Implementing A Carbon Tax & Reduction Plan (2016 Masdar Blogging Contest Entry)

December 26th, 2015 by Kyle Field

Historically, governments have taken a carrot and stick approach towards carbon emissions, with regulations dictating maximum emissions paired with what are typically undervalued incentives for implementing emissions reduction projects. Moving forward from COP21, it is obvious that more is needed to forge the partnerships required to drive emissions down at the rates needed to avert catastrophic climate change.

The Plan

I propose an escalating carbon tax (the stick, or punishment approach) paired with an incentive program that rewards reductions of future emissions on an annualized per ton of carbon basis (the carrot, or positive reinforcement). Implementing a revenue-neutral, two-pronged approach to driving emission reductions will drive the fastest reductions and allow for the development of healthy partnerships between government agencies and carbon emitters.

The Incentive

Government programs are typically aimed at placing limits on emissions. A more effective approach to driving reductions in carbon emissions would be to use a positive feedback-focused model using the “carrot.” For example, governments would not provide incentives on a per project basis, but instead, reward direct carbon emission reductions on a per ton basis. Directly linking incentive funds with current and projected carbon emission reductions, supported by corresponding reductions in permitted emission limits, will provide positive suction for businesses to implement improvements and drive carbon emission reductions with the fastest possible timing.

Further, providing one-time incentives per ton of annualized carbon reductions based on historical emissions allows for a single lever to drive the correct behavior and, thus, can be more easily implemented, can be more easily adjusted (up or down) as the need for reductions and traction from businesses dictates.

For example, if the incentive rate were $100 per ton of annual emissions and a project would directly reduce real-world emissions from 10,000 to 5,000 tons per year, that project would be eligible for $500,000 of one-time incentives for the reduction. Permit limits would be similarly be adjusted down by 5,000 tons.

The incentive rate would be reviewed semi-annually for the first 3 years to ensure it is on track versus budget and versus carbon emission reduction goals, then annually thereafter. Reviews should tie directly to regional governmental air quality targets and associated funding. Carbon tax funds, where available, should be used to directly fund this work.

This solution will most effectively enable the private sector to develop the goods and services necessary for a global transition to a low-carbon economy, as it leverages a one-time incentive to drive carbon emissions reductions many years into the future. Regulating at the CO2e level levels the playing field and allows regulators to use data they are already capturing and using for the basis of enforcement to determine where funds should be allocated.

The Tax

To transition to a low-carbon society requires that the playing field for global businesses first be leveled. Implementing a predictable, escalating, long-term carbon tax that increases over time gives businesses the ability to calculate the cost impact the carbon tax will have on the bottom line over time. This enables each business to determine when investments to reduce carbon generation make business sense, allowing for the forecasting and implementation of projects which will help businesses to avoid future tax increases. Ramping the tax up to full effect over the next 5 years allows sufficient time to plan and to act. Further, this sets a precedent for the taxation of carbon and sets a firm foundation moving forward in the event that emissions need to be taxed further to meet regional, national and global reduction targets.

In Summary

Implementing escalating, top-line taxation on carbon emissions paired with an incentive plan for carbon emission reductions levels the playing field and provides a predictable path forward. This enables businesses to plan for and be incentivized to drive meaningful reductions in emissions as required to meet regional, national, and global emissions reduction targets.

Note: This is my entry into the 2016 Masdar Engage Blogging Contest.

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Tags: business, government, Masdar, Masdar 2016 Engage Blogging Contest

About the Author

Kyle Field I'm a tech geek passionately in search of actionable ways to reduce the negative impact my life has on the planet, save money and reduce stress. Live intentionally, make conscious decisions, love more, act responsibly, play. The more you know, the less you need.

