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|Tuesday, April 02, 2013|
BY DR. THOMAS POTIOWSKY, DR. JENNY LIU, AND JEFF RENRO | OP-ED CONTRIBUTORS
Our lives are surrounded by regulations to influence behavior, from not smoking in public places to not polluting waterways and being civil in public. Usually, a violation of these regulations is associated with a fine or a tax to discourage greater use, as in the cigarette tax.
The fines and taxes serve two purposes: 1) to discourage an unwanted behavior and 2) to generate revenue that funds the operation of public services, such as police and fire departments.
In a very broad sense, our society fines and taxes undesirable behavior and uses the funds to promote behavior we do want, such as safety on our streets and fire prevention for our homes.
When it comes to climate change, we also have a number of regulations to stop or discourage behavior that may lead to global warming. Violations of these regulations have fines associated with them. However, unlike the cigarette tax, there is no price or cost placed on emitting carbon. Furthermore, we are missing the second part of using the funds to promote behavior we do want.
A properly designed carbon tax can get us there.
In March 2013, we released our report Carbon Tax and Shift: How to Make it Work for Oregon’s Economy which models one way of reducing carbon emissions while also assisting businesses and households by reducing distortionary income taxes and potentially generating revenue for the state.
In 2008, British Columbia instituted a revenue-neutral carbon tax of $10/ton CO2e which has risen to its current cap of $30/ton CO2e. Results of the tax are still preliminary, but evidence suggests that BC has reduced emissions more than the rest of Canada while enjoying slightly higher GDP growth than the other provinces.
The revenue has been repatriated back into the economy primarily through cuts to corporate and personal income tax rates. As a result, BC now has the lowest corporate income tax rate in the OECD. In our review of carbon pricing schemes, BC stood out for the ease with which its program was implemented as well as the environmental benefits without negatively impacted the larger economy.
We estimated the net economic and environmental impacts of bringing this system to Oregon. While our research is preliminary, we find that there is a way to decrease CO2e emissions in Oregon while having a small, positive effect on Oregon employment. Our study models several different carbon prices, but we decided to use a price of $60/ton CO2e in our full scenario estimates.
When deciding how to repatriate carbon tax revenues, there is a tradeoff between equity and efficiency. A successful program will need to distribute the burden of the tax fairly, while also preventing adverse economic effects. During our simulations, we found that corporate income tax cuts are key for economic efficiency. If all of the revenue is devoted to corporate income tax cuts, the Oregon economy has the largest employment growth but fails to produce equitable outcomes. Because low-income households spend more of their income on energy, measures must be put in place to reduce the regressiveness of the tax.
Exempting low-income households would severely weaken the carbon price signal; instead, we suggest returning funds to low-income households either quarterly or annually through a greater decrease in the income tax rate, tax credits or subsidies. In addition to being ethically justified, giving extra relief to low-income households also leads to greater economic growth.
After running dozens of scenarios, we arrive at two preferred repatriation schemes. Both devote a majority of revenues to corporate income tax cuts, and include low-income household relief to ensure equitable outcomes. They differ in the amount of revenue set aside for targeted reinvestment. In one scenario, 10% of revenues are set aside for industrial energy efficiency projects. In the other 25% of revenues are used for industrial and residential energy efficiency, as well as transportation infrastructure. The outcomes differ in the amount of jobs created, as well as the distribution of the tax burden. In all of our scenarios, we find net changes in employment that corresponds to a fraction of 1% of Oregon employment.
We still have work left to do before a carbon tax could be implemented. Impacts on industry sectors and households need to be estimated in finer detail. A method for applying carbon pricing to imported electricity that is both economically valid and legally viable needs to be devised.
Between the experience in BC and the results of our research, we can avoid the trade-off between doing what is right for the environment and what is right for the economy. It would be ideal if carbon pricing was adopted on a national or regional level, but it could be adopted locally.
There will be winners and losers in any scenario, but with carefully-designed repatriation methods we can reduce what we do not want — carbon emissions — while promoting want we do want – a healthy economy and job creation.
Thomas Potiowsky, Jenny Liu, and Jeff Renfro are researchers at Portland State University's Northwest Economic Research Center.
Tuesday, April 01, 2014
BY APRIL STREETER | OB CONTRIBUTOR
Three years ago, PPS set out to begin to convert the 1930s-era boilers from diesel/bunker fuel to cleaner-burning natural gas. Oregon’s largest school district has realized impressive carbon dioxide emissions reductions, setting an example for public and private institutions.
Monday, March 03, 2014
Check out interviews with employees from some of the 100 Best Companies to Work For in Oregon winners and find out what makes their company a great place to work.
Tuesday, February 25, 2014
BY PAIGE PARKER
A money management firm broadens its reach.
Thursday, February 20, 2014
BY VIVIAN MCINERNY | OB BLOGGER
As retailers consolidate and newspapers fold, the business of modeling shifts to ad agencies, apparel companies and new media.
Friday, March 28, 2014
BY TOM COX | OB BLOGGER
The next mysterious (or disastrous) event could be one that you or your team might suddenly need to respond to, probably under intense scrutiny.
Tuesday, March 04, 2014
BY DEBRA RINGOLD | GUEST CONTRIBUTOR
How can we strengthen the performance of institutions charged with teaching what Francis Fukuyama calls the social virtues (reciprocity, moral obligation, duty toward community, and trust) necessary for successful markets and democracy itself?
Tuesday, February 25, 2014
BY JAKE THOMAS
An ancient institution moves slowly into the digital age.
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