If the adjustments are asymmetric \u2013 larger increases when prices fall, and smaller decreases when prices rise \u2013 this system would gradually raise the overall carbon tax, even as it follows a counter-cyclical pattern. Such an incremental increase is what most models for controlling climate change call for.<\/p>\n
Consider this scenario. Imagine that in December 2014, policymakers introduced a tax of $100 per metric ton of carbon (equivalent to a $27 tax on CO2<\/sub>). For American consumers, the immediate impact of this new tax \u2013 assuming its costs were passed fully onto consumers \u2013 would have been a $0.24 increase in the average national price of a gallon of gasoline, from $2.23 to $2.47, still far below the highs of 2007 and 2008.<\/p>\n If, since then, each $5 increase in the oil price brought a $30 per ton decrease in the carbon tax, and each $5 decline brought a $45-per-ton increase, the result would be a $0.91 difference between the standard market price and the actual tax-inclusive consumer price last month [see figure]. That increase would have raised the carbon price substantially, providing governments with revenue \u2013 reaching $375 per ton of carbon today \u2013 to apply to meeting fiscal priorities, all while cushioning the fall in gasoline prices caused by the steep decline in the price of crude. While $375 per ton is a very high price, reflecting the particularly low price of oil today, even a lower carbon price \u2013 in the range of $150-250 per ton \u2013 would be sufficient to meet international climate goals over the next decade.<\/p>\n With this approach, policymakers could use the market to help propel their economies away from dependence on fossil fuels, redistributing producer surplus (profits) from oil producers to the treasuries of importing countries, without placing too large or sudden a burden on consumers. In fact, by stabilizing user costs, it would offer significant gains.<\/p>\n The key to this strategy\u2019s political feasibility is to launch it while prices are very low. Once it is in place, it will become a little-noticed, politically uncontroversial part of pricing for gasoline (and other products) \u2013 one that produces far-reaching benefits. Some of the revenue could be returned to the public in the form of tax cuts or research support.<\/p>\n Despite the obvious benefits of a variable carbon tax, no country has capitalized on today\u2019s low oil prices to raise carbon prices in this or a similar form, though US President Barack Obama\u2019s call for a\u00a0tax on oil<\/a>\u00a0suggests that he recognizes the opening low prices represent. This should change. The opportunity to implement a policy that is simultaneously sensible, flexible, gentle, and effective in advancing national and global goals does not arise very often. Policymakers must seize it when it does. The time for a variable stabilizing carbon tax is now.<\/p>\n","protected":false},"excerpt":{"rendered":" Kemal Dervis and Karim Foda write: Over the last few decades, oil prices have fluctuated widely \u2013 ranging from $10 to $140 a barrel \u2013 posing a challenge to producers and consumers alike. For policymakers, however, these fluctuations present an … Continue reading
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