Even in ecologically-minded Washington and Oregon, states where voters want government action on climate change, a divide among environmentalists threatens to undermine progress on the issue. A Carbon Washington ballot initiative to create a statewide carbon tax is gaining momentum, as we wrote last month. Yet several environmental groups are attacking the proposal as politically infeasible and socially regressive.

Instead, state and regional groups like Climate Solutions and the Alliance for Jobs and Clean Energy are pushing “clean” fuels standards. Their proposal, patterned on regulations in California and British Columbia, would mandate a mere 10% drop in the carbon intensity of transportation fuels over 10 years ― a small fraction of the deep reductions needed.

Their course is difficult to fathom. Carbon taxes would cut emissions more and cost less than clean fuels regulations. And dividing environmentalists in order to pursue a lesser policy makes no sense strategically. Here are three reasons why a clean fuels standard doesn’t stack up:

1. Clean fuels standards won’t be effective

A model used by the Washington State Department of Commerce allows us to compare projected emissions reductions from the clean fuels standard with the carbon tax proposed by Carbon Washington in a measure known as I-732. (The tax would start at $10/ton of CO2, rise to $25 in year two, then increase 3.5% annually plus inflation.)

The 10% clean fuels standard would lower overall Washington CO2 emissions only 4% by 2040, not even a quarter as much as the 18% reduction projected from the I-732 carbon tax.

The reason is simple: a clean fuels standard only attacks emissions from the supply side of one sector, albeit an important one, transportation. In contrast, a carbon tax works across the entire economy, influencing every carbon-related decision about both supply and demand in every sector ― manufacturing, heating, electricity, etc. This means that, while a clean fuels standard only affects the carbon content of liquid fuels, a carbon tax also incentivizes less fuel usage, period. This transforms economies, cutting pollution and congestion through a vast array of actions encompassing urban density, freight logistics, walking, cycling, transit, and more mindful decision making.

In short, the difference in emissions between a carbon tax and a clean fuels standard is the difference between a society that takes current levels of automobile dependence as a given, and one that seeks to support a myriad of ways to transition to something different.

2. Clean fuels standards are more expensive

The Oregon Environmental Council writes:

The Clean Fuels Program costs the state virtually nothing. The burden of responsibility for reducing pollution is placed on the oil industry.

This conspicuously ignores how the oil industry passes down its costs of compliance to consumers in the form of higher prices. The Oregon Department of Environmental Quality (DEQ) has said gas prices will rise between 4 and 19 cents per gallon. An industry lobby group, the Western States Petroleum Association, is garnering support to repeal clean fuels by highlighting this not-so-hidden price increase.

Consumers aren’t stupid, they generally realize more regulations mean higher prices. A carbon tax raises fossil fuel prices too, of course ― that’s the point; but the revenue it generates can be disbursed to consumers as income or sales tax cuts, or via a straight-up “dividend” check, as Oregon Climate has proposed. [Read more…]

Notwithstanding the hype in the New York Times — “the strongest action ever taken in the United States to combat climate change,” “an aggressive plan to sharply limit greenhouse gases” — the final version of the US EPA “Clean Power Plan” being released today at the White House by President Obama actually constitutes a marked slowdown in reductions in electricity-sector emissions.

According to published reports, the administration plan calls for a 32% reduction in U.S. power-sector CO2 emissions in 2030, relative to actual 2005 power-sector emissions. That’s slightly more ambitious than the 30% reduction envisioned in the initial Clean Power Plan released in June 2014. Since 2005 power-sector emissions were 2,413 million metric tons (MMT), the targeted 32% reduction would be 772 MMT, or 7% of total projected U.S. emissions (from all sectors) of 5,684 MMT (projected by CTC in the absence of a U.S. carbon pollution price).

Nearly half of that reduction has already been achieved, however. Actual 2014 U.S. power-sector emissions were 2,038 MMT, or 375 MMT less than the 2005 baseline level of 2,413 MMT. Expressed on an annual average basis, power-sector emissions of CO2 fell during 2005-2014 by 42 million metric tons a year.

