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EarthFix Conversation: A Stand-Up Economist's Take On Capping Carbon

File photo of Yorum Bauman delivering his 'stand-up economist' routine in 2013. Bauman has a PhD in economics and has thoughts on what states like Washington can do to curb carbon emissions under newly proposed EPA rules.
Ashley Ahearn
File photo of Yorum Bauman delivering his 'stand-up economist' routine in 2013. Bauman has a PhD in economics and has thoughts on what states like Washington can do to curb carbon emissions under newly proposed EPA rules.

On Monday the Environmental Protection Agency announced a new set of rules under the Clean Air Act that will require states to cut carbon dioxide emissions from power plants by 30 percent by 2030, as compared to 2005 levels.

The new rules will give states the latitude to choose how they go about lowering CO2 emissions.

Yoram Bauman has an idea for them: He’s been advocating for a tax on carbon emissions in Washington State for the past 5 years.

He’s also a – the only one of his kind. He spoke with EarthFix’s Ashley Ahearn.

Ashley Ahearn: Ok Yoram, what’s a stand-up economist?

Yoram Bauman: Believe it or not I have a PhD in economics but I make a living doing stand up comedy about economics so I entertain colleges and corporate events and tell jokes about economics, make people think a little bit, and talk a little bit about climate change and carbon taxes.

Ahearn: So what’s funny about a carbon tax?

Bauman: Well I will admit it’s not the most hilarious part of my routine. I do have a couple of jokes. So George Will came to one of my classes a couple of years ago. He’s a conservative columnist for the Washington Post. He doesn’t even believe that humans are partly responsible for increasing global temperatures but I asked him if he’d support replacing part of the payroll tax, part of the employment tax in this country, with a carbon tax. And he said he’s all for it because he hates the payroll tax. And with unemployment at 7 percent I hate the payroll tax.

Al Gore hates the payroll tax. Al Gore says we should tax what we burn and not what we earn. I asked George Will what he thought about the fact that he and Al Gore agreed on this particular issue and George Will said “well an issue should not be held responsible for the people who believe in it.” So that’s a pretty good line. It’s probably my best joke about carbon taxes.

Ahearn: So how do you sell people that are skeptical? It sounds like you made a good argument to the columnist but in general, what’s the pitch to people who maybe don’t think putting a price on carbon is a really good idea?

Bauman: I think it’s sort of twofold. One is I try to come at it from the tax reform perspective and say, “hey look, are you happy with the tax system that we have now?” and pretty much nobody is. And so we can think about ways to make the tax system a little better and having a tax on pollution and using the revenue to reduce taxes on good things like jobs and income and savings and investment is really an idea that lots of folks can get behind. Certainly lots of folks across the political spectrum think that it’s a good idea.

I think the other pitch that I make to them, and this is a little more of a challenge, is to say, “look, we can either do this a market-friendly way or we could do this sort of a more complicated way with federal regulations, state regulations, a lot more of heavy handed government intervention.

Bauman: I think it’s really a matter for states to decide how they’re going to go about implementing the requirements that the federal government has handed down. I think the federal government has provided a fair amount of leeway for the states to choose their own path forward as long as they’re reducing carbon.

Ahearn: There’s been an ongoing debate about whether it should be a tax or it should be a cap and trade system. Now with this federal ruling it looks like states can choose their own adventure, if you will. Which adventure should they choose, Yoram?

Bauman: Well, so the first thing from an economics perspective is those policies are a lot more similar than they are different. So you can do either of them really well, I think. If I had to choose I would certainly prefer a carbon tax approach. I think it’s cleaner. I think it’s simpler. I think it’s more transparent and there’s a great model.

So everybody talks about California, which has this cap-and-trade system. It’s pretty complicated. It’s still being rolled out. We’re still waiting to see what happens with some lawsuits with how well the program works as it expands over the next couple of years.

In contrast to that, B.C. has had a carbon tax since 2008. It’s worked already. It’s been fully in place since 2012. It’s reduced carbon emissions. It has support across the political spectrum up there in British Columbia. And it’s simple, and I think that’s the key message I want to convey is if we can try to keep it simple -– keep it simple and transparent -- that would be terrific.

Ahearn: But a cap-and-trade system does almost create an economy around purchasing offsets. So if one company or a power plant is emitting too much it can buy an offset from somewhere else to displace those CO2 emissions and the people that create those offsets make money. It does create an ecosystem if you will. What do you say to that? A tax is a much more simplistic form, yes, but it’s also not necessarily fostering business.

Bauman: You can accomplish almost the same things with a tax that you can with a cap and trade. So for instance, the example that you gave, let’s say you have a dairy farm that can capture some of the methane then you can get offsets for that in a California cap and trade system. You could also set up a system where you have a carbon tax and companies can get a tax credit if they fund these methane digesters on farms. So pretty much anything you can do with one you can do with the other so I think the same economic incentives that you set up with cap and trade, you can mimic those with a carbon tax system.

Ahearn: And finally, what does this mean for the average person, for me when I go to the pump to fill up my car?

Bauman: Well, it depends on what the price of carbon is going to be, either through a carbon tax or a cap-and-trade system. The rough calculation is if you look at a California-style cap-and-trade system right now their permit prices are about $12 per ton of CO2. That’s approximately 12 cents a gallon of gasoline.

British Columbia, $30 per ton of CO2, approximately 30 cents a gallon of gasoline. Now keep in mind that money doesn’t just go into a hole in the ground. British Columbia is using it to provide the lowest personal income tax rates in Canada. California is using their money to fund energy efficiency programs and things like that.

Yoram Bauman is a fellow at the Sightline Institute. His new book is “The Cartoon Introduction to Climate Change” and he’ll be speaking at Town Hall Seattle on June 9.

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Ashley Ahearn