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Arising from the Senate’s Ashes?

July 22, 2010 By Charles Komanoff

And now, ve may begin?

Readers of a certain age, and a certain literary bent, will recognize the words of Alexander Portnoy’s psychiatrist, spoken at the close of Philip Roth’s transgressive 1969 novel, Portnoy’s Complaint.

After lo these many years, they popped into my head today as I read that Senate Democrats had finally thrown in the towel on an energy bill that would have included a partial cap-and-trade provision for limiting carbon emissions from power plants. The bill, written by Senators John Kerry and Joe Lieberman, was touted by Washington insiders and some major environmental groups as this year’s last hope for federal climate legislation. Yet it would have relied on carbon offsets and other dodges to postpone the day of reckoning with true, visible carbon emissions pricing — the cornerstone of meaningful climate policy.

Instead, reported the New York Times, Senate Democrats will pursue a limited bill aimed at increasing oversight of oil drilling and tightening energy efficiency standards — with no direct assault on climate-destabilizing CO2. (For a later Times story amplifying the first, click here.)

Yes, now, we may begin — “we” being Americans who care about climate, sustainability, and Earth — to unite around a climate approach that is effective, equitable and transparent enough to win the support of our fellow citizens and a Congressional majority.

I’m referring of course to the idea advanced by climatologist Jim Hansen as fee-and-dividend and by the Carbon Tax Center as a revenue-neutral carbon tax, by which fossil fuel extractors and importers pay the U.S. Treasury fees pegged to the carbon content of the coal, oil and gas they take from the ground or bring into U.S. ports, and the Treasury distributes the revenues to all Americans via equal monthly dividends (“green checks”), or by tax-shifting from regressive taxes such as payroll taxes.

The Senate’s antipathy to even the partial cap-and-trade proposed by Sen. Kerry will doubtless be spun as indicating that for the foreseeable future the well for climate legislation has been poisoned. The Carbon Tax Center says that the opposite may be true: with cap-and-trade out of the way at last, the political well can begin to be de-toxified so that the effective, equitable and transparent carbon fee-and-dividend can be seriously considered.

For this to happen, however, the Big Green groups like EDF and NRDC that for years have dominated climate discourse among environmentalists, and that convinced Congressional Democrats and the White House that the only way to “put a price on carbon” in America was via carbon cap-and-trade, will have to abandon that approach and allow others, and themselves, to try a fresh start.

It will be said that cap-and-trade failed because Fox News and other climate deniers branded it as “cap-and-tax” and, therefore, a carbon tax (or fee) cannot possibly succeed. And it is true that carbon cap-and-trade was looked to, years ago, as a way to build on the success of acid rain cap-and-trade, win over Republican free-marketers, and put a price on carbon without having to parade the dreaded t-a-x word before the public.

In the event, though, carbon cap-and-trade did none of these things.

Instead, Big Green’s pursuit of carbon cap-and-trade tethered the climate movement to complex financial instruments and branded us as servants of Wall Street elites. It opened the legislative floodgates to off-the-charts Beltway deal-making that rightly repulsed the public. Perhaps most importantly, the co-optation of climate advocacy by the cap-and-traders robbed us of the high moral ground we might have shared with abolitionists, suffragists, labor agitators and civil rights workers — true American heroes who fought to liberate our society of oppression and injustice.

If you’re in the climate movement, you recognize that fossil fuels’ assault on Earth’s climate is an ultimate form of oppression and injustice: of rich against poor, of the profligate against the frugal, of the present against the future. Ending this assault will require concerted action on many fronts; and it starts by internalizing the climate-damage costs of coal, oil and gas into their prices, so that the free ride for fossil fuels is ended and all of the alternatives, from energy efficiency, renewable energy and low-carbon fuels to conservation-based behavior and mindfulness toward energy consumption, may compete fairly and effectively.

Political action to accomplish this must be done in bright sunlight, not in Beltway shadows.

Cap-and-trade, let us hope, is dead. And now, we may begin!

Photo: Flickr / generica.

What Can Replace Faltering Cap-and-Trade?

