Pressure Grows on E.U. to Intervene in Carbon Market (NY Times – Green Inc. Blog)

Biden Promotes ‘Green’ Jobs (Politico)

McCain: Obama’s Climate Plan Faces Tough Road in Congress (Bloomberg)

A planetary crisis “threatening the young and unborn” compels a “substantial, gradually-increasing carbon tax with all revenue distributed directly as monthly ‘dividends’ to each household,” Dr. James Hansen told Congress today.

Hansen, director of NASA’s Goddard Institute for Space Studies and the unofficial dean of climate scientists, testified that measurements of Earth’s historical climate sensitivity to atmospheric CO2 make clear that rising levels are now driving our climate into ranges that will have lethal consequences. Current concentrations of 385 ppm amplify dangerous feedback mechanisms such as loss of reflective ice surfaces and release of methane gas from permafrost, he said. Atmospheric concentrations must be brought below 350 ppm as quickly as possible, Hansen stressed, specifically rejecting the target of 80% reductions by 2050 advocated by leading environmental groups.

Hansen testified at a House Ways & Means Committee hearing this morning, kicking off debate in Congress over legislation to help the U.S. achieve deep cuts in carbon emissions through a cap-and-trade system, a carbon tax, or perhaps a hybrid approach. Hansen and Union of Concerned Scientists geochemist Dr. Brenda Ekwurzel both testified in favor of vigorous action, although they differed on the cap vs. tax question. A third witness, University of Alabama professor John Christy, argued for a go-slow approach.

Hansen told the committee that a transparent carbon tax with direct dividend would “spur rapid replacement of our inefficient infrastructure” and lead to an “efficient phase-out of coal.” He strongly criticized cap-and-trade proposals, calling caps “hidden taxes,” contending that they would undermine essential price signals through price volatility while enriching traders and lobbyists at the expense of the public. He predicted that cap-and-trade could lead to "blackmail" by electricity suppliers, who would force the public to choose between meeting emissions targets and blackouts, and pointed out that the European Union’s cap-and-trade system has failed to reduce carbon emissions.

UCS’s Ekwurzel testified that acidification has already diminished the oceans’ ability to absorb more carbon dioxide — a development that will accelerate global warming. She advocated a “cap and invest” program in which emission permits are auctioned and the proceeds used to finance energy efficiency and renewable energy.

Christy’s appearance was sponsored by Republican members of Ways & Means. He testified that cloud effects outweigh human effects on climate, and contended further that any U.S. actions to reduce emissions would be overwhelmed by emissions from China and India, both of which have rejected carbon caps. He suggested that the best way to reduce CO2 emissions is a massive nuclear power construction program.

Committee Chairman Charles Rangel, who represents Manhattan’s Harlem neighborhood and parts of the Bronx, asked Hansen about the effects of a carbon tax on low-income households. Hansen explained that under his proposal to distribute 100% of carbon tax revenues to U.S. residents, a steadily increasing tax reaching $115 per ton of CO2 would result in estimated dividends of $9,000 per two-child household, assuming that adults got one “share” and each of the first two children got one-half. [Ed. note — Using CTC’s carbon tax impact model, we estimate that a $115/ton carbon tax would provide the average family of four with a $7,500 annual dividend.] Hansen noted that because households that use below-average amounts of fossil fuel would receive more in dividends than they paid in higher energy costs, his program would help the vast majority of middle- and lower-income Americans. Hansen also cited Congressional Budget Office findings that carbon taxes are five times as efficient as caps at reducing emissions.

UCS’s Ekwurzel argued that retrofitting homes and  transportation would be a better use of carbon cap revenue than direct dividends. However, she did not address whether “breaching” strict revenue-neutrality on behalf of energy efficiency and renewables might unleash a torrent of less benign uses of the cap or tax proceeds. For his part, Christy seconded Hansen’s view that a carbon tax would be  more transparent than a carbon cap-and-trade system.

Rep. Dave Camp (R-Mich.) and several other Republican members branded carbon caps as hidden taxes. They insisted that the Ways & Means Committee assert jurisdiction over any cap or carbon tax legislation.

Rep. Sander Levin (D-Mich.) responded to Christy’s testimony, saying “nobody is talking about the U.S. acting alone.” Hansen explained that the U.S. could use “average carbon content data” to set tariffs on goods from countries that didn’t enact their own carbon taxes. A U.S. tax with harmonizing tariffs would encourage trading partners to enact their own carbon taxes to negate tariffs and capture tax revenue themselves, he said.

Connecticut Democrat John Larson cited Friends of the Earth’s recent report describing carbon trading as potentially the world’s largest “dark, unregulated” derivatives market and asked why anyone should think that auctioning tradeable permits wouldn’t lead to “a speculative mess.”

During a recess in the hearing, Peter Barnes of Cap and Dividend and Mike Tidwell of Chesapeake Climate Action Network asked Hansen if he would support legislation to cap emissions and recycle revenue via a direct “dividend” to households. Hansen replied, "I don’t see what a cap gets you. We need maximum reductions as soon as possible and a tax gets that."

Committee members asked one cogent question after another. Rep. Jim McDermott (D-Wash.) focused on volatile prices under a cap, which he said would discourage clean energy entrepreneurs. Rep. Chris Van Hollen (D-Md.), a strong supporter of cap-and-dividend, asked about revenue-recycling, noting Hansen’s testimony that a carbon price will need to be high enough to affect behavior and purchasing decisions. Rep. Doggett noted that Exxon now supports a carbon tax after years of climate-change denial.

