What would a realistic Carbon Tax look like?

So if we (Canada) were to set flat carbon cost at a reasonable $.6/kg ($600/ton) instead of our current $.02 rising to $.05 in two years with the big polluters excluded, what would happen? Would it be effective at changing people's behaviour?

Fuel

  • Crude would go up by $258/barrel (currently $60)
  • Oil Sands crude up by $309/barrel (20% more carbon/barrel)
  • Gasoline at the pump would be $1.6/L more (currently $1.20 with ~$.80 of that being taxes)
  • 40L tank would be $64 dollars more
  • Average yearly gasoline cost increase $3200

This is 1970s gas shock level change, people actually car pooling, buying smaller cars, taking transit, building transit, etc.

Likely to change behaviour: yes
Likely to cause blow-back: yes

Cars

Purchase only estimates, just for the inputs, with nothing assigned for the running of them:

  • Small runabout: $3600 more
  • Big sedan: $10,000 more
  • Big electric sedan: $13,000 more
  • Luxury SUV: $21,000 more

Likely to change behaviour: yes
Likely to cause blow-back: yes

Electricity and Heating

Electricity (increase per kWh, currently 20¢ peak)

  • Coal: 49¢
  • Gas: 29¢
  • Solar PV: 3 to 11¢
  • Wind: 1¢
  • Nuclear: 1 to 6¢
  • Electricity cost increase for a battery-electric car would be dependent on your local electricity producer's mix, lower in Quebec (hydro), BC (hydro) and Ontario (nuclear), higher in the prairies, lowering as grids de-carbonise

Likely to change behaviour: yes
Likely to cause blow-back: yes

Home heating increase (this is Canada): $6700/year (assuming gas heating)

Likely to change behaviour: not likely (people who can will likely try to improve efficiency)
Likely to cause blow-back: yes

Home

  • New homes: $30,000 more
  • Renovated homes: $9,000 more

Everyone still needs a place to live. You might see home-builders using lower-carbon alternatives (concrete etc) where they otherwise wouldn't bother.

Likely to change behaviour: not hugely

Travel

Plane trips would cost $150/hr more:

  • a 6 hour flight (e.g. Europe) for a family of 4 would be $3600 more, $7200 round-trip
  • a winter vacation to Cuba (from Toronto) would be $1200 more, or $4800 for a family of 4

Likely to change behaviour: yes
Likely to cause blow-back: maybe

  • Avg cruise ship trip would be $491 more, but you'd also have to pay for getting there (normally by plane)
  • Family of 4 would be paying $1964 more.

Likely to change behaviour: maybe

Diet

  • Meaty Diet: $1980/year extra
  • Average Diet: $1500/year extra
  • Veggie Diet: $1020/year extra

To put that in perspective, the meaty diet is penalised $20/week more than the Veggie diet. Would that get you to reduce the amount of meat you ate? Would $20/week charge dramatically change the amount of food you waste each week?

Likely to change behaviour: maybe

Farming/Land Use

Growing one hectare (2.5 acres) of bamboo would be worth around $3000 (5t/year in tax credits) if the bamboo is then put somewhere without burning (e.g. used in a building). But you would almost certainly need to do it somewhere warmer than Canada, at least until Canada warms a few more degrees. Corn or soybeans might gross around $1600/ha in a good year with production costs often nearly the same as revenue. Bamboo costs around $1600/ha to start but doesn't produce income for approximately five years.

Reasonable farm profit might be ~$50/ha in Canada for soy/wheat/corn, maybe $400/ha for intensive farming (veggies, etc), Bamboo likely currently can generate nearly $1000/ha (in addition to the carbon credits), but note that revenue would go down significantly as supply grows.

Likely to change behaviour: maybe (high upfront cost, long investment period, but $4000/ha potential revenue might sway some farmers, more likely to get near-fallow land used with an investment funding strategy)

Hemp farming apparently can see close to 10 to 20t/ha, with fairly good profit per acre on the result crop (in Canada we'd be at the low end as we can't do two plantings). That would translate to $6000/ha in carbon credits as well as extra cash for the resulting product. However, my strong suspicion, from the numbers I see quoted, is that the estimates of sequestering rate ignore inputs (things like fertilizer/soil depletion (you basically can't grow hemp more than 3-4 crops in a row)), but the growth rate of hemp is nearly as high as bamboo, and it will grow in Canada already. My guess is that really it's closer to 4t/ha with whole-cycle analysis, so be prepared to see something considerably less than $6000/ha, maybe more like $2000/ha. To be clear, that's still a very high payout for a farmer when they can still sell the crop.

Like the change behaviour: yes (low upfront cost, short investment period, high payout even with pessimistic assumptions, fits into current farming methods (crop rotation), some risk to food supply if too successful)

Switching to Silvopasture (raising food animals in among trees) would be worth approximately $2800/ha with a start-up cost of $500/ha (planting and growing the trees). It would also be alien to factory meat farmers. It also likely reduces in carbon-sink effectiveness after N years once the inter-tree pasture has reached saturation (though the trees will continue to sequester some carbon).

Likely to change behaviour: maybe (only small farms most likely, and they are likely already pasture vs. lot-fed)

Switching to Regenerative Agriculture (no till, crop rotations, cover plants, compost-only fertiliser, no pesticides) would be worth around $360/ha (Canadian weather being what it is) in carbon-capture credits. It would be pretty alien to most farmers. Again, likely does a good job of carbon-sinking for N years, then reaches saturation.

