12 January 2016

How to GET to my solution to climate change

I -- like many economists -- think that a carbon tax GHG-fee would do more to reduce GHG-emissions than all other programs combined, but there's a well-known barrier to such a great idea: GHG-emitting companies that stand to lose sales, assets, etc.

How do we get them to stop bribing politicians who thus refuse to implement GHG-fees?

Give them money!

Yes, it sounds crazy, but here's how to make it work:
  1. All (domestic) emissions of GHGs attract a fee of F$.
  2. Divide R(evenue) = Q(antity) * F(ee) into two buckets, in proportion to p(percent)
  3. One bucket is distributed to citizens evenly.
  4. The other bucket is distributed to GHG-producers in proportion to their share of average, 2012-14 GHG emissions.
Politicians will have to find the right p that keeps citizens and GHG-emitters happy, but that share does not matter, as emitters will have an incentive to emit less while collecting the same share of revenues according to the 2012-14 baseline.

Bottom Line: A direct bribe to help the public is better than hidden brides that harm everyone.

3 comments:

  1. "emitters will have an incentive to emit less while collecting the same share of revenues according to the 2012-14 baseline."

    Not following this last bit, David. Nor am I understanding why - if it works for corporate emitters - you wouldn't do the same for individuals, albeit implying that you would be giving the largest share of GHG-fee revenue to those with the biggest GHG-footprint lifestyles, which seems perverse on the face of it.

    Could you expand a bit?

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  2. @RNS -- the post is a little tongue in cheek, thus the "bribe" to emitters rather than (my preference) revenues to citizens, which would be fairer, etc

    In terms of baseline vs rebates, the idea is to give those w the biggest emissions the biggest potential gain, i.e., net revenues are positive if they emit less than base...

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  3. Hey David,

    thanks for sharing your idea on one of the most important issues arising in the after-math of 2015's world climate summit in Paris. The world may have agreed on jointly going for the 2°C target, even aiming at 1.5°C. But we really need to find entry points into stringent climate policies. National public finance is key to do so.

    I've published a paper on this issue, seen from the perspective of finance ministers in an international setting: Due to international tax competition, governments are under pressure to reduce corporate taxes. Our model illustrates that if they combine a carbon tax ("GHG-fee") with appropriate reductions in corporate taxes ("bribes"), national welfare increases.

    You can find the peer-reviewed paper here:
    http://link.springer.com/article/10.1007/s10640-015-9982-1

    In case you cannot access it, you can read the freely available Harvard working paper version:
    http://belfercenter.hks.harvard.edu/publication/25110/why_finance_ministers_favor_carbon_taxes_even_if_they_do_not_take_climate_change_into_account.html

    ReplyDelete

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