August 20, 2009 By Charles Komanoff

Is Waxman-Markey doomed? Revulsion at the special favors and sheer complexity built into the 1,400-page bill that squeaked through the House in June has been building nationwide this summer. Now, a Washington Post editorial signals the impending collapse of not just the bill but of cap-and-trade as the central mechanism for controlling U.S. greenhouse gas emissions.

The Post wrote earlier this week:

The rancorous debate over health reform has given voice to considerable uneasiness among Americans. Many are worried about how a new system will be paid for in an economy that has unraveled, and they are anxious about a kudzu-like expansion of an already unwieldy bureaucracy. Given the herculean effort it will take to get President Obama’s vision of reform through Congress, we’re not convinced that the Senate will have the stomach to tackle cap-and-trade legislation this fall. The growing agitation within the chamber over the creation of another complex system to buy, sell and trade pollution credits only adds to our doubts. (emphasis added)

As the Post editorial noted:

The House barely passed the American Clean Energy and Security Act (a.k.a. Waxman-Markey) in June. The 1,400-page bill has a potpourri of measures ranging from new efficiency and renewable energy standards to a cap-and-trade provision that gives away 85 percent of the pollution allowances to various interests. The Senate is proving to be a much tougher sell. Last week, four Democratic senators — Blanche Lincoln (Ark.), Ben Nelson (Neb.), Kent Conrad (N.D.) and Byron L. Dorgan (N.D.) — called on the leadership to strip cap-and-trade completely from the bill that Majority Leader Harry M. Reid (D-Nev.) hopes to start stitching together next month. This comes days after 10 moderate Democratic senators from coal and manufacturing states sent a letter to President Obama warning that they would not go along with any cap-and-trade regime that didn’t “maintain a level playing field for American manufacturing.” (emphasis added)

The fact that the epicenter of discontent is the coal-dependent “heartland” region indicates that Waxman-Markey has been more heavily attacked from the Right than the Left — as the Post itself signaled through its editorial title “Cap and Rage” and subtitle, “The fight over health-care reform could hobble climate-change legislation.” As we see it, the Big Green groups that steered Congress onto the cap-and-trade path and also failed to insist on 100% permit auctioning and at least near-revenue neutrality share blame for the virulent attacks. Their stance helped turned the House bill into a perfect target for caricature as a “cap-and-tax” bill or “cap-and-trade tax” that would push hard-pressed American families, businesses and industries over the financial edge.

Nevertheless, the Post reports that:

Dropping cap-and-trade from the Senate bill is considered a non-starter by Mr. Reid and environmental advocates for two reasons. First, a long-stated goal of congressional leaders and the president himself is to have emissions-limiting legislation passed and signed into law in time for international climate talks in Copenhagen in December. Second, there is no Plan B. The leadership has put all of its eggs in the cap-and-trade basket.

Fortunately, the Post hastened to remind Majority Leader Reid that there is indeed a Plan B:

Yet there are other options worthy of consideration. Yes, we’re talking about a carbon tax. It would be relatively simple to devise and easy to implement. It would require no new bureaucracy, and the revenue generated could be rebated to the taxpayer in any number of ways — through a payroll tax reduction, for instance. (emphasis added)

The Post editorial acknowledged:

We know we are running counter to Washington’s tax-averse conventional wisdom. But we are not alone in our support of the carbon tax. There were three such bills in the House [including the Larson bill, which is more than 95% revenue-neutral and, with an upward-adjustable tax rate, is the most “cap-like” but without the politically toxic “trade” aspect]. One of the inventors of the cap-and-trade concept, Thomas Crocker, told the Wall Street Journal last week that he favors a carbon tax because he believes it’s easier to enforce.

The editorial concluded:

If Congress fails to pass cap-and-trade legislation, it will rapidly approach a fork in the road in addressing global warming. Members can sit back while unelected bureaucrats at the Environmental Protection Agency follow through on their moves toward regulating greenhouse gas emissions as a pollutant under the Clean Air Act. Or they can entertain a carbon-based tax designed to reduce emissions and give the money back to taxpayers in an equitable manner. A decision on which path to take is bearing down upon us. Not only are the global warming dangers facing the planet reaching the tipping point, but there will also be no climate agreement in Copenhagen without strong leadership in words and deeds from the United States. As the Senate forges ahead, nothing should be off the table.