To fulfill the total 772 MMT 2005-2030 reduction target, the “remaining” 2014-2030 reduction in power-sector emissions need only be 397 MMT. The implied annual rate of reduction over the next 16 years is just 25 million metric tons a year. That’s 40% less than the actual annual 2005-2014 reduction rate in power-sector emissions of 42 MMT per year.

It is probably true that we’re not likely to see a repeat of two factors that contributed to the 2005-2014 reduction in power-sector emissions — the long and deep recession that began in 2007-2008, and the advent of cheap fracked methane that grabbed market share from higher-polluting coal-fired generation. But two other emissions-reducing phenomena remain in full swing: ongoing cost reductions in carbon-free wind and solar photovoltaic power, and the harnessing of both digital tech and new business models to boost energy efficiency in buildings, appliances and businesses.

In this light, it seems premature, if not downright bizarre, to bestow “legacy status” on a plan that targets just one sector (albeit a key one), and that settles for cutting emissions in that sector at a lesser pace than the rate at which they’ve already been falling for a decade.

We’ve just posted an update to our spreadsheet model — our powerful but easy-to-use tool for predicting future emissions and revenues from possible U.S. carbon taxes. We say taxes, plural, because the model accepts any carbon tax trajectory you feed it and spits out estimated nationwide emission reductions and revenue generation, year by year. Here’s a rundown of what’s new in the update.

1. A year of new data: The most obvious change is the addition of 2014 baseline data on energy use, CO2 emissions and emission intensity for each of the model’s seven sectors.

Our spreadsheet model lets you compare different carbon tax trajectories.

2. Smoothing the carbon tax impact: A new feature lets users smooth the impact of the tax to reflect real-world lags in households’ and businesses’ adaptation to more-expensive fossil fuels. (You get to set the adaptation “ceiling” rate; any excess gets carried over to future years.) This feature is helpful for trajectories like the Whitehouse-Schatz bill, whose rate starts with a bang at $45 per ton of carbon dioxide but then rises only slowly. Under our default setting, the reductions from the $45/ton initial charge are spread over four years rather than, unrealistically, assigned to the first year.

3. Future baseline is calibrated to official forecast: We tweaked a few model parameters to make our 2040 emissions forecast without a carbon tax match the analogous forecast in the Energy Information Administration’s “Annual Energy Outlook.” This allows for apples-to-apples comparisons with other models that are explicitly calibrated to the EIA/AEO forecast.

[Read more…]

It is true that the stroke of the presidential pen with which Barack Obama last week granted Shell Oil Corp. permission to drill off Alaska’s Arctic Coast cannot also put into force a U.S. carbon tax, without authorization by Congress. And it is all too possible that when climate reality eventually sweeps over the Capitol, the resulting carbon tax may be modest in scale and take a lot longer than a decade to reach the $100/ton level that would drive massive reductions in fossil fuel use and CO2 emissions.

All the same, it’s instructive to compare the capacity of Arctic drilling to supply oil with that of a robust carbon tax to quench the need for it. The outcome — the carbon tax wins — may not surprise. But the lopsidedness is startling: in just its tenth year, the carbon tax proposed last November by Rep. Jim McDermott (D-WA), starting at $12.50 per metric ton of carbon dioxide and rising annually by $12.50 as well, would be eliminating the need for oil at around a dozen times the rate at which Shell would be pulling the stuff from the Arctic.

Here are the numbers:

♦ Royal Dutch Shell’s Chukchi Sea project is projected by the U.S. Bureau of Ocean Energy Management to extract 4.3 billion barrels of crude over a 44-year period. (See Chukchi Sea Oil & Gas Lease Sale 193 Draft Second Supplemental Environmental Impact Statement, Volume 1 [pdf]; go to pp. 6 or 62 or 182 of 694.) This equates to daily production of 268,000 barrels. An estimated 2.2 trillion cubic feet of methane (natural gas) would be extracted as well; on a btu basis that equates to 360 million barrels of oil, or 23,000 barrels a day. Combined extraction of hydrocarbons is then around 290,000 barrels a day. (Note that we have not netted the energy expended to “discover,” extract and transport the oil.)

