If firms and households can show that they measurably reduced carbon emissions during the year, they do not pay a carbon tax.
Households and firms owe a carbon tax of about 5-10% of their taxable income -- unless they can show that they measurably reduced carbon emissions during a given year. Households could do this by reducing the number of miles traveled, selling a car and using public transportation, signing up for renewable energy, joining an organic co-op, or trading their old car for one with better gas mileage. Firms currently report carbon emissions to the Carbon Disclosure Project on a voluntary basis. If firms can demonstrate a decline in their carbon emissions during the course of the year, they do not have to pay the tax.
Category of the action
Mitigation - Helping U.S. enact carbon price legislation
What actions do you propose?
The federal or state government would have to administer this tax. The tax would be automatically charged as a percent of taxable income. The tax would be waived, if a person or firm could document a measurable reduction of carbon emissions during the year. While it is very difficult, if not impossible, to put a "fair" price on carbon, it is possible to set a tax similar to an income tax or sales tax as a token to represent carbon's cost to society. Firms and households can avoid this tax by taking actions that measurably reduce their carbon emissions (miles that were not driven, electricity that was not used, etc.) year - to - year.
Who will take these actions?
The government would send out tax bills and collect documentation of carbon reduction from people and firms that file for a tax waiver. If the waiver is granted, no tax payment is due. If no carbon reduction is documented, the government collects a token carbon tax. This could be a flat tax that is adjusted across income brackets, or it could be a fixed percent of taxable income. The main point would be that households and firms have an incentive to reduce carbon emissions in order to avoid the tax. Once an entity is down to zero carbon emissions and no further reductions are possible, all carbon taxes are waived.
Where will these actions be taken?
This could occur in the United States or in any other country.
How much will emissions be reduced or sequestered vs. business as usual levels?
Every year, each household and firm would have an incentive to avoid the tax by reducing carbon emissions in some way that can be documented. The exact magnitude of the reduction would not matter. Some years, it may be greater, in other years, it may be lower. The key is that, most likely, each year, some reductions are made. As long as the reduction is measurable and can be documented, the tax is waived. This continues until all carbon emissions are reduced to zero.
What are other key benefits?
People and firms have an incentive to reduce carbon year after year. The exact amount of the reduction does not necessarily have to be measured as long as it is clear that some reduction occurred, and this can be documented. It is also not necessary to assign exact dollar amounts to units of carbon emissions. As long as there is an incentive to reduce carbon emissions, they will be reduced year after year until they are gone.
What are the proposal’s costs?
The government would incur the costs of administering this program. To the extent the carbon taxes that are collected pay for this, it is not a problem. Initially, the carbon tax revenue might exceed the cost of administering the program. In that case, the funds could be used to develop renewable energy, organic farming, or pay for related expenses. Later, as some firms and households will have achieved zero emissions, the size of the program and its costs will naturally shrink until it can be dismantled altogether.
This tax could be phased in over the next couple of years. It could initially be set at 5-10% of taxable income. Documentation that would be acceptable for a waiver could include car odometer readings at the beginning and end of two consecutive years, electricity usage readings at the beginning and end of two consecutive years, documents of purchases or sales of cars, appliances, machines, carbon emissions measures, etc.