Hansen stressed the importance of a dividend to ensure continued political support as carbon prices rise. He urged Congress to direct the National Academy of Sciences to report on climate science as a way to end the debate over anthropogenic global warming once and for all. 

After the hearing, I had the good fortune to join Dr. Hansen for lunch. I asked him about clean coal. He said “there is no such thing as clean coal, and there never will be.”

Links to testimony
Hansen: http://waysandmeans.house.gov/hearings.asp?formmode=view&id=7577
Erwurzel: http://waysandmeans.house.gov/media/pdf/111/ekw.pdf
Christy: http://waysandmeans.house.gov/media/pdf/111/ctest.pdf

Photo: Flickr / World Development Movement.

Exports Responsible for A Third of China’s GHG’s (TNR, The Vine)

The Case for the Carbon Tax: How to Overcome Politics and Find Our Green Destiny (Social Science Research Network)

FedEx’s Smith Favors Carbon Tax Over Cap-And-Trade (CNNMoney.com)

The Dangers of Cap and Trade (NY Times business columnist Ben Stein)

Exelon CEO: Support for Carbon Tax Could Grow (CNNMoney)

Guest Post by Laurie Williams and Allan Zabel

Advocates of a carbon cap-and-trade system claim it has been “proven” to work in the U.S. acid rain program. This claim has a surface appeal, insofar as reductions in acid rain emissions have been accomplished under the auspices of a sulfur dioxide (SO2) cap-and-trade system mandated in the 1990 Clean Air Act Amendments. However, it ignores crucial differences between the acid rain problem and the climate crisis we face today.

Since 1990, U.S. emissions of sulfur dioxide — the primary constituent of acid rain — have fallen by an estimated 43%. These reductions did not require replacing the vast majority of our existing energy infrastructure with new infrastructure in a relatively short time. Nor did they require significant technological innovation.

Rather, the program entailed reducing SO2 emissions, while minimizing costs, from a limited number of carefully monitored facilities. Allowing trading of emission permits helped keep the cost of coal-fired electricity low. To reduce emissions, existing coal-fired power plants required either new railway lines to transport readily-available low-sulfur coal, burner modifications to accommodate the change in fuel, or more-efficient scrubbers. Little new technology or infrastructure was needed or created. Climate-protection legislation must do the opposite; it must increase the relative price of fossil-fuel energy to create incentives for energy conservation and massive investments in new clean energy infrastructure.

Moreover, in the attempt to adapt cap-and-trade to address climate change, key features of the acid rain model have been compromised. These modifications have led to inaccurate emissions measurements, fraudulent outside offsets, program manipulation, price volatility, over-allocation of emission allowances, and billions of dollars in undeserved profits.

Concurrent with inception of the acid rain program, the U.S. devised and deployed a different economic mechanism to meet Montreal Protocol commitments to reduce ozone depleting chlorofluorocarbon emissions. As then-EPA Administrator Reilly noted in his statement to the Montreal Protocol parties in June 1990:

On January 1, 1990, a new tax went into effect in the United States, a tax on the manufacture of CFCs. This tax exceeds in value the cost of CFCs themselves and it will rise steeply in the years ahead. . . . This added cost of CFCs sends a powerful signal: it says bring on the substitutes fast! And it reduces the comparative economic advantage CFCs would otherwise enjoy over the more expensive substitutes. This tax on CFCs has already caused the United States to reach the agreed targets for reduction earlier than required.

As experience with the CFC tax demonstrates, a fee or tax that raises the price of a source of pollution above that of cleaner substitutes can help in quickly meeting reduction targets. Indeed, the CFC tax helped cut U.S. emissions of CFCs by 37% in one year, from 1989 to 1990.

If high enough carbon fees are applied to fossil fuels to make fossil fuels more costly than clean energy within a known time frame, the entire economy will be stimulated by the rush to develop the most cost-effective substitutes. The CFC-tax example, rather than the Acid Rain cap-and-trade example, is the appropriate model for the problem we face with climate change.

There is a vast difference, however, between the cost and scope of transitioning from CFC’s and that of transitioning from fossil fuels. The respective amounts of money involved differ by several orders of magnitude — a difference that demands careful treatment of program revenues to protect poor and middle-income families. We recommend that 100% of carbon emission fees be distributed monthly in equal per capita rebate payments to all adults (less for children). This approach will help keep energy affordable without undercutting incentives for conservation and the critical message to investors: investing in fossil fuels is a dead end, investing in clean energy is the best way to profit in the future.

The climate crisis demands a rapid global response. Fast and effective action by the U.S. can kick-start the global transition. Massive investment in clean energy can help revive our economy and restore our global leadership. We urge all Americans to speak out in favor of a carbon fee or tax approach. If we don’t, then less efficient and equitable approaches such as cap-and-trade will carry the day.

For a more detailed look at these issues, see our paper, Keeping Your Eyes on the Wrong Ball.

The authors have both been public-sector environmental enforcement attorneys for more than 20 years. Their credentials, and a more detailed discussion of the issues above, are provided on their website, www.carbonfees.org.

Graphic: Usi Scott.