Likely to change behaviour: not likely (small farms a maybe)

Electronics/Appliances/Household

Your phone would cost another $48 dollars (before shipping, 80kg).

Likely to change behaviour: no, you'll still want one

  • Fridge approximately $1000 more
  • Continuing to run an inefficient one around $52/year more (vs running a new one)
  • Coolant would have a (non-trivial) fine if it's old-style HFC and you fail to recycle it (10oz of HFC in your fridge would be something like 980kg of carbon-equivalent, or around $588), maybe instead a deposit paid at purchase and returned on recycling?

Likely to change behaviour: maybe (it might have the effect of making new fridges (the ones you want people to use) too expensive to replace old/inefficient ones)

Laundry:

  • $1.40 extra for a load of laundry in warm water and dryer
  • $.40 extra for a load of laundry in cold water on the line

Likely to change behaviour: maybe a tiny bit

Hard goods:

  • A pair of flip-flops approx $9 more.
  • Hiking boots, $33 more.
  • Beer (6-pack) $2 more (mostly from cooling costs, apparently)

Likely to change behaviour: maybe a little

Why not $.05

Currently we're slowly rolling out a $0.05/kg tax in Canada. That isn't, from what I can see, going to affect much behaviour.

Go back over that list and dividing the impacts by 12:

  • Hemp farming

  • Bamboo farming (for which we're still a bit too cold)

  • Phasing out coal (which is already underway)

are about the only things where a $0.05/kg tax might cause someone to rethink the decisions they are making.

Consider these:

  • A tank of gas costs $5 more
  • Flip-flops cost $.75 more
  • Electricity costs $.04c/kWh more to use coal
  • Luxury SUV costs $1750 more
  • Trip to Europe costs $600 more
  • Meaty diet costs $1.60 more per week
  • Using the dryer costs $.15 more per load

would any of those really change your decisions as a consumer? They might annoy you, they might make you complain, but they wouldn't likely make you make a better-for-the-environment choice AFAICS.

Argumentum ad Incomus Universalus

What does revenue-neutral mean for a carbon tax (we're actually doing a 90% revenue-neutral here, but imagine).

Canada produces $420B worth of damage to the world (700M tons) on $1.7T worth of economic activity each year (a carbon cost of $15,000 per capita), which is to say, around 25% of our economic output is offloaded into the collective carbon commons. $700B of that economic activity is stuff that shouldn't be happening (i.e. fossil fuel extraction), but if we take out the estimate of carbon produced by oil and natural gas (195Mt, about 27%) we wind up with $303B that, in a revenue-neutral formulation would mean every person in Canada would have an $8000 tax credit.

The point of the tax credit being to reduce blow-back and to allow the carbon tax to more efficiently price out bad choices. With full carbon-pricing and revenue-neutrality, a family with 4 members would receive $32,000 ($60,000 if we still have fossil fuel production):

  • $4,000 would go to increased food cost
  • $6700 would go to increased cost of heating their home (shared among the family, likely closer to $10,000 because of a bigger house)
  • $3000 to increased cost of gasoline (increase if more than one car)
  • $2000 for the amortised cost difference on having a car (5-8 years)
  • $500-1000 for the amortised cost increase of a house (25 years)

Basically everything would cost more, and some big-ticket items would have some sticker-shock changes, but you most likely would find your personal finances ahead. That's because the vast majority of the carbon being released is not from individuals. However, you must assume that we would see a significant number of lost jobs and economic slowdown unless other countries were also using a similar carbon cost calculation.

Interestingly, if you scaled up to the whole world, everyone gets a $3 tax credit, because, of course, it's mostly rich countries offloading the carbon onto the world.

Of course, the real picture is inverted: it will cost each of us $15,000 every year to pay for the damage we are doing to the climate (currently) and the point of a tax credit is to try to soften the economic hardship and distribute it to those disproportionately involved in producing the problem. Or, if you like, our actual economy is not 1.7T, but 1.27T with the rest being unaccounted environmental debt. We're allowing polluters (and yes, that includes individuals), to rack up that debt on our (citizen's) credit cards.

We likely should be putting the $425B/year into actually addressing and mitigating the effects of climate change world wide, with some sort of income-indexed tax credit and then the rest of the money going to disaster relief planning, paying to sequester carbon, educating girls, helping move populations out of low-lying areas, etc.

So Why Not $.6/kg

To be clear, a $.6/kg tax ($600/ton) is likely a reasonable (but pessimistic) estimate for the global cost of a kg of emitted carbon ($177USD to $805USD with $417USD ($544) as probable, but using conservative assumptions). Why be pessimistic in the pricing? Estimates of effects of climate change are being systematically understated due to the shifting of the overton window by bad-faith actors. Every time new research comes out it seems we get another round of "well, we took a very conservative estimate to keep the fossil lobby happy, but turns out it really does hit the high end of predictions".

For every kg we emit at a $.05 rate, we're currently borrowing $.55 from the future in the form of wild weather, disasters, relocations, wars, famines, etc.

Of course, a realistic tax would, almost certainly, result in the shutdown of most if not all of Canada's $700B fossil fuel industry (40% of our economy, and likely around 250,000 jobs).  It's hard to convince a man whose pay cheque is dependent on him not being convinced. 

There is a lot of environmental, economic and social pain coming. Setting out a cost for carbon that can actually make people (really, mostly, corporations) change their behaviour is necessary to try to head off some of that pain.

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