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Bloomberg Proposes Greenhouse Gas Tax

by Glen Shapiro,, New York

06 November 2007

New York City Mayor Michael Bloomberg has this week put forward proposals that would see companies be taxed directly for the greenhouse gases they emit.

A fine of $15 per ton of gas released has been suggested by Bloomberg, and proposals are being made to 'reward' companies actively reducing emissions by minimising their payroll taxes and finance tax credits.

Speaking at a climate summit sponsored by the US Conference of Mayors, Bloomberg suggested that the only effective measure to reduce emissions would be to tax carbon "at source".

Bloomberg continued: "To raise the cost of carbon, we can take either an indirect approach - creating a cap-and-trade system of pollution credits - or a direct approach: charging a fee for greenhouse gas pollutants. The question is: Which approach would be more effective?"

He observed that: "Cap-and-trade is an easier political sell because the costs are hidden - but they're still there. And the payoff is more uncertain. Because even though cap-and-trade is intended to incentivize investments that reduce pollution, the price volatility for carbon credits can discourage investment since an investment that might make sense if carbon credits are trading at $50 a ton, may not make sense at $30 a ton. This price volatility can also lead to real economic pain."

Explaining further, Bloomberg went on to argue that:

"A cap-and-trade system will only work if all the credits are distributed from the start - and all industries are covered. But this begs the question: If all industries are going to be affected, and the worst polluters are going to pay more, why not simplify matters for companies by charging a direct pollution fee? It's like making one right turn instead of three left turns. You end up going in the same direction, but without going around in a circle first."

He added:

"A direct charge would eliminate the uncertainty that companies would face in a cap-and-trade system. It would be easier to implement and enforce, it would prevent special interests from opening up loopholes, and, it would create an opportunity to cut taxes. "Why shouldn't we lower the cost of the good and raise the cost of the bad? Studies show that a pollution fee of $15 for every ton of greenhouse gas would allow us to return more than $500 a year to the average taxpayer," further suggesting that:

"And even though energy costs would rise, the savings from tax cuts and energy efficiencies could, over the long run, leave consumers with more money in their pockets."

Concluding, the New York Mayor argued that: "Minimizing the charges they would have to pay and maximizing their tax savings would give comapnies two big incentives to reduce their pollution."

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