distribution Archives

The RGGI budget raid and cap & trade credibility

I haven’t been watching the Regional Greenhouse Gas Initiative very closely, but some questions from a colleague prompted me to do a little sniffing around. I happened to run across this item:

Warnings realized in RGGI budget raid

The Business and Industry Association of New Hampshire was not surprised that the Legislature on Wednesday took $3.1 million in Regional Greenhouse Gas Initiative funds to help balance the state budget.

“We warned everybody two years ago that this is a big pot of money that is ripe for the plucking, and that’s exactly what happened,” said David Juvet, the organization’s vice president.

Indeed, the raid happened without any real debate at all. In fact, the only other RGGI-related proposal – backed by Republicans – was to take even more money from the fund.

… New York state lawmakers grabbed $90 million in RGGI funds last December. Shortly afterwards, New Jersey followed suit taking $65 million in the last budget year. And “the governor left the door wide open for next year. They are taking it all,” said Matt Elliott of Environment New Jersey. …

This is a problem because it confirms the talking point of “cap & tax” opponents, that emissions revenue streams will be commandeered for government largesse. There is a simple solution, I think, which is to redistribute the proceeds transparently, so that it’s obvious that a raid on revenues is a raid on pocketbooks. The BC carbon tax did that initially, though it’s apparently falling off the wagon.

Cumulative Normal Distribution

Vensim doesn’t have a function for the cumulative normal distribution, but it’s easy to implement via a macro. I used to use a polynomial cited in Numerical Recipes (error function, Ch. 6.2):

:MACRO: NCDF(x)

NCDF = 1-Complementary Normal CDF

~	dmnl

~		|

Complementary Normal CDF=
ERFCy/2
~	dmnl
~		|

ERFCy = IF THEN ELSE(y>=0,ans,2-ans)
~	dmnl
~	http://www.library.cornell.edu/nr/bookcpdf/c6-2.pdf
|

y = x/sqrt(2)
~	dmnl
~		|

ans=t*exp(-z*z-1.26551+t*(1.00002+t*(0.374092+t*(0.0967842+
t*(-0.186288+t*(0.278868+t*(-1.1352+t*(1.48852+
t*(-0.822152+t*0.170873)))))))))
~	dmnl
~		|

t=1/(1+0.5*z)
~	dmnl
~		|

z = ABS(y)
~	dmnl
~		|

:END OF MACRO:

I recently discovered a better approximation here, from algorithm 26.2.17 in Abromowitz and Stegun, Handbook of Mathematical Functions:

:MACRO: NCDF2(x)

NCDF2 =  IF THEN ELSE(x >= 0,

(1 - c * exp( -x * x / 2 ) * t *

( t *( t * ( t * ( t * b5 + b4 ) + b3 ) + b2 ) + b1 )),  ( c * exp( -x * x / 2 ) * t *

( t *( t * ( t * ( t * b5 + b4 ) + b3 ) + b2 ) + b1 ))

~     dmnl

~     From http://www.sitmo.com/doc/Calculating_the_Cumulative_Normal_Distribution

Implements algorithm 26.2.17 from Abromowitz and Stegun, Handbook of Mathematical

Functions. It has a maximum absolute error of 7.5e^-8.

http://www.math.sfu.ca/

c  =  0.398942

~     dmnl

~           |

t = IF THEN ELSE( x >= 0, 1/(1+p*x), 1/(1-p*x))

~     dmnl

~           |

b5 =  1.33027

~     dmnl

~           |

b4 = -1.82126

~     dmnl

~           |

b3 =  1.78148

~     dmnl

~           |

b2 = -0.356564

~     dmnl

~           |

b1 =  0.319382

~     dmnl

~           |

p  =  0.231642

~     dmnl

~           |

:END OF MACRO:

In advanced Vensim versions, paste the macro into the header of your model (View>As Text). Otherwise, you can implement the equations inside the macro directly in your model.

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?”