Letter to Carbon Tax Proponent

Dear Carbon Tax Supporter:

How exactly do you envision a carbon tax and dividend system operating? In previous papers it appears that you and those that agree with you argue for a monthly equally divided distribution among all adults with all children receiving ½ of what an adult receives. Most proponents argue that this dividend should significantly reduce the regressive nature of the carbon tax seeing that the poor spend a higher percentage of their money on energy and food (the price of which will also increase under a carbon tax).

This belief seems unsound because that type of carbon tax may be even more regressive than people think. For some reason proponents seem to take the attitude that the status quo will remain in that those with higher wealth will always be contributing a larger proportional percentage to the total carbon tax revenue. This reasoning appears flawed for due to the high capital costs associated with reducing one’s carbon footprint (buying solar panels, electrical vehicles, increasing home efficiency etc.), which can be more easily purchased by the rich over the poor. When faced with a permanent and significant new cost associated with energy consumption, it seems rational that the rich would change energy mediums as soon as possible to reduce the total amount of money they need to pay, especially if it is to the ‘big evil government’.

If this carbon tax increases over time (which it very probable to have any significant effect at reducing carbon emissions), then it becomes even more regressive relative to time in a duel manner. Not only does the tax increase provide greater negative impact against those with lower probabilities of emission reduction (the poor), but because the rich will also progressively lower their carbon emissions, through the purchase of the aforementioned high capital products, the volume and magnitude of those taxed will be reduced and with it the total amount of the dividend distributed from the carbon tax.

In addition the monthly payout schedule seems detrimental to the poor because of the lack of scale capital available to make those capital intensive purposes. For example suppose a family of four (2 adults and 2 children) receives 9,000 dollars in dividend (3,000 + 3,000 + 1,500 + 1,500) over the course of a year, but that dividend is split into twelve $750 monthly payments. It is difficult to imagine a family saving a vast majority of that money over the course of a year when still having to paying increased prices on electricity, gasoline and other energy because they do not have the funds to avoid these fees with significant difficulty by changing their medium of energy acquisition. This rationality seems almost parallel with school vouchers and the erroneous belief that those vouchers actually offer a real level of school choice. Overall with this concern a lump-sum payment at the beginning of the year of 9,000 dollars may be a more practical payout schedule to drive emission reduction in the middle and lower economic classes.

One concern to the above proposal could be the question of whether individuals will make wise consumer choices with such a lump sum of money. However, the nature of the dividend program must be to grant these individuals the opportunity to make choices that will reduce carbon emissions, it is not the obligation of the program to make these decisions for them.

Finally current analysis from the Climate Justice Project of the best empirical model, the carbon tax in British Columbia, has concluded that the poor have born more than their proportional share of the burden from the tax. Overall either this analysis is in error in some manner or proponents need to reevaluate how they present a carbon tax and dividend system. So what is your opinion on these potential concerns?

Note that this is not opposition to the idea of a carbon tax, but instead taking issue with the lack of details provided by almost all current carbon tax proposals.