Aldyen’s Recent Comments

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  Auntigrav...I actually did read the FairTax stuff.  I live in a place in which families that qualify for income support ("welfare") as the well as the working poor have, for many years, qualified to collect rebates of all of the sales tax they pay on fuels and other commodities. Even after rebates net energy costs still eat up 13% of their disposable incomes, while they eat up only 2.5% of rich families' incomes.  The UK also tried to mitigate the regressive nature of fuel consumption taxes for many years before deciding a different strategy was needed back in 2000.

  The problem is that it is costly to administer the process of rebating taxes back to the poor.  Government salaries can eat up 25% of the taxes collected that need to be rebated. With respect to transportation fuels, since 2002 most European nations have started to shift their conservation/environmental tax focus away from energy production and consumption to vehicle registration and use.  CO2 taxes--largely on transport fuels--accounted for 7% of government revenues in Norway in 1991.  They account for less than 2% today (after per capita transport fuel use and emissions increased over 38% between 1991 and 2005 in spite of the high CO2 tax).  Special annual vehicle registration taxes now generate about 5 times more Norwegian revenues than the CO2 tax does.

   France was the first to implement a special tax on annual vehicle registration as a conservation measure, and France never used carbon or CO2-type fuel taxes to incent behaviour change.  As of the end of 2007, every EU member state has shifted more towards the French model (Germany being the last to implement the shift in 2008.)  They set annual car registration taxes based on the vehicle's: (1) gross weight, (2) fuel efficiency rating and (3) distance logged on the odometer or IB2 chip since the last registration. It might be a little early to say, but so far, this looks like a very administratively cost effective and much less regressive tax measure.  (Low income families tend to own older, smaller cars and use them less.  Most of the EU nations have exempted old small cars or applied a heavily discounted registration tax rate to them, to mitigate the impacts on low income earners without the complicated costs of a rebate system.)

   When you think about it, the car tax is more consistent with the General Equilibrium economic theory they taught us back in Econ 100.  The textbooks say a consumption tax is only an effective way to change behaviour if the tax is applied at a the point of a "primary" consumption decision.  Most transportation fuel purchase decisions are "secondary"--they derive from our decisions to live in certain neighbourhoods and to buy and register certain vehicles.  So even the theory tells us that the car tax should effect more behaviour change at lower annualized tax cost than a fuel tax--and it appears to be so in real life.  That it is cheap to mitigate the impact of the vehicle registration tax on low income families and/or certain businesses--all you need to do is put codes in the database for certain registration addresses and licenses (admin costs run less than 1% of program revenues)--is just an important side benefit.

  Of course, it remains true that if governments price any tax sub-optimally they are simply indicating that their priority is new tax revenues and not GHG reductions.

  I should also note that the EU experience disproves the popular theory that retail fuel price increases drive investment into cleaner tech options.  The car registration tax system appears to be having a much more direct impact on captial investment decisions than much higher annualized equivalent in fuel taxes ever had (but, again, it might be too early to say the fat lady has sung on this one).

  But think for a minute about the popular theory that says that all we have to do is tax fuel inputs to get the capital markets will throw cash at clean techs and clean tech jobs.  If that was true then the most cost-effective way for us to revitalize the North American auto industry would be to tax the H--- out of plastic, aluminum, iron and glass.  As the theory goes, capital markets will then throw lots of cash into new processes to build smaller/lighter cars.  Real life does not work that way.

  On Myth: Unlike cap-and-trade, a carbon tax is simple, immune to manipulation, & politically palatable posted 7 months, 3 weeks ago 44 Responses

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  David,

  I have been typing in paragraph breaks, and my messages all show the paragraph breaks at my when I "preview".
  But for some reason they have disappeared in a majority but not of all of my final posts. Can't figure out why...it bugs me too.
  I wonder if this happens when my message gets too long.On Myth: Unlike cap-and-trade, a carbon tax is simple, immune to manipulation, & politically palatable posted 7 months, 3 weeks ago 44 Responses

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  GreyFlcn, I agree that it is crazy to increase sales taxes to cut income taxes, but that is, in fact, what all of the carbon/CO2 taxing nations in Europe did between 1990 and 2000. That is also what my provincial government (in my view, unwisely) did here in Canada in 2008. In every case, the European governments initially used new emissions and other sales tax increases to cut both corporate and personal income tax rates and promised that cuts in payroll taxes were to follow as scheduled emission/energy tax rate hikes were implemented. But I can find only one case where a portion of the promised payroll tax cuts actually happened. If you plot European GHG emission trends next to employment in the goods-producing sectors (including construction), you will see that European GHG "reductions" track closely with job losses in the goods producing sectors--which job losses might have been at least slowed down a little if those governments had made some real attempt to cut payroll taxes. In 2007 in Germany, a two income earner family that grossed US$57,256 paid more than US$11,266 in payroll taxes and their employers forked out a matching amount. The US comparable number is US$4,306 each for employee and employer contributions. Health care premiums have also increased across Europe every year since 1995, but, of course, they are still much lower than US heath insurance costs. And some would argue that health care services have improved, at least in the UK, over that period. European families also pay Value Added Taxes (VAT)--general sales taxes on most goods and services--out of after-tax income. General VAT rates run between 18% and 25%, depending on the country (but many countries have discounted the VAT rate on fuel sales to non-commerical consumers over the last 7 or 8 years to try to provide some relief from high energy prices. In Sweden, all government departments and public sector service agencies--including hospitals, prisons and social service organizations--pay the the full 25% VAT just as if they were private sector organizations. So Sedish citizens have to pay higher income taxes to cover hospitals' obligations to pay 25% VAT on their purchases. I have to say that strikes me as a little weird--to pay income taxes to cover my publicly-funded health care institutions' sales tax liabilities.On Myth: Unlike cap-and-trade, a carbon tax is simple, immune to manipulation, & politically palatable posted 7 months, 3 weeks ago 44 Responses

