Transportation's Role in Reducing U.S. Greenhouse Gas Emissions ...

Transportation's Role in Reducing U.S. Greenhouse Gas Emissions: Volume 1
portion, of allowances are auctioned or sold at some approximation of their
market value, then a constraining cap and trade system would actually generate
large revenues.
The distribution of these revenues is a matter of intense political debate with
groups arguing for revenues to be used for different purposes, including
compensating consumers facing rising energy prices, funding energy research
and development, investing in low carbon infrastructure, funding maintenance
of existing infrastructure, helping energy intensive industries transition, and
reducing fiscal deficits.
The transportation sector could be further affected if any revenues were
reinvested in transportation to further reduce transportation emissions or
compensate consumers facing higher fuel prices. For instance, Congress has
considered investing cap and trade revenues in research on energy efficient
vehicles, development of low carbon fuels, and investment in public
transportation.
An analysis of equity is included in a recent Massachusetts Institute of
Technology (MIT) study of alternative greenhouse gas control proposals. 151 The
study found that carbon pricing impacts lower income groups more so than
higher income groups. Assuming a carbon price of $15 per ton CO 2e, the
increase in energy prices as a percentage of income ranged from 3.7 percent of
income for the lowest income decile to only 0.8 percent of income for the highest
income decile. The analysis also estimated the impacts of a “lump sum” rebate of
all carbon revenues to all households, as the means to address equity issues.
Rebating all revenues as a common lump sum would result in a 5.6 percent
income gain for the lowest 10 percent of households to a 0.6 percent gain for the
highest 10 percent of households. Thus, a full rebate in equal amounts to all
households, of the proceeds of carbon pricing can eliminate the equity impacts
on the lowest income groups. A similar effect would be expected at any level of
price increase.
Research also has addressed other ways of offsetting the economic impacts of
higher energy prices on low and moderate income households that would be
associated with cap and trade or with a carbon tax. For example, income tax
rebates or employment tax rebates have been suggested. One article proposes a
payroll tax rebate for Social Security and Medicare taxes as an offset to carbon
taxes. 152 The Moving Cooler study examined the equity implications of
transportation pricing systems such as a VMT fee. The study found that pricing
151 Metcalf, G.E., et al (2008). Analysis of U.S. Greenhouse Gas Proposals. MIT Joint Program
on Science and Policy of Global Change, Report no. 160.
152 Metcalf, G.E. (2007). “A Green Employment Tax Swap: Using a Carbon Tax TO
Finance Payroll Tax Relief.” Brookings Institution and World Resources Institute
Policy Brief.
4-26