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New Bottom Line Volume 5.21 – Carbon Taxes Revisited: It's Still the Economy, Stupid

October 18, 1996

Once again, the debate misses the point. I’m talking not just about the Clinton/Dole debates, though they’re included. No, the problem extends to the entire electoral contest, and the media maelstrom that “covers” it as well. And as is often the case, the story is as much revealed by what is left unsaid as by what is said.

What is left unsaid revolves, of course, around the economy. (I remember wondering, as a child, how all the adults could manage to fill so much of their lives with talk about money and the economy. Now I seem to be one.) For all the talk–of deficits and tax cuts, of entitlements and flat rates–what is left unsaid is the intricate and inescapable interconnection of economy and ecology. Yes, there is talk of course about environmental regulation and regulatory reform, but like so much of what passes for political debate in this day and age, the “debate” barely skims the surface, always avoiding core issues.

The short life of Bill Clinton’s timid gasoline tax proposal of a few years ago notwithstanding, the challenge remains of using the tax system to wire up some congruence between the market and biosphere. Without that, we will continue to live with the dual demons of both a tax system and a price system that provide perverse disincentives to the directions we really want to go. Fortunately, the “tax shift” strategy (see “Ecological Tax Reform: Composting the Gridlock” NBL 4.9, May 1995) continues to gain adherents.

One example is the Economic Efficiency and Pollution Reduction Act of 1996 (EEPRA) introduced in Minnesota earlier this year. This “$1.5 billion tax shift” bill would tax carbon emissions from the burning of fossil fuels and use the revenue obtained to lower property and payroll taxes. EEPRA would increase the “average” family’s energy costs by $220/year, according to David Morris of the Institute for Local Self- Reliance (ILSR), but return tax savings of $250/year. The tax burden would fall most heavily on manufacturing plants with high energy use and low employment, Morris said. A fact sheet about EEPRA can be found at <http://www.me3.org/projects/greentax/gtfact0.html>.

This approach is not without problems. According to the Global Network of Environment and Technology (GNET) “Sweden–one of the most environmentally conscious nations in the world–plans to double taxes on carbon emissions by industry.” Sweden introduced carbon taxes in the early 1990s, and industry leaders (including a major petroleum company) actually support them. However, “a handful of the country’s most energy-intensive companies will be exempt from the tax”. This concession to political reality–and the very real competitive conflicts that result when one country (or state) takes action while its competitors do not (another version of Hardin’s “tragedy of the commons”)–will obviously weaken the policy’s potential impact, though some would argue that only such a compromise makes it possible at all.

In the US, Redefining Progress, the NGO responsible for developing the Index of Social and Economic Welfare (ISEW) as an alternative to the distorted measure we call the Gross Domestic Product (GDP) is taking the “tax shift” experiment into the corporations. Working with half a dozen major multinational companies, RP will maintain a parallel set of corporate accounts, assessing the potential impacts of a labor-to-resource tax shift on corporate profits and performance.

The ISEW, by the way, also offers a very different perspective on the elections. In a recent article in The Atlantic Monthly, RP’s Clifford Cobb, Ted Halstead and Jonathan Rowe charted a two decade comparison of the ISEW and the GDP. The GDP of course rises steadily, reflecting economic growth that is unable to distinguish between employment growth, new home starts and education, on the one hand, and toxic waste cleanups, product liability litigation and cigarette and alcohol use on the other. The ISEW has steadily declined over the last two decades, reflecting the erosion of environmental quality, public health and sense of community that most Americans intuitively feel. The gap between the two, RP asserts, reflects the palpable malaise that politicians and pundits don’t understand (“The economy is doing well, people should be feeling better.”) and don’t know how to address.

(c) 1996 Gil Friend. All rights reserved.

New Bottom Line is published periodically by Natural Logic, offering decision support software and strategic consulting that help companies and communities prosper by embedding the laws of nature at the heart of enterprise.

Gil Friend, systems ecologist and business strategist, is President and CEO of Natural Logic, Inc.

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