♦ For the carbon tax, we modeled McDermott’s Managed Carbon Price Act of 2014, setting the annual increases as the midpoint between the bill’s floor and ceiling prices. The price per U.S. (not metric) ton of CO2 in the tenth year, 2024, is $113.40. (Our model, which we’ll update soon, had the tax starting in 2015.) As indicated in the graph, the reductions in petroleum requirements would be substantial in every consuming sector. They sum to 3,486,000 barrels a day — 12 times the 290,000 bpd equivalent anticipated from Shell’s Arctic venture.

The estimated oil savings from the McDermott carbon tax amount to nearly one-fifth of U.S. oil consumption in both 2013 (the last data year in our model) and 2024 projected without a national carbon price. The biggest reduction in absolute terms is in what we call personal ground travel (chiefly driving), which dominates petroleum use. But on a proportional basis the savings would be greater in commercial sectors such as freight movement, oil refining, and construction, as the unmistakable price signal from the annually rising tax drives innovation enabling lower usage.

Still, the projected reduction in gasoline consumption for personal ground travel in 2024, 1.4 to 1.5 million barrels per day, commands attention. [Read more…]

The Carbon Tax Center is often asked why a carbon tax is needed; wouldn’t removing tax subsidies be sufficient to let efficiency and renewables compete on even terms with fossil fuels?

Our stock answer is that the subsidies the tax code confers on fossil fuels (as well as on some other extractive industries) are peanuts compared to their environmental subsidies, especially free dumping of CO2 into the atmosphere. The needed market corrective is huge and can come about only via a significant tax on carbon pollution.

But bioenergy presents a starkly different picture. As recently as a decade ago, bioenergy sources — biofuels for transportation and biomass for electricity — seemed to have gained full-fledged membership in the “renewable energy club” along with wind, solar, small hydro and geothermal energy. To boost bioenergy production, Congress endowed biofuels with subsidies that now amount to about $1 per gallon of ethanol and $2 per gallon of biodiesel.

Congress also enacted mandates that, if left in place, will compel a tripling of U.S. biofuel output by 2022. Biomass for electricity generation is also poised to gain a huge boost if the final version of EPA’s Clean Power Plan carries over a longstanding but highly questionable assumption that biomass burning is “carbon-neutral.”

Since that honeymoon, closer scrutiny of bioenergy’s lifecycle emissions has been revealing a complicated and far less promising picture. Biofuel production typically involves substantial fossil fuel inputs. Moreover, biofuel mandates and subsidies tend to push land out of other carbon-sequestering uses including food production. And closer study of biomass burning is calling into question the “carbon-neutral” assumption: that growing wood or other biomass captures the same amount of CO2 that subsequent burning for electricity generation releases.

We discuss these issues in detail — and with abundant links to the key literature — in our new “Carbon-Taxing Biofuels” page. While our views are still evolving, we think it’s clear that removing bioenergy subsidies and mandates and preventing EPA from letting electricity generators claim credit for biomass as carbon-neutral would do more to internalize the climate costs of bioenergy than even a hefty carbon tax.

It’s a thorny issue that will only grow more important. Take a look at our new page and let us know what you think.

Photo: Iowa State University Extension Service

(co-authored with CTC senior policy analyst James Handley)

Sheldon Whitehouse gained renown last year for his series of weekly “Time To Wake Up” speeches on the Senate floor addressing the climate crisis. Today, the Democratic Senator from Rhode Island took his climate leadership further as he introduced a comprehensive bill intended to end free dumping of climate pollution into the atmosphere. (Click here for video of the senator’s 80th speech, introducing his bill.)

Whitehouse calls his 30-page measure, which is co-sponsored by Democratic Senator Brian Schatz of Hawaii, the “American Opportunity Carbon Fee Act.” It builds squarely on the growing consensus that clean energy will rapidly and fully displace fossil fuels only when polluters are made to pay for causing climate damage. AOCFA would impose fees on both CO₂ and non-CO₂ greenhouse gases including fugitive methane from shale gas wells and coal mines. AOCFA also includes a border tax adjustment to impose equivalent climate pollution fees on imported goods from nations that have not enacted their own climate pollution fees. (Click here for background on border tax adjustments.)

AOCFA pegs its pollution fee to U.S. EPA’s estimate of the “social cost of carbon.” The fee would start at EPA’s current estimate of that cost, now $42 for each ton of carbon dioxide, and would rise by 2% annually in real terms. Emissions of methane and other greenhouse gases would be charged in proportion to their estimated per-unit global warming impacts relative to carbon dioxide.

