Proposing Carbon Taxes in Charlotte

MEMORANDUM

To: Mayor Daniel Clodfelter, Charlotte, NC
From: Polly Ukrop, Davidson College
Date: February 2015
Subject: Instituting a Carbon Tax in the City of Charlotte

Introduction

Carbon dioxide (CO₂) emissions from human activities are an increasingly tremendous threat to the Earth’s atmosphere, and as a result on our environment and humankind. While improvements towards greenhouse gas (GHG) reduction have been made since the signing of the Kyoto Protocol in 1997, there is still significant work to be done, specifically in targeting CO₂ emissions. I propose implementing a carbon tax in Charlotte on CO₂ emitting sources. With the recently drastic drop in oil prices and advances in clean energy, politicians should act now to revise our energy policies[1] A carbon tax would place an economic disincentive on carbon-emitting activity, discouraging atmospheric CO₂ pollution and thus encouraging alternative energy technology innovation.[2] Further, the tax could create a local revenue stream that can be returned to the city in other forms of benefits.

Problem Analysis and Background

The country stands at a crossroads right now, confronted with the choice of continuing down our destructive path or following one of less environmental impact. Following the example of cities and countries worldwide, Charlotte could be a leader in CO₂ reduction and abatement with this policy.

Historic significance:

• While CO₂ emissions predate the human race, levels have increased since the industrial revolution, seeing in 2008 amounts 37.5% higher than pre-industrial times.[3]
• In 1997, the Kyoto Protocol provided an international instrument for reducing CO₂ emissions, committing more developed countries to reduction while less developed countries monitor their emissions.[4] Because of this protocol and ensuing accords, cities have since set out to lessen their carbon impact.

Environmental degradation:

• CO₂ emissions contribute directly to global climate change and ocean acidification.[5]
• In 2012, CO₂ accounted for about 82% of all U.S. GHG emissions from human activity.[6]

Charlotte:

• Mecklenburg County residents use 21% more electricity than the average American.[7]
• Charlotte has the sixteenth largest urban population in the United States.[8]
• By 2030, Charlotte aims to have 25% of its energy supplied by carbon-free renewable sources, and for energy usage per person to be reduced by at least 20%.[9]

Similar initiatives:

• In 2006, Boulder passed the Climate Action Plan tax, the nation’s first tax designed for climate change mitigation.[10]
• Several countries have introduced national carbon taxes to combat climate change, including Denmark, Switzerland, Sweden, Norway, Holland, Finland, Austria, Italy, and Germany.[11]

Policy Recommendation

1. Implement an upstream carbon tax at the point of extraction of $25 per ton with the tax rate rising at a rate of around 2 to 3 percent per year.[12] This rate could reduce CO₂ emissions by around 10% per year and help Charlotte work toward and surpass its 2030 goals.[13]
2. The tax could be either revenue neutral, meaning that the revenue from the tax is used to offset the revenues lost from the tax cuts, or used to help society elsewhere.[14] The tax revenues could be used in the following ways:
   1. To reduce deficits.[15]
   2. To cut marginal tax rates.[16]
   3. To reduce adverse effects on selected groups who may bear a disproportionate burden.[17]
   4. To invest in alternative energy technology.

Explanation and Analysis

Charlotte has the opportunity to set the national standard for local carbon reduction. This tax would not only discourage carbon-emitting behaviors but it would also increase technological innovation, bolstering both the economy and the environment.

Strengths:

An effective carbon tax will do three things: provide incentives for energy conservation, promote higher utilization of power plants that are low emitters, and encourage the development of new technologies.[18] The economic disincentives of carbon would help shift the consumption trends from fossil fuels to other alternative energies, hinting to firms and consumers alike to use cleaner energy sources. Further, this tax is often considered a “Pigouvian tax,” which could be used to correct the negative externalities associated with carbon use, depending on how the revenue stream is directed.[19] Each of the uses provides direct positive assistance to the city of Charlotte and can be decided upon contingent on the needs of the city. Finally, because the tax is implemented upstream, there are fewer entities that need regulation.[20]

Weaknesses:

The largest weakness of a carbon tax is that it is considered a regressive tax, meaning that people with low incomes will bear the weight of the tax more than those of higher incomes.[21] Further, a carbon tax would reduce the economy’s output by decreasing the supply of labor and the amount of investment.[22] Finally, the tax would be likely to face much scrutiny from voters not in favor of higher taxes.

