Why California Should Adopt a Global Warming Gas Emission Fee

By: David A. Bainbridge

Failed states are growing in number–Somalia, the Congo, Afghanistan, Iceland, Greece, Ireland, and California? If California can’t eliminate its structural deficit and get expenditures and revenues to match, the future is likely to be very grim. Governor-elect Brown faces an enormous challenge – but brings a breadth of experience and wisdom to the task. Hopefully, he will encourage some out-of-the-box thinking and be able to engineer some cross party cooperation.

How bad is it? Despite increasingly Draconian cuts, California needs to find $28 Billion to begin closing the budget gap. The Democrats and Republicans disagree on the options – and no one seems willing to admit the reality – there will have to be further cuts and significant increases in taxes or fees to avoid a complete breakdown. And the poorest and most vulnerable will be hit hardest.

One answer is clear: we should institute a state Global Warming Gas Emission fee. This sounds radical in California in 2010, but was first enacted twenty years ago in Finland in 1990, followed by Sweden in 1991. Sweden has cut emissions 9% at a time when most other country’s emissions were rising steadily. It has made Sweden’s industries and businesses more energy efficient and competitive. Sweden currently has a deficit to GDP ratio of only 1% compared to 1.4% for California, 12% for the U.S. and 14.4% for Ireland.

California’s economy is now the eighth largest in the world with major GHG emissions. Thanks to landmark legislation (AB32), defended by California’s voters this year, California’s total GHG emissions are now monitored and estimated by the Air Resources Board. In 2008 the CO2 equivalent emissions had leveled off at about 478 million metric tons thanks to the efforts of the California Energy Commission, the Public Utilities Commission, the legislature, and the innovative companies and organizations in California. GHG emissions per dollar of GDP dropped 28% from 2000 to 2008. California emissions are still double Sweden’s per million dollars GDP.

But we can do much better. Rather than trying to Cap and Trade emissions (a messy and inefficient process) we should simply institute a Global Heating Gas emission fee. If we assume that we can cut another $9 billion from the deficit – then we would need to charge only $21 dollars per ton to bridge the budget gap. This is about what Sweden started charging in 1991 and half the current charge in Sweden ($40 per ton of CO2).

We can also look north for inspiration. British Columbia inaugurated a carbon tax in 2008 starting at $10 (Canadian) per metric ton of carbon dioxide, rising $5/ton annually to reach $20 in 2010 and $30 in 2012. British Columbia was not in crisis, so all of the BC carbon tax revenues are being returned to taxpayers through personal income and business income tax cuts, as promised by then-BC finance minister Carole Taylor, who spearheaded the push for the tax.

The carbon dioxide emissions fee would not be popular with anyone except the green power producers and the environmental organizations; but like mom’s spoonful of cod-liver oil when we were sick, a little ick can make good medicine. I would suggest $20 ton in 2011, rising at $5 a year. Once revenues are balanced with expenditures all future increases in CO2 fees would be used to offset personal income and business tax.

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