The Senator’s office estimates that AOCFA would raise $2 trillion in revenue in its first ten years, money that would fund an “American Opportunity Trust Fund” to be returned to the American people in as many as nine different ways including tax cuts, dividends, infrastructure investments and debt relief. E&E News reporter Jean Chemnick wrote today that the bill “leaves open the question of how those revenues would be spent as an invitation for would-be Republican collaborators to negotiate.”

Sen. Whitehouse’s decision to link his bill’s climate pollution fees to the social cost of carbon could be problematic, however. Published estimates of the social cost of carbon vary from as little as $10 per equivalent ton of CO₂ to over $300, depending on what is counted as climate damage, what discount rate is assumed to convert future losses to present terms, and how heavily if at all catastrophic risk scenarios are factored in. And while hitching the pollution fee to the EPA social-cost estimate may resonate with some stakeholders, it could limit the level of the carbon tax and, thus, its ability to drive down U.S. emissions rapidly enough, let alone global emissions. [Read more…]

Today’s welcome announcement of a surprise U.S.-China agreement to curb greenhouse gas emissions almost certainly commits the United States to a national carbon price. Non-pricing measures, such as the EPA Clean Power Plan to cut power plant emissions and the ramp-up of auto fuel economy standards now underway, won’t be nearly enough by themselves to meet the new U.S. target of 25% lower emissions by 2025 vis-a-vis a 2005 baseline, according to calculations by the Carbon Tax Center.

This could be terrific news for carbon tax proponents, since it would finally require climate-concerned organizations and officials to put carbon pricing — preferably in the form of a revenue-neutral carbon tax — at the heart of their climate agenda. On the other hand, given the new Congressional ascendancy of the climate-deaf Republican Party, the 25% target could prove to be just another climate goal scuttled by U.S. political resistance.

Let’s start with the carbon emission numbers, which we’ve broken down between emissions from electricity generation, which account for around 40% of U.S. CO2 pollution, and emissions from the various “non-electric” sectors like automobiles, goods movement, air travel, industry and heating, which account for the other 60%. This division is useful for at least two reasons: there’s much greater maneuverability in electricity due to the relative ease of substituting clean sources like solar and wind for dirty coal and gas, and the U.S. already has an emissions goal for the electricity sector: the 30% reduction by 2030 (from 2005) embodied in the Clean Power Plan announced by President Obama this past June.

The key numbers are shown in the graphic. A 2025 target equaling 75% of actual 2005 CO2 emissions of 5,855 million tonnes (metric tons) from all U.S. sources equates to 4,391 million tonnes. With that figure established, let’s switch our reference frame to current (2013) emissions, which were 5,317 million tonnes. (All figures are from CTC’s carbon tax model, and some may differ from recently released official U.S. emission figures, but only slightly.)

The difference between 2013 emissions (5,317 million tonnes) and 2025-targeted emissions (4,391 million tonnes) is 926 million tonnes. That’s a 17.4% drop over just a dozen years. The questions are: where in the U.S. economy will these reductions take place, and how will they come about? [Read more…]

The European Union announced last week its intention to reduce emissions of greenhouse gases by 40% from 1990 levels by 2030. Meanwhile, the U.S. goal remains a 17% emissions cut from 2005 levels, by 2020.

Two different percentages over two different time periods. How do the EU and U.S. trajectories compare? Is the EU’s use of a 1990 baseline cheapening its goal, as some have suggested?

No, it turns out. As the graphic shows, the 27 countries making up the European Union generated slightly less CO2 in the EU’s baseline year of 1990 than in the 2005 baseline chosen by United States authorities. More importantly, after running a few numbers, we can safely report that the EU emissions objective embodies nearly twice as high a reduction rate to 2030 from 2012 (the most recent year with comparable data) as the US target: an average annual decline in emissions of 1.87% for the EU, vs. 1.02% for the United States. [Read more…]

InsideClimate News just posted this piece as a guest editorial — today’s entry in a series leading to and during Climate Week in New York City.

By Charles Komanoff • Charles Komanoff directs the Carbon Tax Center in New York.