We agree, of course, that nothing should be off the table. The demise of Waxman-Markey won’t be pretty, but it should spur all who grasp the criticality of the climate crisis to unite behind the quickest, fairest and most effective means to reduce U.S. greenhouse gas emissions: a national, revenue-neutral carbon tax.

Photo: Flickr / afagen.

Does Cap-and-trade Punish Virtue?

August 7, 2009 By James Handley

Another question directed to the Carbon Tax Center: Would a carbon emissions cap become an emissions minimum as well as maximum, in effect precluding reductions below the cap level?

A “cap” of the type embedded in the House-passed Waxman-Markey bill (ACESA) is a legislated number of allowances, or permits, corresponding to tons of CO2 to be emitted. If the number of allowances is less than total expected CO2 emissions for that year, the shortfall will create an allowance price sufficient to drive demand down to the cap level. A too-loose cap (where allowances exceed emissions) will cause the carbon permit price to approach zero, as has occurred in the EU’s Emissions Trading Scheme.

Now, what happens if some people “virtuously” reduce emissions for altruistic reasons? Would they simply be making room under the cap for more emissions by someone else? Prof. James Kahn at Washington & Lee University examined a similar issue: the ramifications of hypothetical new low-carbon energy technology under a cap. Using standard tools of economic analysis such as demand curves, Kahn found that the reduction in allowance prices due to the new technology would stimulate new demand that would exactly cancel out the reduction in emissions. Extrapolating from Kahn, it appears reasonable to expect that altruistic reductions under a carbon cap would similarly reduce allowance prices and create a price signal to consume more, thus canceling out those reductions.

revolving_door_megabooboo This perverse consequence of a carbon cap makes perfect sense, unfortunately. Consider a commuter who, independent of any price signal or federal legislation, resolves to give up solo car commuting for a carpool. Under a cap system, this “exogenous” reduction in demand for carbon emitting will lead to a slightly lower emission permit price — thus stimulating some additional use of fossil fuels elsewhere. The incremental usage might be a reciprocal departure from a carpool, or cranking up the heat, or a return to buying bottled water rather than refilling at the tap … or any of a thousand other ways to burn carbon. The result, in the end, will be the same: virtue in one arena will be offset elsewhere, due to the price-equilibrium-seeking mechanism of the cap.

It gets worse: ACESA includes both a cap and a “renewable electricity standard” (RES) which mandates that electric utilities buy a gradually-increasing fraction of their energy from renewable sources. Resources for the Future studied this same policy combination in Germany. Its finding: Germany’s combination of an RES with a cap caused an increase in the use of coal to generate electricity, as the growth in renewable-energy output created room under the cap for more coal-fired generation elsewhere. In effect, the renewables displaced natural gas-generated electricity instead of coal because gas was more costly, even with coal’s much (roughly 80%) higher carbon content and allowance cost. (This perverse incentive would disappear if allowance prices rose to a level making electricity generation from coal more costly than natural gas.)

To summarize, a carbon cap would tend to cancel out emissions reductions resulting from personal choices and from new technologies. Virtuous conservation and new technologies would reduce allowance prices, stimulating more consumption by others. And, by combining renewable electricity standards with a cap, ACESA would create another perverse incentive because shifting electricity generation to renewables tends to make more room under a cap for coal emissions.

A carbon tax, in contrast, would be free of such “canceling out” mechanisms. Indeed, if anything, “my” tax-induced conservation would tend to encourage “yours” by helping move societal norms away from consumption. And a gradually increasing carbon tax would obviate the need for renewable electricity standards by increasing the cost of high-carbon fuels and stimulating demand for low-carbon alternatives.

Finally, a carbon tax would sidestep what is likely to be cap-and-trade’s biggest “toxic” side effect: a volatile new carbon market that would benefit only speculators and could crash world financial markets again.

Photo: Flickr / megabooboo.

A Day To Celebrate

June 30, 2008 By Charles Komanoff

Canada Day — the First of July — is observed "not only throughout the nation, but also internationally." This year, Canada’s third-most populous province is giving the world extra cause to celebrate: on July 1, British Columbia becomes the first state or province in the Western Hemisphere with a comprehensive, revenue-neutral carbon tax.

