After the election, I suggested that the Obama Administration move forward with a green tax swap -- higher taxes on fossil fuels, coupled with lower payroll taxes in a revenue neutral way. Lately, I have been thinking of another pairing of carbon taxes, this time with grants back to states. Here's an outline:
The knock on carbon taxes is that they affect heavy users more than light users of fuel. That's unavoidable -- that's how the taxes curb the usage -- but there are ways to vary the intensity with which this happens. Suppose that the federal government made an estimate of all the fossil fuels that were used in each state in a base period, like the two years from 2007-2008. The federal government could then rebate the tax revenues to each state in proportion to its base-period usage. States that made reductions in usage relative to the base period would receive a net gain from the tax. The estimates might be done on a per capita basis, to account for changes in population over time.
We might find that some states had creative projects for conservation or for alternative energy production. With the proceeds of the tax, they would have revenue to undertake those investments. But we might find that the citizens of some states simply did not want to engage in anything more "green" than they are currently doing. With the rebate, these states could be assured that if they wanted to simply offset the higher federal taxes with lower state taxes, they could. But even in those states, we might hope that they eventually let some of the price increase stay. They could provide a rebate for fuel consumption on state income taxes that phased out at higher incomes, for example.
The net effect of this economically is not necessarily different than if each state decided that it wanted new revenue from higher fuel taxes and implemented these policies. But the political process has been very slow to acknowledge the necessity of higher fuel prices if consumption is to be reduced. The "Green Tax Rebate" changes the political dynamic in state legislatures from "should we raise taxes on fuel" to "how should we spend this revenue stream." That might generate more interesting policies, if the federal government can take the lead.
addition
for consideration:
Tax credits, lower tax brackets, or other things could be adjusted to offset regressive nature of carbon tax.
The issue that certain industries that are inherently and more directly carbon-intensive than others would need further consideration\discussion (and possible remedies in the event a carbon-tax is enacted).
intervention
There are a lot of things that stabilize at a local minimum because the investment costs to get over the hump and on the way to a lower minimum don't pay off in the short run or it is too difficult for private investors to capture returns because the benefits are spread too widely.
For example, any switch from ICE to electric cars will require improvements to the electric grid and a network for servicing the new vehicles. The existing network and infrastructure is not well suited to a different technology. Government investment may be necessary to cover the costs of the transition, but once the transition is made, the new system will be a net gain. Also, much of our old technology externalizes a lot of the costs, so they are mis-priced. Taxation could help to correct the price, but so could regulations that reduce the external costs.
For efficient appliances, we rely on the SEER standards rather than pricing. This is because lowering the energy price by more efficient utilization encourages leachers who minimize their own costs by being less efficient as individuals, even if this behavior run amok would mean higher costs for everyone. Standards, if well written and enforced can add value to an economy.
Other things are difficult to price such as broadband access. There are savings to government and the system by internet communication, but those savings cannot be realized for people that do not have access. The good of having everyone connected allows for spreading the costs and methods can be devised to minimize the cost of collecting maintenance fees (a non-efficient drag on the system).
Another example is income tax. Why can't we have a simple form like our State form that is free and easy to use? Why should we pay some service or tax software when 90% of taxes is collecting the receipts and information and 10% or less is filling out the form? Until they make electronic filing free and easy, they will get a paper form. I even bet that they have a way to scan the info from a paper form into an electronic software to check the math. People have been duped into paying for a tax mafia in the name of privatization. The electronic system is more complicated because it has to include a private sector middle man instead of a direct communication.
The same is true for student loans. Get rid of the leeches and the government could get a higher interest rate and students would get a lower interest rate. Education would be more affordable and the banks could loan their money to someone who would produce real jobs.