Carbon Tax: The French Connection

Last week, European finance expert Éloi Laurent published a new paper on the new French carbon tax (Carbon Tax: The French Connection, The Economists' Voice: Vol. 6 : Iss. 13, Article 2 {2009}). You can find the abstract from his article below via Tax Prof, or download the full PDF by clicking here.

In early 2010, France will introduce a carbon tax, becoming the largest economy in the world to do so. According to Éloi Laurent, the introduction of a carbon tax in France is a good example that ecologically efficient and socially fair solutions do exist to curb climate change, but that it takes public pedagogy, sound economic reasoning and above all political courage to bring them into being.

Senators Attack Carbon Tax Proposals On US Imports

Earlier in the week a handful of senior Democratic Senators announced that they would be changing a provision in a bill recently passed by the House of Representatives that imposes carbon taxes on imports. According to FT.com, the original bill contained “tough provisions to impose carbon tariffs, aimed at protecting American companies’ competitiveness against imports from countries without equivalent carbon emission controls.” Both leaders in the Senate, and the Obama administration have warned that such a provision could spark a global trade war, and Chinese officials have already spoken out about it.

Senator John Kerry, who is helping to write the senate’s version of the bill, said in a hearing on the issue on Wednesday: “We have already come to the conclusion in working on the Senate bill that we’re going to try and change that provision . . . we haven’t landed yet completely on where we come out”.

Max Baucus, the Democrat senator who chairs the senate finance committee, said any provisions that “provoke retaliation from our trading partners will only hurt the same industries we’re trying to help”, adding that he was “confident we can craft legislation that strikes the right balance”.

Differences in the two versions of the bill will eventually have to be reconciled before passing into law.

President Barack Obama has warned the House’s carbon tariffs plan could send the wrong signal to trading partners. India called the measures “pernicious” while China said they would violate World Trade Organization principles and amounted to “trade protectionism in the disguise of environmental protection”.

A recent report from the WTO said that such “border tax adjustments” could in theory be made consistent with WTO rules, but trade lawyers stress that crafting such laws is likely to be very difficult in practice.

Continue reading this story at FT.com.

House Bill For a Carbon Tax To Cut Emissions Faces A Steep Climb

From The New York Times:

Representative John B. Larson embarked again this week on his lonely quest to enact a national tax on carbon dioxide emissions.

His idea is to set a modest price on a ton of emissions, gradually increasing it each year until the desired reduction in heat-trapping-gas pollution is achieved. Under the bill he introduced this week, virtually all the revenues from the tax would be returned to the public in lower payroll taxes.

“The American people want us to level with them,” Mr. Larson, a moderate Democrat from Connecticut and a member of the House leadership, said in an interview. “We create price certainty without any new bureaucracies or complicated auction schemes.”

Many economists and academics, as well as a handful of Mr. Larson’s colleagues on both sides of the aisle and perhaps a few White House officials, if secretly, agree that a carbon tax is a simpler and more effective means of tackling global warming than the complex cap-and-trade scheme embraced by the Obama administration and most Democratic leaders in Congress.

The supporters of a carbon tax have watched as the new European cap-and-trade system has failed to achieve its emissions goals while prices for carbon permits have gyrated. They see taxing as a more effective means of cutting emissions than cap-and-trade or other hybrid plans now under consideration.

But for a variety of political, environmental and economic reasons, a national carbon tax is probably going nowhere.

Mr. Obama and Democratic leaders argue that cap-and-trade, in which polluters must either reduce emissions on their own or buy credits from more efficient companies, is a better system for assuring reductions, letting the market set the right to pollute.

But the main reason most in Washington recoil against a carbon tax is political: few are willing to openly advocate billions of dollars in new taxes at a time of economic distress, even though a cap-and-trade program also means higher energy prices.