After being roundly ignored, or worse, by the mainstream environmental groups, Rep. John Dingell’s carbon-tax proposal finally gained a ringing defense last weekend in the Financial Times (U.K.), reprinted below.
While we don’t share Clive Crook’s disdain for CAFE standards — he overplays the "rebound effect," for one thing — we appreciate his clear expression of the need for carbon taxes.
Incidentally, according to ACEEE, the enviro-backed Markey-Platts CAFE bill would save an estimated 2.1-2.8 million barrels of oil a day by 2025, reducing CO2 emissions by roughly a third of a billion metric tons a year. By our estimates (see spreadsheet), Dingell’s hybrid carbon tax would save 4.5 million barrels of petroleum and over 1.5 billion tonnes of CO2 — nearly double the oil and almost five times the carbon — if the 5-year ramp-up in Dingell’s proposed bill is extended to 2025.
Still, regulatory mandates and market-correcting price incentives are complementary, not mutually exclusive. How much more must the climate spin out of control before the environmental community figures that out?
Posturing will not save the planet
By Clive Crook
[Published in the Financial Times (registration required), Oct. 7 2007]
The website of the Sierra Club, the environmental group, says that "the biggest single step" America can take to reduce global warming and save consumers tens of billions of dollars is to adopt a stricter corporate average fuel economy (Cafe) standard. Legislation that would force carmakers to sell more fuel-efficient cars is being debated again on Capitol Hill. A lot of people think the Sierra Club is right.
Last week Thomas Friedman, the trope-injected megapundit of The New York Times, assailed the country’s big three carmakers for resisting. He especially deplored their allies, Toyota – green Toyota, for shame – and the congressional delegation from Michigan, led by John Dingell. In opposing a strict new rule, they are helping Detroit to "commit suicide". America’s car industry got into trouble in the first place only because of its reluctance to be made to innovate, Mr Friedman explains. Washington offers to compel it to make the cars people want (and hence become more profitable) and the idiotic manufacturers, cheered on by Toyota and Mr Dingell, object. This is not pork-barrel politics, Mr Friedman says, but "empty-barrel politics". Empty barrel, you see, as in a barrel of oil.
Far from being the biggest single step the US can take on this issue, tighter Cafe standards might be the smallest single step – apart that is, from doing nothing, and doing nothing at least has the virtue of being cheap. The endless posturing and counter-
posturing over Cafe is Washington displacement activity in its purest form – something to entertain the voters while failing to confront the actual problem. Support for a stricter Cafe rule is not a sign of being serious about climate change but just the opposite.
Greenhouse-gas emissions from cars and light trucks account for about 20 per cent of the US total and Cafe rules affect only new vehicles. The initial effect of the rules is therefore on the margin of a margin. Yes, the impact would increase over time, but over time other things will change as well. If you make driving cheaper, people will drive more. Some of these savings will be spent on more cars or bigger cars or on sport utility vehicles. New cars get dearer relative to old cars because the regulation adds to costs, so people hang on to older, less efficient cars longer.
All these self-nullifying effects were seen in response to the existing Cafe standard. In the end, a tighter rule would make America burn less gasoline and emit less carbon dioxide than otherwise – but not that much less.
Mr Friedman would put this in terms you can understand. It is not small beer but low-carb beer, in a bigger glass, with a whisky chaser.
Cafe is a kind of tax, of course – but a tax that is hidden. This is both its greatest political attraction and the clearest proof of its supporters’ unseriousness. Put this mandate on the car companies, its advocates say, and they must deal with it: everybody else is better off. The companies themselves would gain, for heaven’s sake, if only they had the wit to see it.
But if this is true, then the tight new standard is surely too loose. Why not tighten it more, and forget about phasing it in? Instant innovation for free. Before you know it the carmakers will be paying pensions again and we shall be getting 500 miles to the gallon. Why not run the whole economy this way?
