to ensure that Semi-Finalist proposals have addressed the feedback given, and select which proposals will continue to the Finalists round. Finalists are eligible for the contest’s Judges Choice award, as well as for public voting to select the contest’s Popular Choice award.
Thank you for your great work and again, congratulations!
2015 Climate CoLab Judges
Of all the proposals, this is the clearest and most compelling. Many of the design features of the CCL policy make terrific sense. We also think CCL has a good strategy of direct connections with policy makers and media leadership.
A few friendly critiques:
1. Not everyone gets a dividend larger than their higher energy expenditures. By construction, there is redistribution in this policy. For some, it's a feature, for others it's a bug.
2. Be mindful that CBO imposes a 25% reduction in estimated gross receipts when scoring a policy like this to account for the effect of the policy on other non-carbon tax revenues.
3. The results of the REMI study are not consistent with most modeling results in the literature. I recommend that CCL not get quite so wrapped around that study and instead embrace the broader peer-reviewed economic literature. In particular, studies in the economic literature show positive net economic results only for tax swap scenarios (where a carbon tax substitutes for other revenues).
We are skeptical of the politics of this steeply rising tax trajectory, in part because I think the economics are more difficult than your analysis suggests. CCL has adopted the "tax and dividend" as a religion and they are not interested in listening to changes or other approaches; unfortunately, it seems that this formulation has virtually no prospect of getting any traction in Congress.
All that said, the judges give CCL members a lot of credit for their earnest work and ambitious political engagement. You've got a carefully crafted message, and we can see why it has garnered the support that it has.
Jul 13, 2015
To our esteemed judges Adele Morris, George Framptom, Jonathan Pershing: In response to the feedback we received from the judges, we integrated answers to the key issues contained therein. We deleted a couple of sections dealing with the employment effects and regional equity of our proposal. We included as much discussion of what we regard as the relative values of tax swap measures and the full dividend as structural limitations would permit. The notes below elaborate somewhat further on our responses to the judges. We trust they are useful. A few friendly critiques: 1. Not everyone gets a dividend larger than their higher energy expenditures. By construction, there is redistribution in this policy. For some, it's a feature, for others it's a bug. Response: Suggesting that an equal dividend per household is redistributive is like saying that the gasoline price is unfair--or that gasoline taxes are unfair. I could argue that I drive a lower emission vehicle and should not be burdened by a higher price that "subsidizes" those driving less fuel-efficient models. Likewise, I imagine we could find inequities at virtually any level we wish to examine. Large disparities in the fairness of tax policy should be addressed. We are trying to correct a long-term and massive economic distortion and must ask what is truly significant. At some point we have to apply a cost-benefit view to ensure that we continue to move in the direction we need to go. While the highest income quintile may spend a relatively lower percentage of their disposable income on energy, they also tend to emit more CO2 because they buy more “stuff” with higher embedded carbon footprints. If their dividend does not fully compensate them for such energy expenses, they may consider it as their personal price signal to lower their emissions rather than as a subsidy to lower income levels. 2. Be mindful that CBO imposes a 25% reduction in estimated gross receipts when scoring a policy like this to account for the effect of the policy on other non-carbon tax revenues. Response: This scoring convention devised by the CBO does not apply if the government does not keep the money, if the dividend is given freely, without condition to all “emitters,” or if it is treated as taxable income. From a paper by Stone, Greenstein and Horney(2008): The only circumstance in which there would not be a 25-percent offset is when the allowances are given away, without condition, in a form that effectively makes them taxable income to the recipient, such as when existing emitters [consumers] are given allowances for free.“ Likewise, the CBO article referenced below states: If auction proceeds were granted to firms without conditions being imposed on how those proceeds were spent, or if the proceeds were transferred to individuals in a way that showed up in their taxable income, no offset would be involved. This is precisely what our proposal is-- a “free” allowance to an “emitter” that has no value to the government nor requires any federal outlay. Put very simply, the dividend return is the mechanism that protects both producers of goods and consumers from the conditions in which this 25% convention applies. References: -Woodward, G. Thomas, The Role of the 25 Percent Revenue Offset in Estimating the Budgetary Effects of Legislation, Economic and Budget Issue Brief, January 13, 2009, https://www.cbo.gov/sites/default/files/01-13-25percentoffset.pdf -Stone, Greenstein and Horney, How CBO Estimates the Cost of Climate-Change Legislation, Center on Budget and Policy Priorities, May, 2008.http://www.cbpp.org/research/how-cbo-estimates-the-cost-of-climate-change-legislation 3. The results of the REMI study are not consistent with most modeling results in the literature. I recommend that CCL not get quite so wrapped around that study and instead embrace the broader peer-reviewed economic literature. In particular, studies in the economic literature show positive net economic results only for tax swap scenarios (where a carbon tax substitutes for other revenues. Response: We acknowledge the efficiency of an Across the Board (ATB) tax swap, the increased investment, improved GDP, trade balance and the improved incentive to work. CCL is choosing 100% revenue-recycling because it meets additional criteria that are commonly used to evaluate tax policy: simplicity, implicit fairness (equity) and its transparent accountability (effectiveness) and because it will drive consumer spending. We also believe full dividend return will promote long-term public acceptance similar to the Alaska Permanent Fund, and that political stability will reassure markets that the program is here to stay. Mainline economic literature does not show negative results for full dividend return. It has barely addressed this scenario at all. Scott Nystrom, the principal REMI author, argues that fighting over the relative effects of a direct dividend vs a tax swap misses the point. We can contend the finer points of the different revenue allocation methods and certainly the distributional costs; but for him, the border adjustment