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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.
Wednesday, October 22, 2014
BY JASON NORRIS
Historically, when the leaves fall, so do the markets. This year, earnings, Europe, energy and Ebola have in common? Beyond alliteration, they are four factors that the investors are pointing to for this year’s seasonal volatility.
Friday, December 12, 2014
BY LINDA BAKER
Studying ground-running birds, a group that ranks among nature's speediest and most agile bipedal runners, to build a faster robot.
Thursday, December 11, 2014
There’s a fascinating article in the December issue of the Harvard Business Review about a profound power shift taking place in business and society. It’s a long read, but the gist revolves around the tension between “old power” and “new power” as a driver of transformation. Here’s an excerpt:
The authors, Henry Timms and Jeremy Heimans, don’t necessarily favor one form of power over another but merely outline how power is transitioning, and how companies can take advantage of these changes to strengthen their positions in the marketplace.
Our Powerbook issue might be viewed as a case study in the new-power transition. This annual book of lists provides information on leading businesses, nonprofits and universities in the state. Most of the featured companies are entrenched power players now pursuing more flexible and less hierarchical approaches to doing business. Law firms, for example, are adopting new technologies and fee structures to make legal services more accessible and affordable.
This month we also take a look at a controversial new U.S. Securities and Exchange Commission rule requiring public companies to disclose the median pay of workers, as well as the ratio between CEO and median-worker pay.
Part of the 2010 Dodd-Frank financial reform law, the rule will compel public companies to be more open about employee compensation, with the assumption that greater transparency will improve corporate performance and, perhaps, help address one of the major challenges of our time: income inequality.
New power is not only about strategy and tactics, the Harvard Business Review authors say. “The ultimate questions are ethical. The big question is whether new power can genuinely serve the common good and confront society’s most intractable problems.”
That sounds like a call to arms. Or a New Year’s resolution. Old power or new, the goals are the same: to be a force for positive change in the world. Happy 2015!
Wednesday, October 22, 2014
BY AMY MILSHTEIN
Everyone knows college is expensive, but a look at the numbers brings that into sharp — and painful — focus.
Thursday, December 11, 2014
BY OREGON BUSINESS STAFF
An SEC rule targets the disparity between executive and employee compensation, reigniting a long-standing debate about corporate social responsibility.
Wednesday, October 22, 2014
BY KIM MOORE
Fred Ziari aims to feed the global population.
Saturday, December 13, 2014
The president of LaPorte & Associates lets us in on his day-to-day life.
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Amy will practice in the firm's Business, Real Estate, and Tax practice groups.
While the Bend City Council ultimately upheld the approval which enables OSU-Cascades to move forward with the 10 acre site, it did also thoughtfully consider the nature of its code requirements, resident concerns and OSU-Cascade’s efforts and suggestions and crafted conditions of approval to address potential impacts of the site in the area.