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Is Google Betting on a Carbon Tax?

November 28, 2007 By Charles Komanoff

Google Inc. has a new project, Renewable Energy Cheaper Than Coal. Google is preparing to bet megabucks, mega-engineers and its cutting-edge reputation on its ability to propel solar thermal power, wind turbines and other renewable electricity up the innovation curve and under the cost of coal-fired power, Reuters reported Tuesday.

"Our goal is to produce one gigawatt [1,000 megawatts] of renewable energy capacity that is cheaper than coal. We are optimistic this can be done in years, not decades," said Larry Page, Google’s co-founder and president of products, according to Reuters.

To which we at the Carbon Tax Center say: Good luck, and don’t forget to hire the lobbyists. You’re going to need them to help win a carbon tax, ’cause without the tax, your goal of renewable energy cheaper than coal is likely to remain out of reach.

Don’t look to "market forces" to jack up the cost of coal-fired power. Unlike the 1970s, when the price of coal marched in lockstep with skyrocketing oil, coal prices are stuck in a proverbial peat bog. The national average coal price so far this year, $1.77 per million btu, is barely higher in nominal terms (and 40% less in real terms) than the 1982-1985 plateau of $1.65. The resource is abundant, mining technology is technically mature (if socially and ecologically devastating), and there’s barely a mine workers union to speak of. The power plants themselves are no harder to build, even with SOx and NOx scrubbers, than my kids’ Harry Potter lego’s, they just take a few years longer.

Coal-fired power isn’t about to get much more expensive by itself. Are renewables going to get much cheaper? Arguably not — at least not enough to win Google’s bet.

What about electricity from wind, my personal favorite energy-supply source and one for which I’ve done my share of advocacy? Wind power has gotten fabulously cheaper over the past two dozen years, as this DOE cost curve attests. But the rate of decline has slowed. Past advances — taller towers to capture higher wind speeds, larger blades to sweep larger areas, gearing to grab every available erg — appear pretty much tapped out. Further declines in wind costs will be incremental, not quantum. And to compete toe-to-toe with coal as baseload power, wind will need a support system of storage and transmission that will only add to its per-kWh cost.

Photovoltaics have more cost-cutting ahead but are starting from a much higher cost plane. I’m less up to speed on solar-thermal, but I suspect it sits somewhere between wind and PV — cheaper than PV now but with less scope for innovation. The bottom line, then, as I see it, is that coal will continue to undercut renewables in cost for the foreseeable future.

Unless a price is put on coal’s head.

An average kilowatt-hour from a coal-fired power plant sends 2 pounds of CO2 into the atmosphere. A megawatt-hour (1,000 kWh) puts up a ton. Charge $10 a ton of CO2 (or $37 a ton of carbon — precisely what we at the Carbon Tax Center recommend as the yearly increase in a phased-in tax) and you lift the price per coal-fired kilowatt-hour by one cent. If the gap between wind power (sans the federal Production Tax Credit) and coal power is conservatively put at 4 cents/kWh, then $40/ton of CO2 ought to give Google its Holy Grail.

There’s already a couple of carbon tax bills rattling around the House Ways & Means Committee. The Larson bill (that’s John B. Larson of Connecticut, a member of the Democratic leadership) calls for $15/ton of CO2 in starting in 2008, with the level increasing by 10% annually along with an additional inflation-offsetting adjustment. That could bring wind halfway to parity with coal in just a few years.

Hiring genius engineers and pouring Google’s coffers into renewables are terrific moves. But nothing beats getting the prices right. Earth to Google: start pulling for a carbon tax.

A Convenient Tax — Issue #3

November 8, 2007 By Charles Komanoff

Welcome to the latest issue of CTC’s newsletter, A Convenient Tax, summarizing the Carbon Tax Center’s progress in advancing carbon taxes in the United States. (For Issue #2, click here.)

These are heady times for CTC. Each week, and sometimes every day, brings a major development in carbon pricing. Sometimes it has our fingerprints, and sometimes it’s a product of our work to establish a carbon tax as "the gold standard" way to put a price on carbon (as The New York Times quoted us last week).

In Just the Past Two Weeks …

New York’s Mayor Bloomberg delivered a powerful plea for a revenue-neutral carbon tax in a speech to the U.S. Conference of Mayors last Friday. Here’s the lede of The Times’ on-line account:

Mayor Michael R. Bloomberg announced today his support for a national carbon tax. In what his aides called one of the most significant policy addresses of his second and final term, the mayor argued that directly taxing emissions of carbon dioxide and other greenhouse gases that contribute to climate change will slow global warming, promote economic growth and stimulate technological innovation — even if it results in higher gasoline prices in the short term.