Frank

I really like the idea of a carbon tax, because it is very efficient. People will quickly stop those things which produce a lot of CO2, but don’t add much value. It’s also very predictable, and doesn’t depend on guessing the right cap, so if reducing is difficult, it’s not that bad, but if it’s easy, there is no reason to stop.
- rockyredneck
  
  Carbon taxes are not specific enough. They simply become a source of revenue for governments that cost all consumers equally, but not necessarily fairly. The poor may hurt the most. We need to target high polluters (low return) with tariffs, such as gasoline taxes, and return the money as incentives for alternatives.
  - jfreed27
    
    Carbon fee and dividend approach: all fees are returned to citizens, Gov. doesn’t keep a dime.
    - Bob_Wallace
      
      Correct, roll the carbon fee back to the consumer.
      
      Utilities will pay more for coal/NG electricity which will make RE more attractive. Consumers would get a subsidy on their bill keeping the effective price of electricity the same.
      
      The nice thing about a carbon price is that is wouldn’t push utilities into any specific RE technology but the one(s) that makes the most sense in their particular situation.
      
      Take the carbon tax on fuel and put it to use repairing roads. Consumers would save on fuel use and car repair.
    - rockyredneck
      
      Fat chance of that, if I know government.
    - Sean Harvey
      
      You are a weak minded fool
      - jfreed27
        
        I’m rubber, you are glue.
      - Bob_Wallace
        
        Over the line. No name-calling.
      - Sean Harvey
        
        Sorry bob. It’s just this guy goes around purporting to be someone he is not
    - Sean Harvey
      
      Your argument is wrong
      - Bob_Wallace
        
        That’s what carbon fee with dividend program is by definition. It’s revenue neutral for the government.
        
        Not 100% of the revenue would be returned, I would expect, if operating costs were removed. But they should be in significant.
      - Sean Harvey
        
        I was replying to heffrey
      - Sean Harvey
        
        Doubtful. Sorry but the math doesn’t add up. Not to mention global warming is a farce
      - Bob_Wallace
        
        Read the site rules. Look under “About”.
  - Frank
    
    Trying to pick and choose is inefficient. First of all, you get a lot of fighting over who does and does not “make the cut”. Second, you must remember that people are very clever. You give 300 million people a reason to reduce carbon emissions, and you will get a million cost effective practical optimizations. Some people will come up with solutions, others will sell them to yet others that buy it. Let the invisible hand push us forward.
    - rockyredneck
      
      And you think government can be trusted to do better? I would sooner put my faith in industry and the markets.
      - Bob_Wallace
        
        Putting a price on carbon is turning the “which and how much” job over to private enterprise.
        
        If you give, for example, solar a subsidy but not wind then you can create a situation where more solar might be installed in a location where wind made more sense.
      - rockyredneck
        
        Very good, Bob, I hadn’t quite thought of it in that sense.
      - emeka
        
        I really don’t think implementing a carbon tax as a reduction plan will work in developing countries especially Oil producing countries in Africa. Government can’t be trusted and any policy made will affect the poor knowing that they are at the both end. My opinion
      - Bob_Wallace
        
        You may be correct. What would likely be best is for better off countries to assist developing countries install renewable generation as rapidly as possible and, for now, ignore fossil fuel use.
        
        In the beginning work at keeping fossil fuel use from increasing. Then once there are strong RE industries people can start looking at replacing coal plants with RE.
Martin

That approachm as laid out in the article, is already used in the province of BC, Canada.
We have a carbon tax, too low at $ 30 ton, but it does give low income people a benefit, a tax reduction/payout, up to $ 1000 year..
As for reductions in CO 2 and ‘money back’ for savings in CO 2, that we have as well, but it only covers municipal governments not people or businesses., which it should as well.
Matt

The pay the worst polluters money approach was a total fail in cap/trade too many options for the system to be rigged. Your approach is a big payday for stranded fossil infrastructure. The worst polluters get a massive payday, and never pay anything for the damage they have done.
Stick with the simple carbon fee on all carbon and equal dividend to all citizens. That way people who control the money have reason to make change and the lower end do no pay a penalty. Put the system in place and publish a rising CO2 fee. You can later add other pollution and GHGs to the system and it remains revenue neutral the whole time. The key is to start the fee high enough and raise fast enough to up the market make the correct picks.
- Kyle Field
  
  I don’t see a dividend to citizens doing anything to reduce the impact already made. Using a carbon tax to fund real reductions in emissions or other renewables = progress.