NYC mayor climbs aboard the carbon tax train
New York Mayor Michael R. Bloomberg declared his support today for a national carbon tax, according to a report posted on the New York Times City Room blog by metro reporter Sewell Chan:
Mayor Bloomberg plans to announce today his support for a national carbon tax. In what his aides are calling one of the most significant policy addresses of his second and final term, the mayor will argue that directly taxing emissions of carbon dioxide and other greenhouse gases that contribute to climate change will slow global warming, promote economic growth and stimulate technological innovation — even if it results in higher gasoline prices in the short term.
Mr. Bloomberg is scheduled to present his carbon tax proposal in a speech this afternoon at a two-day climate protection summit in Seattle organized by the United States Conference of Mayors.
(A copy of the speech was provided to The New York Times by aides to the mayor; the full text is available from The Times, along with the complete Times story.)
With his speech today, Mayor Bloomberg joins former Vice-President Al Gore as the nation’s leading advocates of a carbon tax to cap and reduce carbon emissions from fossil fuels. French President Nicolas Sarkozy called last week for a national carbon tax on global-warming pollutants and a European levy on imports from countries not complying with the Kyoto Protocol to reduce emissions. In September, U.S. Rep. John Dingell, the powerful chair of the House Commerce Committee, proposed a hybrid carbon tax combining a straight carbon tax on coal, oil, and natural gas with a surcharge on gasoline and jet fuel.
In his Seattle remarks, Bloomberg hones in on the key advantage of a carbon tax over a carbon cap-and-trade scheme — price certainty:
Both cap-and-trade and pollution pricing present their own challenges — but there is an important difference between the two. The primary flaw of cap-and-trade is economic — price uncertainty. While the primary flaw of a pollution fee is political, the difficulty of getting it through Congress. But I’ve never been one to let short-term politics get in the way of long-term success. The job of an elected official is to lead – not to stick a finger in the wind. It’s to stand up and say what we believe – no matter what the polls say is popular or what the pundits say is political suicide.
From where I sit, having spent 15 years on Wall Street and 20 years running my own company, the certainty of a pollution fee — coupled with a tax cut for all Americans — is a much better deal. It would be better for the economy, better for taxpayers and — given the experiences so far in Europe — it would be better for the environment. I think it’s time we stopped listening to the skeptics who say, “But for the politics,” and start being honest about costs and benefits. Politicians tend to prefer cap-and-trade because it obscures the costs. Some even pretend that it will lower costs in the short run. That’s nonsense. The costs will be the same under either plan — and if anything, they will be higher under cap-and-trade, because middlemen will be making money off the trades …
For the money, a direct fee will generate more long-term savings for consumers, and greater carbon reductions for the environment. And I don’t know about you, but when the economists say one thing and the politicians say another, I’ll go with the economists.
Emphasizing that "Employment is good, pollution is bad," Bloomberg says that Congress should "use the revenue from pollution pricing to cut the payroll tax," thus joining Mr. Gore as well as the Carbon Tax Center in seeking a revenue-neutral carbon tax. Bloomberg then closes with this powerful rhetorical flourish:
There are also logistical issues with cap-and-trade. The market for trading carbon credits will be much more complex and difficult to police than the market for the sulfur dioxide credits that eliminated acid rain. And there are political issues — because the system is subject to manipulation by elected officials who want to hand out exemptions to special interests. A cap-and-trade system will only work if all the credits are distributed from the start — and all industries are covered. But this begs the question: If all industries are going to be affected, and the worst polluters are going to pay more, why not simplify matters for companies by charging a direct pollution fee? It’s like making one right turn instead of three left turns. You end up going in the same direction, but without going around in a circle first.
As I wrote in Gristmill last July, Bloomberg’s support of a U.S. carbon tax is philosophically consistent with his big current local initiative, a congestion pricing plan to improve mobility, economic activity and the quality of life in the Manhattan Central Business District by charging an entry fee for motor vehicles. A carbon tax and congestion pricing both embody the principle that safeguarding “the commons” — our air, water and public space — requires that we exact from ourselves a commensurate price for uses that damage or deplete it.
I do take issue with Mayor Bloomberg on one important detail. He says, "People are going to keep buying gas whether it costs $1 a gallon or $2.75 a gallon — or even more — because the demand for gas is inelastic." While gasoline is the least price-elastic of fuels — around 0.4 in the long run and less than half that much in the short run — demand for gas has some price-sensitivity, as we demonstrate on the Carbon Tax Center’s Web site. Comparing 2007 with 2004 (the first nine months of each), for example, U.S. economic activity (GDP) grew 8.4 percent, yet gasoline usage is up only 2.7 percent — indicative of a 0.10-0.15 (short-run) price-elasticity, when factored against the 35 percent inflation-adjusted increase in gas prices over the same period.
In the longer term, carbon taxes will further conserve gasoline by stimulating a constellation of actions favoring proximity over sprawl and otherwise concentrating economic and human activity in cities. Indeed, the primary CO2-reducing aspect of Mayor Bloomberg’s congestion pricing program resides not so much in the cars it will take off the road in and en route to midtown, as in creating the wherewithal for New York City to absorb a million more people who otherwise might take up residence in Sprawlsville, USA.