Echoing the Tax vs. Cap page on our Web site: Bloomberg noted that cap-and-trade is at risk from gaming, profiteering and volatility, while a straightforward carbon tax offers the essential attribute of price certainty. What is more, Bloomberg spoke as the former businessman he is:

Having spent 15 years on Wall Street and 20 years running my own company, the certainty of a pollution fee — coupled with a tax cut for all Americans — is a much better deal. It would be better for the economy, better for taxpayers and — given the experiences so far in Europe — it would be better for the environment. I think it’s time we stopped listening to the skeptics who say, "But for the politics" and start being honest about costs and benefits. Politicians tend to prefer cap-and-trade because it obscures the costs. Some even pretend that it will lower costs in the short run. That’s nonsense. The costs will be the same under either plan — and if anything, they will be higher under cap-and-trade, because middlemen will be making money off the trades. A direct fee will generate more long-term savings for consumers, and greater carbon reductions for the environment.

By 10 a.m. last Friday, CTC’s blog had a link to the Times’ story, framing Bloomberg’s speech in terms of swelling political support for carbon taxing. Since then, AP, Reuters and Newsweek (in a cover story this week) have reported on Bloomberg’s carbon-tax call.

We can’t say whether the mayor took his cue from us, or the center-right American Enterprise Institute (which issued its own report in June backing carbon taxes), or from his own internal compass. But back in July, in a piece on Gristmill, we linked Bloomberg’s NYC congestion pricing initiative with carbon taxing. We also drew Rep. John Dingell’s attention to the parallels, during a conversation with him last month (see below).

The big development the previous week was President Nikolai Sarkozy’s promise to consider a French revenue-neutral carbon tax and his urging that Europe examine the option of a European levy on imports from non-carbon-taxing countries. Sarkozy’s pledge puts pressure on the United States to do the same, a point made by New York Times columnist Roger Cohen as President Sarkozy arrived in the U.S. this week for meetings with President Bush.

Next Week

Special Invitation to NYC-area readers: CTC co-director Dan Rosenblum will be featured at a NYC Bar Association "Tax vs. Cap" debate in mid-Manhattan next Tuesday morning, Nov. 13. Go here for location, time and registration.

Congressional Support Grows for a Carbon Tax

In our last newsletter we reported on carbon tax bills introduced by Representatives Stark (D-CA) and Larson (D-CT). The two have now joined forces, with Rep. Stark and eight other members co-sponsoring the Larson bill. (Our Bills page has a list of the 10 sponsors and a summary of both bills.)

We stopped by Rep. Larson’s office recently in Washington and were deeply impressed with his staff’s and Mr. Larson’s commitment to a carbon tax. The news that Rep. Larson, the fifth highest member of the Democratic House leadership, will be participating in the United Nations Climate Change Conference in Bali next month is also heartening.

Eclipsing this, however, is the hybrid carbon tax proposal floated by the venerable John Dingell, a member of the House of Representatives since 1955 and long-time chair of its Commerce & Energy Committee. Rep. Dingell’s staff reached out to us in late June for help estimating the carbon, petroleum and revenue impacts of a carbon tax that also included a surcharge on gasoline and jet fuel. Over the ensuing three months we refined our tax impact model (see below) and ran at least a dozen scenarios, which we discussed with his staff in a stream of telephone discussions and e-mails.

When Mr. Dingell released his proposal on the evening of Sept. 26, we were ready with a blog post on both our Web site and Gristmill, branding the idea a "hybrid carbon tax," praising Dingell’s vision, and quantifying the impacts. We’ve also taken the fight to those of our fellow environmentalists who have let their battles with Dingell over car mileage standards blind them to what Dingell calls The Power in the Carbon Tax. (For the record, we strongly support tougher CAFÉ standards but we regard the hybrid carbon tax as an even bigger breakthrough.) Mr. Dingell expressed his gratitude in a phone call last month. (Click here to participate in a public poll on Dingell’s hybrid carbon tax on his Web site.)

Needless to say, a carbon tax bill won’t pass Congress until 2009 at the earliest — public education is needed non-stop until the White House and Congress resolve to make carbon pricing a central element in climate policy. CTC is laying the intellectual and political foundation now for action in 2009.

