Bonn – Are Developing Countries Asking For the Wrong Thing?

Yesterday’s news:

BONN, Germany (Reuters) – China, India and other developing nations joined forces on Wednesday to urge rich countries to make far deeper cuts in greenhouse gas emissions than planned by 2020 to slow global warming.

I’m sure that the mental model behind this runs something like, “the developed world created most of the problem up to this point, and they’re rich, so they should get busy making deep cuts, while we grow a little more to catch up.” Regardless of fairness considerations, that approach ignores the physics of the situation. If developing countries continue to increase emissions, it hardly matters how deep cuts are in the rich world. Either everyone plays along, or mitigation doesn’t work.

I fired up C-ROADS and ran a few scenarios to illustrate:

C-ROADS reduction scenarios

The top blue line is the AIFI business-as-usual, with rapid emissions growth. If rich nations stabilize emissions as of today, you get the red line – still much more than 2x CO2 at the end of the century. Whether the rich start cutting emissions a little (1%/yr, green) or a lot (5%/yr, green) after that makes relatively little difference, because emissions from the rich world quickly become a small share of the total. Getting everyone to merely stabilize emissions (at 2009 levels for the rich, 2020 for developing countries, black) makes a substantially bigger difference than deep cuts by the rich alone. Stabilizing CO2 in the atmosphere at a low level requires deep cuts by everyone (here 4%/year, brown).

If we’re serious about stabilization, it doesn’t make sense for the rich to decarbonize faster, so that the developing world can construct more carbon-dependent capital that will ultimately have to be deconstructed. It may sound “fair” in carbon-per-capita terms, but I don’t think that’s a very good measure of human welfare, and it’s unlikely to end up with a fair distribution of damages.

If the developing countries are really concerned about climate impacts (as they should be), they should be looking to the rich world for help getting onto a low-carbon path today, not in 20 years. They should also be willing to impose a carbon price on themselves. It won’t collapse their economies any more than it will ours. Without a price on carbon, rebound effects and leakage will eat up most gains, as the private sector responds to the real signal: “go green (but the price of carbon is zero, wink wink nudge nudge).” Their request to the rich should be about the transfers, property rights, and other changes it takes to get the job done with some measure of distributional fairness (a topic that won’t be popular in some circles).

Is the BC Carbon Tax Fair?

That’s the title of a post today at The Progressive Economics Forum, introducing a new report from the Canadian Centre for Policy Alternatives.

The bottom line:

In this study, we model the distribution of BC’s carbon tax and recycling measures. Our results conirm that BC’s carbon tax, in and of itself, is regressive. However, the overall carbon tax and recycling framework is modestly progressive in 2008/09 ’” that is, low-income families get back more in credits, on average, than they pay in carbon taxes. If the low-income credit is not expanded, however, the regime will shift to become regressive by 2010/11. It is important for policy makers to rectify this situation in the 2009 and future budgets by minimally ensuring that the credit grows in line with the carbon tax.

A related problem:

A second concern with the carbon tax regime is that tax cuts undermine a progressive outcome at the top of the income scale. In 2008/09, personal and corporate income tax cuts lead to an average net gain for the top 20% of households that is larger in dollar terms than for the bottom 40%.

I plotted the results in the report’s tables to show some of these effects. In 2009, the lowest income groups (quintiles 1-3) come out a little ahead, but the 4th quintile faces a net loss, while the top income group is overcompensated by the corporate tax cut:

BC carbon tax incidence and rebate distribution

Continue reading “Is the BC Carbon Tax Fair?”