It is bad that the underlying cost of Cafe is hidden, but worse that its effects are misdirected. The climate does not care whether greenhouse gases come from Hummers or Priuses, or from cooling your house or heating your swimming pool. We can set
stringent fuel-economy rules for all energy-consuming activities, or we can recognise that the problem is carbon emissions, whether they come from tailpipes or power plants, and tax those instead. Make all carbon-based energy dearer and innovation on a wide front will follow, as it must if this problem is to be seriously addressed. If people want SUVs, fine – so long as they pay the full costs of driving them and economise efficiently on other forms of carbon-releasing energy too.
If Americans chose to, of course, they could buy fuel-efficient cars already – no innovation required. While nobody was looking, engineers in Europe and Japan were cunningly designing smaller cars. Yes, you just make them smaller! And drivers there
snap them up because they have to pay two or three times as much for gasoline as Americans. Makes you think.
Switching to a lower-carbon economy has a cost. A high tax on gasoline makes it explicit, and is therefore dismissed as politically impossible. But the idea that the Cafe approach is costless, or that its costs will fall entirely on companies that had it
coming anyway, is infantile. Given a choice between the ambitious and the fatuous, is it not better to press for the first?
And is the carbon-tax approach really so unrealistic?
Its chances are not improved by calling for inferior alternatives. A lot depends on who speaks up for the idea. Mr Dingell, so criticised by Mr Friedman and others on this issue, is trying to drum up support for a gas tax, a carbon tax and a cap on mortgage-interest tax relief for energy-guzzling houses. He has put draft legislation out for comment. Sure, Michigan’s Mr Dingell is in the pocket of America’s car companies. That does not mean he is wrong.
Note: Thanks to Tom Stokes of the Climate Crisis Coalition for posting the FT piece and supplying our headline.
Muskie says
Charles, I do some work with AAM, and I had the same reaction as you when I read Clive Crook’s column. On one hand, he makes a very good point about how ineffective CAFE standards are. They are laughably inefficient. But on the other hand, we also don’t share the disdain he has for them. Reasonable CAFE standards make some sense. As far as the carbon tax idea, I’m still undecided. Generally speaking, I think this issue should be decided by the marketplace. Toyota will reap the benefits of producing more fuel efficient cars; GM knows this and is adapting.But what I think is clear, and what I think you, Crook and I agree on is that trying to mandate CAFE standards will do nothing to curb CO2 or reduce driving.
Doc Barnett says
When you do make up your mind about the "carbon tax idea," I hope you come out for it. The issue is decided by the marketplace with or without higher gasoline/carbon taxes, but at current tax rates the decision the market has come to is completely the wrong one. (Those tax exemptions for light trucks haven’t helped, either.) Gas prices must be made higher to account for political and ecological externalities, much higher than the blip of the past few years that has slowed Hummer sales and allowed the Prius to escape being the no-selling joke it would have been a few years prior. Auto choice is fine, so long as the consequences of that choice are fully reflected in its costs.
Ken Johnson says
10/16/2007Comments on Rep. Dingell’s carbon tax proposal (http://www.house.gov/dingell/carbonTaxComment.shtml):(1) A carbon tax and cap-and-trade are not mutually exclusive options. A cap-and-trade system with a price floor would essentially convert to a tax if the trading price falls to the floor threshold. The excessive price erosion that occurred with the SO2 trading program could have been avoided by employing a price floor, which would have allowed regulators to maintain incentives for maximum feasible SO2 emission reduction, avoiding the need for the new Clean Air Interstate Rule. Similarly, extreme price volatility in the EU-ETS could have been avoided with a price floor.