Carbon Tax Research — National and State

Seeking out and advancing knowledge about carbon taxes is a big part of our mission. To analyze Rep. Dingell’s draft proposals, we scaled up our state-level carbon tax spreadsheet into a national 4-Sector Model — so-called because it disaggregates the U.S. carbon economy into four discrete pieces (electricity, automobiles, airlines and "other"). The model now encompasses the entire U.S. and includes the capability to model a supplemental tax on petroleum products (gasoline and jet fuel, in this case). Advocates and legislative staff in Colorado, Washington State, Oregon, California and Minnesota are currently using it to estimate impacts of state-level carbon taxes.

Much is still to be done on the modeling front. Our next steps are to incorporate "upstream" carbon costs in fuel prices and to reconcile our more-conservative model results with the "bigger bang" predicted by carbon tax supporters at the American Enterprise Institute and several resource think-tanks. We’re also stepping up our cataloging of carbon pricing research. Work at universities and think tanks is proliferating, and we want to establish CTC as the foremost English-language clearinghouse.

Media Continue to Rely on the Carbon Tax Center

Maybe it’s our revamped Web site. Or maybe carbon taxing is moving into the mainstream. Or both. CTC has been in the news a lot lately. Some recent highlights: mentions in two separate on-line New York Times articles on the same day (Friday, Nov. 2), in the news story reporting on Mayor Bloomberg’s carbon-tax address in Seattle, and in an analytical piece, The Real Climate Debate: To Cap or to Tax? • publication of a feature story on carbon taxes in Tikkun magazine • mentions in Conde Nast’s Portfolio.com, Forbes.com, the Minneapolis Star-Tribune and literally hundreds of environmental and climate blogs. • We maintained our standing as the leading site on Google for those searching "carbon tax." • Our Web site continues to receive over 500 visits each week.

Going Forward

The next eighteen months are shaping up as the period in which competing policies to reduce carbon emissions will be examined for their effectiveness, cost and political viability.

CTC’s strategic goal continues to be to shape that debate and properly frame the issues by working with environmental organizations and other allies to solidify support for the concept of putting a price on carbon, while educating and inspiring opinion leaders, grassroots organizations and decision-makers to go for the "gold standard" of carbon taxes rather than settling for the less predictable, less transparent, less universal and less equitable cap-and-trade approach.

As The Times noted last week:

"Making the price predictable is the most significant move you can make to control global warming," says Charles Komanoff, a long-time environmental economist who [with Dan Rosenblum] has recently started the Carbon Tax Center as an advocacy group. "It would tilt literally billions of energy critical decisions toward using less carbon."

If you agree, please help us as we develop the intellectual ammunition, provide technical assistance, assist local, state and federal carbon tax initiatives, energize a broad coalition of interest groups, and mobilize public support for fair and effective carbon taxes.

CTC is proving its effectiveness daily. To continue playing our essential role, we need your financial help. We gratefully thank all of you who have already donated to CTC. We ask carbon tax supporters who are not yet CTC contributors to become so today.

You can contribute to CTC in three ways, of which two are tax-deductible:

Tax-deductible:

Write a check or money order to ELPC (Environmental Law & Policy Center), writing Carbon Tax Center in the memo line; mail it to ELPC at 35 East Wacker Drive, Suite 1300, Chicago, IL 60601. ELPC is CTC’s fiscal sponsor.

Tax-deductible:

Make an on-line contribution via Groundspring by clicking on the DONATE NOW box on our website, www.carbontax.org.

Not deductible:

Write a check or money order to Carbon Tax Center and send it to our New York City mailing address: CTC, 636 Broadway, Room 602, New York, NY 10012.

Please be as generous as you can, and please donate today. Thank you.

Sincerely,

Charles Komanoff
Daniel W. Rosenblum

Dingell Opens the Door … with a Hybrid Carbon Tax

September 26, 2007 By Charles Komanoff

With a mighty creak of long-rusted hinges, a door is finally opening in Washington. The present Congress will apparently be asked to consider a carbon tax.

The measure — actually, a hybrid carbon and petroleum tax — will be introduced by the powerful chairman of the House Committee on Energy and Commerce, Rep. John Dingell (D-Michigan).