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  Hapa, On comparing electricity costs across cost of living boundaries, the US dollar-equivalent purchasing power of one DM is between US$0.82 and US$0.83 (see OECD Stats at http://stats.oecd.org/) So before considering the competition between household expenditures, US$0.41 buys substantially less in goods and services in Germany than it does in the US. When it comes to competition among household expenditures, the average Germany household pays substantially more in income and payroll taxes than the average US household. For example, the average German two income family with two kids had US$57,256 in gross income in 2007 compared to US$54,858 for their US counterpart. But after income and payroll taxes that German family had US$40,112 in disposable income (including child support, training, day care, rebates and all other government help to families) compared to their US counterparts who had US$$46,053 to cover all household expenditures. When we account for the purchasing power differential, that German disposable income could buy the equivalent of only US$32,892 worth of goods and services. It is true that the German family does not have to pay for health care out of that disposable income (health care insurance costs are covered in their payroll and/or income taxes), but US$0.41/kWh for electricity still looks pretty intimidating to me. Renewables made up 12% of German power generation at the end of 2008, compared to 5% for the US. My key point is that I don't think Americans would be likely to agree that a 5% - 12% hike in the renewable share of total power supply is actually worth a power price increase to over US0.40/kWh. I am not arguing against renewable power mandates--in fact I am arguing for them. I am actually arguing that the way Germany administers its feed-in tariff and other tax revenue pools is a disaster in renewable power-for-dollar terms and we should all step back and ask: how did Germany prices get so high at so low a renewable market penetration rate, and how do we make sure that does not happen here? I believe we are justified in expecting alot more renewables than Germans are getting for the prices they pay. On the reason for Germany's approval of the coal plants, you are right that it has a little to do with nuclear power in the long term, but not alot. 27% of Germany's power supply currently comes from nuclear reactors (compared to 19% for the US). But the new coal plants are not enitely about replacing nucs. Over the next 8 years some 40,000 MW of old largely lignite-fired power plants have to be decommissioned or modernized to extend their operating lives for 10 years or more. All of this coal-fired generation capacity will be decommissioned before the first German nuc is scheduled to go down. The question raised in Germany was: could the country afford to replace all of that old coal power supply with conservation and renewables? Rightly or wrongly, after setting a conservation target of 11%, the decision the German government made was: no, they can't. The old lignite plants are very high emitting and new coal plants will have lower emissions per kWh of output, even though they will be using technology that was commercially viable 15 years ago. But most of the new plants will have higher generation capacity than the plants they are replacing and the anticipated result is a net GHG increase. If you cruise Der Spiegel you will note that high power prices became a major political issue in Germany in late 2007/early 2008. "Heating and electricity bills have...recently climbed to that point that they now account for 40 percent of total housing costs." (der spiegel o5/09/2008) The German electricity market is not easy to understand. From 1995 through 2007, household electricity demand grew just under 10%--about in line with population growth. At first, that looks far from out of control. But over that period a large chunk of German households switched from coal and oil to imported natural gas for heat, hot water and to run certain appliances, like stoves and ovens. For a while, much as you suggest, it looked like high electricity prices might be tolerable, because electricity accounted for a relatively small share of total household energy demand. But then the price of natural gas skyrocketed and the price of coal doubled. In 2008 German natural gas distributors demanded approval of a huge rate increases after electric utilities got a 20% rate increase approved in 2007. In May 2008, discussing the proposed natural gas price increases, Der Speigel reported: "The average three-person household would then have to pay around €400 ($622) more for natural gas than it does today. From around their current €1,600 value, heating bills would jump to as high as €2,000. Even energy providers themselves believe that this would reach a magnitude that many households would find very difficult or impossible to bear. In recent years, public utilities have already reported a growing trend of outstanding debts, as more and more customers are unable to pay their bills...Likewise, for electricity prices, no relief is in sight for consumers or the industry, and the already record prices will continue to soar.” One challenge in trying to understand German (and a number of other European nation) electricity prices is that the true cost of transmission is not transparent. I think (but cannot know for sure) that if we could see all the numbers we might conclude that the German policy to build transmission to chase renewable power resources is unwise. Recognizing that we need more transmission capacity to realize our clean power goals, the question is: can we execute a more rational transmission capacity expansion plan than they appear to have done?On Myth: Unlike cap-and-trade, a carbon tax is simple, immune to manipulation, & politically palatable posted 7 months, 3 weeks ago 44 Responses

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  Great piece, congratulations. My guess is that when it comes to implementation details (relative merits of government setting prices through taxation, etc.) author KC Golden and I might not agree. But he sure is right about how to get a rational and meaningful policy development process started.On Climate policy question #1 is simple: "Are we in?" posted 7 months, 3 weeks ago 4 Responses