OVERVIEW OF THE EMF 32 STUDY ON U.S. CARBON TAX SCENARIOS https://www.worldscientific.com/doi/pdfplus/10.1142/S201000781840002X
About half of the EMF 32 models met a 50% reduction in carbon emissions within 25 years when they assumed the highest: $50 / +5% carbon fees. HR 763 will nearly match the 25th year value in its 15th year and has provisions to exceed this value by 27%.
The one thing that I am most uncomfortable with is that although all of the model projections and pending carbon fee and dividend legislation believe that they can drop total CO2 demand below 10% of current levels, even an absurdly high price for gasoline will not drop quantity demanded below 30% of current levels.
It seems to me that having a carbon fee of \$100 and increasing it by $100 every year for thirty years until the price of gas hits \$30 per gallon would provide the skin-in-the-game incentive for most everyone to switch to electric cars and provide the incentive for producing much lower carbon electricity. HR 763 could be adapted with the following idea so that it always charges exactly the right carbon fee.
If legislators are very confident that their carbon fees will reduce the quantity demanded of carbon to the levels of their projections then they should have no problem agreeing to a Carbon Fee Fail-safe and Safeguard that only kicks in if their projections are wrong.
Carbon Fee Fail-safe and Safeguard
It would be great if we had a Carbon Fee FAIL_SAFE that raises the carbon fee based on the number of years we are behind schedule and a SAFE_GUARD that skips the fee increase every year that we are more than a year ahead of schedule:
Every year once a year:
if (Years_Behind Schedule > 1.0) -----Carbon Fee FAIL_SAFE
Carbon_Fee = Carbon_Fee + (Years_Behind Schedule * $15);
else if (Years_Behind Schedule > 0.0)
Carbon_Fee = Carbon_Fee + $15; ----- HR 763 Trigger
else if (Years_Behind Schedule > -1.0) // Carbon Fee SAFE_GUARD
Carbon_Fee = Carbon_Fee + $10; -----HR 763 Default
Worst Case Scenario Carbon Fee
Worst Case Scenario Carbon Fee It seems to me that the price elasticity of demand for gasoline might be a good worst case scenario proxy for the price elasticity of demand for carbon. The most reliable figure that I could get on this was -0.58. A price that is much above \$30 per gallon has little effect on quantity demanded. The $30 price only reduces quantity demanded down to 35% of original.
It would seem that increasing the price of gasoline \$1.00 per year for thirty years would have everyone switching to electric cars at some point before \$30 per gallon. A \$10 price per carbon equates to a ten cents per gallon price of gasoline, thus a maximum increment of \$100 for the price of carbon over 30 years seems to be maximum carbon fee required.
It would seem to me that people would find ways to drive very much less to save their carbon dividend to buy an electric car. Even as average demand for carbon drops thus reducing the average carbon consumed the dividend price goes up so that the dividend might increase fast enough for everyone to buy replacement hardware.
We could add a surcharge to the border adjustments as an incentive for countries not having a carbon fee and dividend program to adopt such a program. Unless they adopt such a program they would see the relative demand for their goods drop.
The carbon dividend cannot be taxed because it is supposed to do the best it can to have everyone with average carbon consumption break even throughout the duration of the program. If the price of gasoline goes up \$1.00 then any taxes taken out of the dividend prevent breaking even.
According to the most elastic price elasticity of demand estimates for gasoline of -0.58
Q1=50 ----Reduction to 50%
Q1=34.0 ----Reduction to 34.0%
Even though the price elasticity of demand for gasoline will probably change over time to become more elastic as the capital expenditure of switching to electric vehicles becomes increasingly more cost effective it seems reasonable to consider the -0.58 figure a good worst case scenario basis for carbon price ceilings.
Here is what the Point formula derives:
-0.58 = ((50-100)/100) / ((4.95-2.66)/2.66)
-0.58 = -0.5 / 0.86
Historical records for (1998 to 2008) show that an inflation adjusted 300% increase in the price of gasoline corresponded to a 20% increase in miles driven.
It might also be possible that a PED figure of -0.58 is too optimistic. Here is the original midpoint (interval) formula using PED = -0.50:
P1 = \$13.30