Today Dingell posted on his Web site a summary of the bill, which he began drafting in June. The current version would phase in, each year for five years, a charge of $10 per ton of carbon content of coal, oil and natural gas; plus an additional 10 cents/gallon for gasoline and jet fuel (kerosene). By the end of the five-year period the charges would reach $50/ton of carbon plus 50 cents/gallon of gasoline and jet fuel. These equate to 63 cents a gallon of gas and 90 cents for one hundred kilowatt-hours assuming the nationwide average fuel mix.

Dingell is asking the public for comments. Here’s ours: we think the bill is terrific. In line with what we said when we founded the Carbon Tax Center, and as Dingell himself wrote last month in the Washington Post, "[S]ome form of carbon emissions fee or tax … would be the most effective way to curb carbon emissions and make alternatives economically viable."
Moreover, as we elaborate below, his supplemental tax on gasoline and jet fuel has the look of genius.

How much carbon and petroleum would Dingell’s hybrid carbon tax eliminate? A lot, if you change one key parameter; instead of
halting the tax after year 5, continue ramping it up. If the tax works and the impacts on families and businesses can be offset through tax-shifting and rebates, why stop?

We examined a 20-year ramp-up — starting Dingell’s "10/10" tax in 2008 and continuing through 2027 to a level of $200 per ton of carbon plus $2/gallon on gasoline and jet fuel. Here’s where the U.S. would be in the representative year 2025:

Carbon dioxide emissions would be down by 1.55 billion metric tons from projected levels, a 20% drop — a decrease equivalent to current emissions from England, France and Italy combined.
Petroleum consumption would be 4.5 million barrels a day less than otherwise, an 18% decrease from projected usage, and more than 10% greater than Iran’s current production.

Moreover, these reductions could be supplemented by savings from other targeted policies and programs to reduce use of petroleum, natural gas and coal-fired electricity. (Indeed, a companion section of Dingell’s bill will call for phasing out the federal tax deduction on mortgage interest on very large homes, thus ending a subsidy through which middle and working class families subsidize gargantuan sprawl homes for the wealthy.) No other single policy measure — not broader CAFÉ standards, not a national Renewable Energy Standard, not a massive biofuels push, and certainly not a new generation of subsidized nuclear power plants — can produce nearly the carbon and petroleum savings promised by the Dingell hybrid carbon tax, provided it extends beyond the initial five-year period.

The brilliant touch in the Dingell bill is the supplemental tax on gasoline and aviation fuel. Dingell obviously grasps that a carbon tax alone can’t end America’s dangerous oil dependence. A straight carbon tax falls most heavily on coal, both because coal’s carbon content is so high and because electricity, the form in which coal’s energy is delivered, is more price-elastic than gasoline.

Using CTC’s four-sector spreadsheet model, which looks individually at electricity (40% pf U.S. CO2 emissions), gasoline (21%), jet fuel (4%) and "other" (35%), we estimate that without the annual 10¢/gallon levy on gasoline and jet fuel, the oil savings in 2025 would be nearly 40% smaller — 2.8 million barrels a day vs. 4.5 mbd. The hybrid tax thus saves 60% more petroleum, and
20% more CO2, than a straight $10/ton-a-year carbon tax.

Is the Dingell tax set at the best level? We would like to see it higher — considerably higher. The U.S. economy and America’s millions of vulnerable households could almost certainly handle a steeper ramp-up, provided the tax was made revenue-neutral. The climate crisis demands more than just the provisional $10 rate; CTC has been urging a $37/ton-a-year tax. But getting started at all is a tremendous step, and Dingell’s clear-sightedness and courage, in a Congress little characterized by either, deserve our
admiration.

What should be done with the revenue from the hybrid carbon tax? Needless to say, the quantities are enormous — $180 billion
annually after Dingell’s initial five years, and much more if the ramp-up is extended. While CTC strongly favors the revenue-neutral route, Rep. Dingell has his own ideas for using the revenues — as will just about everyone else.

For now, we urge you to read Dingell’s Web statement and post a comment on his site and at other sites that cover climate, energy, oil, national security, and politics. Having a legislator of Dingell’s stature even float a carbon-tax trial balloon is a very important and positive development — possibly a breakthrough. There’s a lot riding on it. Be heard.

Sept. 27 addendum: Two carbon-tax bills have already been submitted to the House Ways & Means Committee in 2007: the Stark-McDermott Save Our Climate Act
and the Larson American Energy Security Trust Fund Act. The Dingell proposal is certain to give these bills some of the prominence they deserve.