Which is mightier—the obstacles to enacting a U.S. carbon tax, or the tax’s unique capacity to drive down global-warming emissions quickly, massively and equitably?

At the Carbon Tax Center we’ve bet on the latter. And our bet will only get better if the climate movement coalesces its advocacy and organizing around a carbon tax.

Making polluters pay to emit carbon isn’t just textbook economics and basic fairness—though it is those things. A carbon tax is the only way for the climate damage caused by burning fossil fuels to be brought inside the arc of individual and societal decision-making that determines how much of those fuels society uses and, thus, how much carbon it emits.

These decisions range from the immediate and quotidian: take transit vs. car, refill at the tap vs. buy bottled water; to institutional and far-reaching: build airplane frames with ultralight composites vs. aluminum, locate in town vs. on the outskirts, contract with a wind farm vs. a coal generator.

Without a tax on carbon emissions, every choice like these―and billions are made daily―will remain so rigged that fossil fuels will never yield their central position in world energy supply—or at least not fast enough to keep climate change from spiraling out of control. But a tax gives us a fighting chance to keep climate tipping points at bay and stave off global warming’s most dire effects.

Notice I said carbon tax, not “price on carbon.” Forget cap-and-trade. It’s too complicated to resonate with the public, and too prone to manipulation and gaming. Moreover, the “revealed” prices from markets in carbon permits will always be too volatile for low-carbon entrepreneurs to bank on and for treasury departments to count on.

For a carbon price to be revenue-neutral—as I believe it must to command broad and bipartisan support—the revenue it will generate from one year to the next must be reasonably predictable. That means a knowable price, which only a carbon tax provides.

Why not pursue the politically easier path of subsidizing clean energy? Empirical evidence, for one thing. As we demonstrated in a report to the Senate Finance Committee earlier this year, even a perfectly tailored subsidies regime won’t deliver half as much carbon reduction as an equivalently priced carbon tax. Not to mention that subsidies require taxpayer dollars.

What about the EPA Clean Power Plan? Ingenious and well-meaning, to be sure. But too little, too late. The cuts apply only to electricity, they’re measured against a high (2005) baseline, and the states have until 2030 to comply. These concessions, while defensible on political grounds, have whittled down the plan’s target to a mere 7 percent cut in total U.S. CO2 emissions. And even that will necessitate navigating a minefield of litigation.

Why not simply mandate ever-decreasing carbon contents in every sector of use? Standards have helped make autos and appliances far more efficient, but making them the central climate strategy would require thousands of efficiency standards, each one bitterly contested. Moreover, standards by nature are reactive and binary, which leaves huge savings untapped. Not so for a carbon tax, which incentivizes each and every investment and behavior that cuts emissions.

The “gold standard” for a carbon tax is the Managed Carbon Price Act introduced in May by Rep. Jim McDermott (D-Wash.). The tax starts modestly, at $15 per ton of carbon dioxide, but rises stepwise to pass $100 within a decade. By effectively raising the prices of every BTU of natural gas, oil and, especially, coal burned in the United States, the McDermott bill will, by our estimates, cut U.S. carbon emissions by 30 percent by its 10th year―a pace nearly seven times faster than the EPA plan.

Not only that, the McDermott bill taxes the carbon content of imports from non-taxing countries, protecting U.S. manufacturers from unfair competition while motivating other nations to tax their climate pollution. It taxes methane and other greenhouse gases at their CO2 climate-change equivalents. And it returns every dollar of tax revenues to individuals as pro rata dividends—a simple but profound design that just might placate conservatives and other fiscal hawks. This “fee and dividend” revenue treatment will buffer two-thirds of U.S. households, including most low-income families, from the energy price increases the tax will entail. (Rep. John Larson’s America’s Energy Security Trust Fund Act of 2014 also specifies a robustly rising, revenue-neutral emissions tax.)

If the biggest block to game-changing climate legislation has been the fossil fuel-funded denialist movement, the timidity of climate advocates about carbon taxing may qualify as the runner-up. But as yesterday’s big march in New York City showed, the climate movement is rising and the American public may finally be stirring. Time is dreadfully short. Whatever qualms we’ve had about the t-a-x word must yield to opportunity and reality.