Opportunities:

As one of the first cities to enact such a policy, Charlotte could be a leader in carbon reduction and help encourage others to follow suit. Further, the tax will help increase innovation, which could bring new industries to the city and help strengthen the economy. Finally, because Boulder, CO has already implemented a similar tax, administrators could look for their guidance in establishing the policy in Charlotte.

Threats:

Increased taxes in Charlotte may encourage businesses and individuals to relocate to other cities or states with less intensive taxes. Further, many are politically opposed to implementing the tax so it may contribute to further voter polarization.

Conclusion

With the price of oil at historical lows policymakers need to seize this opportunity to change energy policy in the United States. By adding a tax while the price of oil is low, it will help provide a buffer for consumers when the price inevitably rises again, and will consequently encourage more growth within the alternative energy markets. With revenues returned directly to the city, Charlotte can benefit not only from an environmental perspective but a social and economic one as well. To avoid the regressive tax effects, policy makers could look to allocate tax revenues to those disproportionally affected. This policy will make Charlotte a leader in green policy and help consumers and businesses alike become more aware of their environmental impact.

References

[2] Corbett, J. in Climate Change: In Context (eds Lerner, B. W. & Lerner, K. L.) 176-178 (Gale, Detroit, 2008)

[3] Environmental Science: In Context (eds Lerner, B. W. & Lerner, K. L.) 85-89 (Gale, Detroit, 2009)

[4] Environmental Science: In Context (eds Lerner, B. W. & Lerner, K. L.) 85-89 (Gale, Detroit, 2009)

[5] Environmental Science: In Context (eds Lerner, B. W. & Lerner, K. L.) 85-89 (Gale, Detroit, 2009)

[6] Overview of Greenhouse Gases, http://www.epa.gov/climatechange/ghgemissions/gases/co2.html (2014)

[7] Charlotte-Mecklenburg Sustainability Report Card, Sustain Charlotte http://www.sustaincharlotte.org/energy (2014)

[8] Bell, A. Census numbers show Charlotte now 16th largest city in the U.S. by population. The Charlotte Observer (2014)

[9]Energy, Sustain Charlotte http://www.sustaincharlotte.org/energy (2014)

[10] Climate Action Home Page, https://bouldercolorado.gov/climate (2015)

[11] Environmental Science: In Context (eds Lerner, B. W. & Lerner, K. L.) 85-89 (Gale, Detroit, 2009)

[12] Considering a Carbon Tax: Frequently Asked Questions, Center for Energy and Climate Economics http://www.rff.org/centers/energy_and_climate_economics/Pages/Carbon_Tax_FAQs.aspx#Q15 (2014)

[13] Considering a Carbon Tax: Frequently Asked Questions, Center for Energy and Climate Economics http://www.rff.org/centers/energy_and_climate_economics/Pages/Carbon_Tax_FAQs.aspx#Q15 (2014)

[14] Milne, J. The Reality of Carbon Taxes In the 21st Century.Vermont Law School (2008)

[15] Effects of a Carbon Tax on the Economy and the Environment. Congressional Budget Office (2013)

[16] Effects of a Carbon Tax on the Economy and the Environment. CBO (2013)

[17] Effects of a Carbon Tax on the Economy and the Environment. CBO (2013)

[18] Anderson, P. The case for federal carbon tax. Charlotte Business Journal (2005)

[19] Burns, W. C. G. in Green Energy: An A-to-Z Guide (eds Mulvaney, D. & Robbins, P.) 57-61 (SAGE Reference, Thousand Oaks, CA, 2011)

[20] Considering a Carbon Tax: Frequently Asked Questions, Center for Energy and Climate Economics http://www.rff.org/centers/energy_and_climate_economics/Pages/Carbon_Tax_FAQs.aspx#Q15 (2014)

[21] Encyclopedia of Environment and Society (ed Robbins, P.) 211-212 (SAGE Publications, Thousand Oaks, CA, 2007)

[22] Effects of a Carbon Tax on the Economy and the Environment. CBO (2013)

About Polly Ukrop

I am an Environmental Studies senior at Davidson College interested in Corporate Sustainability and the always complicated balancing act of interests that businesses, politicians and society face in working towards a greener tomorrow.

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