is the principal innovation. In his words, "The border adjustment is the large difference. Remove the cost advantage of import substitution (and [foreign] domestic substitution against American exports) and, all of a sudden, the decline in market share or imports/exports no longer happens. This allows the final demand effect between an imported commodity [and a domestic product] in general consumer spending (more localized and labor-intensive) to dominate the results. Take away the border adjustment, and REMI gives you the “textbook” answer, more-or-less. [meaning it aligns with conventional economic research]" Add to this the net global effect on emissions and we have a powerful economic driver for domestic stimulus, international trade equity and climate sanity. For further information on REMI policy design and methodology, we refer you to p.6 & ff of the report. REMI documentation is available online: http://www.remi.com/resources/documentation Model equations: http://www.remi.com/download/documentation/pi+/pi+_version_1.7/PI+_v1.7_Model_Equations.pdf Data sources and estimation procedures: http://www.remi.com/download/documentation/pi+/pi+_version_1.7/Data_Sources_and_Estimation_Procedures.pdf 4. We are skeptical of the politics of this steeply rising tax trajectory, in part because I think the economics are more difficult than your analysis suggests. CCL has adopted the "tax and dividend" as a religion and they are not interested in listening to changes or other approaches; unfortunately, it seems that this formulation has virtually no prospect of getting any traction in Congress. Response: CCL is fully aware that if and when the rubber meets the road in congress, there will be strong competing interests for what to do with carbon fee revenue. Our mission is to build political will for a livable world. Executing that mission requires that we listen to all points of view, build relationships with members of Congress of every persuasion (as we have done), continue to refine our message, look for common ground wherever we go and develop strategy based on meticulous information gathering in every venue. If it turns out that there are other ways of partitioning and directing the revenue that are consistent with the primary objectives of revenue neutrality, a steeply rising fee and significant emission reductions, while securing long term popular support, we may have accomplished our mission. But we must also ensure immunity to the political pressures that could derail the progress that rapidly melting ice demands. With all due respect to Congress, the maintenance of a strong, resolute, price signal might require protecting a carbon fee from “discretion.” Full recycling segregates and insulates the fee from “politics and business as usual.” One of the questions we hear frequently--let’s call it the Liberal Assumption--is “what if people spend their dividend frivolously? How can you make sure they direct it toward low-carbon alternatives?” Similarly, the Conservative Assumption is that if revenues are directed toward tax swaps, including corporate tax cuts, that business will spend that money wisely and have greater impact. Given recent history (see our comments at the end of the “What Actions Do You Propose” section), is there any reason to assume that business will direct their revenues toward a low-carbon economy any more than we can assume consumers will do so? Not really. But in an environment of certainty that the price carbon emissions will be rising sharply, unlike in the cap and trade environment of Europe or California, unlike the Boxer-Sanders scenario, the Van Hollen bill or even the winning proposal in this category in 2014, frivolous behaviors in either sector will become unsustainable. The complexity of the economics is an area of concern. Our focus has been on the macroeconomic efficiencies, the social and political economy of an emission-reduction policy rather than on the distributional complexity or costs. Raising the possibility of a distortionary effect of our proposal should be tempered by the knowledge that the economy in which we now live (having brought us to this critical historic juncture) is already distorted. Economic research, scoring and modeling rest in part on accounting and statistical conventions, ideological bias and behavioral assumptions that perpetuate this distortion and thus a status quo that is driving us off a cliff. We happen to believe that the climate issue is not a business as usual problem and requires thinking outside business-as-usual to arrive at effective solutions. 5. All that said, the judges give CCL members a lot of credit for their earnest work and ambitious political engagement. You've got a carefully crafted message, and we can see why it has garnered the support that it has. Response: This acknowledgment is gratefully received. I trust we are all on the same path with the same intention. We are grateful for the opportunity to collaborate in this manner. You have made us work and there’s much more work to be done. Scott Nystrom comments about the “Rapid Emission Reduction in 20 years” graph: The “how I got here” story is pretty simple. I took the projections from the study and the Department of Energy (the blue line), graphed it with the gold line for the alternative simulated in the study, and then added the brown line for the historical data series back to 1850. The historical series comes from the World Resources Institute (WRI) website, which you can find online at the links below. I am also going to link you to a Slate piece that does some cool heat mapping things with it, as well: http://www.slate.com/articles/technology/future_tense/2014/05/carbon_dioxide_emissions_by_country_over_time_the_worst_global_warming_polluters.html > http://www.wri.org/blog/2014/05/history-carbon-dioxide-emissions > From there, it was just a matter of overlaying the “lines” for the red (the historical data for 1966 approximated the projected alternative in 2025) and the green (1948 emissions by 2035). Nothing really complicated or special about those overlays, but they help give some context and pithiness to the overall presentation. > You can definitely see the various technological and macro trends in the brown line, too, for that matter: > · The run-up from 1880 forward during initial industrialization in the Northeast and Midwest > · A collapse and “rut” in the late 1920s and 1930s through the Great Depression > · Rapid growth through the World War and into the Korean War > · Very rapid growth in the 1950s and 1960s with fast population growth (the Baby Boom), economic growth, the Vietnam War, and the rapid increase in total VMT with the suburbanization of most major metropolitan areas > · Stagnation in the 1970s and early 1980s with the inflationary economy and the recession of 1982 and 1983 > · Growth again in the stronger economy of the 1990s and early 2000s > · Decline associated, temporarily, with the Great Recession and slow recovery thereafter > Hence, I do not see it as too good to be true—it is just fitting it within the history.