The BC carbon tax starts at a level of $10 (Canadian) per metric ton of carbon dioxide, equivalent to 2.41 (Canadian) cents per litre of gasoline. In U.S. terms and at current exchange rates, that’s $8.91 per short ton, or just under 9 cents per gallon of gas. The rate rises by $5 in each of the next four years, reaching $30 Canadian per tonne (U.S. $26.73 per ton) in 2012.

The tax is revenue-neutral. As we reported in April, the province’s Finance Ministry has dedicated the revenues to four tax reduction measures:

A new Climate Action Credit will pay lower-income BC’ers $100 per adult and $30 per child per year.
The bottom two personal income tax rates have been reduced by 2% on the first $70,000 in earnings.
The corporate income tax rate has been reduced to 11% from the current 12%.
The small business tax rate has been cut to 3.5% from 4.5%.

Each provision will expand in tandem with the tax rate. And, showing impressive political pitch, the ministry last week preceded the tax with what it calls “an immediate Climate Action Dividend” — $100 for every man, woman and child in British Columbia — via dividend checks sent to province residents.

The BC program has catalyzed an intensive discussion of carbon taxes across Canada. Liberal Party Leader Stéphane
Dion is staking his party’s campaign to replace the Conservative government on a carbon tax featuring a $15.4 billion, four-year Green Shift. Canadians are receiving, and participating in, a national tutorial on carbon pricing, “tax vs. cap” and revenue-neutrality.

The BC tax is modest. One
source says it will deliver less than a tenth of the province’s legislated greenhouse gas reductions for 2020. That’s partly because abundant hydropower has obviated the need for fossil fuels to generate electricity. (Memo to BC: please consider an excise tax on electricity; power surpluses from price-induced conservation could be sold into the grid, with revenues flowing to the Climate Action Dividend.)

Still, the tax is a giant step — even a leap. At midnight tonight, North America will have its first large-scale, socially-mandated carbon price. Millions of carbon-impacting decisions will begin to be made with at least some recognition of the climate-curing effect of reduced carbon emissions.

Starting now, BC residents who use less carbon than average will be rewarded with an income boost. With luck, the province’s ruling Liberal Party will be rewarded as well by voters for showing courage, vision and populist appeal. And perhaps in the not too distant future the U.S. will take a page from its northern neighbor’s play book and supplement its imports of ice-hockey players and Canadian Club with something even more sustaining.

Graph: Flickr/paradigm4.

Polling Shows Growing Support for Carbon Taxes

November 13, 2007 By Charles Komanoff

New polls are showing increasing support for carbon taxes as concern about climate change grows. We’re pleased with these results, but we’re frustrated that as yet no polls have included questions that would indicate whether support for revenue-neutral carbon taxes exceeds that for carbon taxes for which the revenue uses are either unspecified or earmarked. While we strongly suspect the answer would be Yes, it would be helpful to have our suspicions confirmed by actual polling data.

Clear Cut Voting Booth _ Mario Zucca Illustration_1.jpg The most recent poll, a Field Poll published on Nov. 9, reports that a majority of Californians are in favor of a carbon tax. Some 72% support a carbon tax on business, although this declines to 53% if the tax were to result in Californians’ paying higher prices for goods and services. Support for the tax grows to 65% if the tax revenues are spent solely on reducing greenhouse gas emissions.

Approximately 65% of those polled also favor the idea of a cap-and-trade system. However, those stating a preference for cap-and-trade were not asked the follow-up question about higher prices that was asked of carbon tax supporters, even though increases in prices due to cap-and-trade would be similar to those from a carbon tax.

Similar results were obtained in a recent BBC poll of 22,000 people in 21 countries. In 14 of the countries, "a majority (61% on average overall) say it will be necessary to increase energy costs to encourage conservation and reduce carbon emissions." The poll found that 74% of Americans support paying a higher tax on coal and oil if the revenues are used to promote efficiency or to develop new fuels; but, unsurprisingly, Americans are divided if the revenues are not used for those purposes, with only 46% supporting such a tax. The poll did not ask about support for a revenue-neutral tax that would encourage conservation, reduce carbon emissions AND return the money to all Americans. Most Would Pay Higher Energy Bills to Address Climate Change Says Global Poll, World Public Opinion.Org, Nov. 5.

Image: Mario Zucca Illustration / Flickr.

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.