(2) Cap-and-trade policies have achieved much greater political success than carbon taxes because of their revenue neutrality. Carbon taxes are typically revenue-neutral only in a much weaker sense. A cap-and-trade system with 100% auctioning would be "revenue neutral" in the same sense if auction revenue is used in the same way as tax revenue; but cap-and-trade with free allocation is revenue-neutral within the regulated industry (i.e., the only regulation-induced costs to industry is that of emission technology; there is no additional taxation burden). A carbon tax can also be structured to be revenue-neutral in this stronger sense by refunding tax revenue in such a way that emission reduction becomes profitable. From the perspective of a regulated firm, a refunded tax would resemble emission trading, but without the price volatility and transaction costs of trading. In 1990 Sweden enacted such a system to regulate stationary-source NOx emissions, achieving 50% NOx reduction by 1995, (http://www.acidrain.org/pages/publications/acidnews/2000/AN2-00.pdf); and the same approach could be used with a carbon trading system employing auctioned allocation and a price floor. In the transportation sector, vehicle feebates represent another type of refunded emission tax.(3) The proposed mortgage interest deduction phase-out appears to be redundant, because large homes would already incur the cost of carbon taxes, and their greater emissions would result in a proportionately greater taxation burden. The deduction phase-out is tantamount to double taxation, and is antithetical to market-based regulatory approaches.Ken JohnsonRelated information sources:My proposals to the California Air Resources Board for the AB-32 Scoping Plan:http://www.arb.ca.gov/cc/scopingplan/submittals/other/other.htmhttp://www.arb.ca.gov/cc/scopingplan/submittals/transportation/transportation.htm"Attribute-Based Vehicle Feebates": http://ssrn.com/abstract=1014866Publications:http://www.sciencedirect.com/ (Search for keyword "feebate".)RMI Feebate Forum: http://www.rmi.org/sitepages/pid270.php
Charles Komanoff says
Muskie — I’m confused by your post. You say reasonable CAFE standards make some sense (I agree), but they won’t curb CO2 (disagree — of course they will). As for the marketplace deciding, sure, but the price signals need to be there. That’s why a carbon tax.
Doc B — Whose mind isn’t made up about carbon taxes? Mine sure is!
Doc Barnett says
C.K., my comment was meant to be a response Muskie’s, who said he is undecided about carbon taxes and also links back to a web site called "Auto Choice" that seems to be in defense of light trucks. Regarding that site, it’s probably true that SUV enthusiasts are starting to feel the heat and fear that their recreational vehicles will be banned. Perhaps such people could be persuaded to support a carbon tax on the argument that it ensures their "freedom of choice." That is, if they fully pay their own way no one cares too much what they drive, policy-wise. The SUV fad would end in a heartbeat, but those who really really love them could still exercise their freedom to throw (more of) their disposable income into large internal combustion chambers.
Sylvester Johnson says
Recently I spoke with a lobbyist for Greenpeace who was invested in cap-auction, without offsets.
I ran through all my arguments for a C tax*, including the likelihood that any cap-auction bill, regardless how restrictive upon introduction, while in committee would get compromised by grandfathering and offsets.
*Cap–Trade & Offsets
Raise $energy: tax effect
Costs disperse: regressive
Permit price volatile
Lobbying unfair, distraction
Offsets warm, source evades
–Bal trade, export jobs
+ Traders & brokers: SO2 limited
Euro little net reduction C–T
C Tax
Tool: price–demand for ff
Income tax cut: progressive
Upstream at sources
Tax rate set yearly, no roller coaster
Compete: tariff
Labor–intensive efficiencies
Stimulate economy
Unfortunately, the lobbyist continued to favor cap-auction, determined to monitor the committee process against inclusion of grandfathering and offsets.
What further points could I bring up to help sway the lobbyist toward C tax?
Best regards,
Sylvester
Sylvester Johnson
ContactSJ@mac.com
Non-profit website: http://www.climatehealth.net
Carel says
Sylvester, the best argument against Cap & Trade is to look at its track record. We’ve had the Kyoto protocol in place for almost a decade and its failure to deliver is blatantly obvious.
Refer to the article on this site that gives a good explanation of how Cap & Trade actually rewards the worst offenders. As the price of carbon credit will continue to increase, carbon allowances will become truly valuable comodities indeed.
A perfect example of the weakness of cap & trade happened here in the UK: A chemical factory that upgraded its facilities to reduce it’s energy consumtion well in advance of the Kyoto protocol had to close because it was unable to compete. This happened because the carbon allowance was based on their carbon emissions when Kyoto came into effect. As a result, the competitors who had massively inefficient factories received much larger carbon allowances. With relatively minor improvements, the competitors were able to supplement their income by selling surplus carbon credits & drive the good guys into liquidation.
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