Welcome, Carbon Tax
May 06, 2005
Another incremental advance within the Kyoto Bloc. New Zealand just announced that it will levy a tax on carbon emissions from the industrial and energy sectors. It will be offset by a tax cut to small businesses and the opportunity to renegotiate the tax if companies can demonstrate that they using the latest emission-reducing technology. That, my virtual friends, is tax shifting.
As such, the Kiwis are moving in the right direction, certainly. The idea behind the legislation is to prepare the island nation for eventual integration into a more aggressive era of carbon restrictions, perhaps by entry into a global cap-and-trade mechanism. Fine idea.
Is it something that would work well for the United States? Alas, this particular model appears too cumbersome for us to follow. At the scale of the American economy, negotiating exemptions for companies is an impossible task. Also, the Kiwi plan shifts taxes off small businesses. The tax shift I want to see would lighten the burden on income taxes in a progressive way—at once returning the power back into the consumer and making sure that prices accurately reflect the costs of products to society.
That kind of progressive tax shift would be compatible with a cap-and-trade mechanism (which works well for generalized pollutants like carbon dioxide equivalents, but not for localized toxic emmissions like mercury). A cap-and-trade regime would cap the total amount of carbon emissions at a level below current emissions, distribute allowances for companies to emit a percentage of their current levels and then set up a market that allows companies to find the most economical way to get their emission accounts in order. Each year, the volume of allowances would diminish, reducing overall emissions.
In such a system, the "tax" of restricting carbon actually ends up creating a vast new market in efficiency and carbon sinks. Americans looking for the next source of economic growth need look no farther. PriceWaterhouseCoopers even estimated the value of a mature global carbon market as over $1 trillion.
That means millions of new jobs as America mines the 50 years of inefficiency built into our transportation, energy, and housing sectors. It means a sustained reduction in oil, reducing our strategic vulnerability. And it means a path out of the Wal-Mart trap of lowered wages and higher deficits.
So, let's thank the Kiwis for taking the lead, but remember: America must think bigger.