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Sanders-Boxer Set “Gold Standard” But Write Off Fiscal Potential of Carbon Tax

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One day after 48 climate protesters were arrested at the White House and three days before what is billed as “the largest climate rally in history,” Senators Bernie Sanders (I-VT) and Barbara Boxer (D-CA) set a new “gold standard” for transparent, effective climate legislation. Their Climate Protection Act (“CPA”) would impose an upstream carbon pollution fee starting at $20 per ton of CO2, rising in ten years to $33/T, and would tax methane emissions at their CO2 climate equivalency. Gone are “hide the price” gimmicks of cap-and-trade. No trading, offsets, banking, borrowing or allowance give-aways to polluters. Sanders-Boxer would return 60% of revenue directly to households monthly, allot 25% to deficit reduction and dedicate the remaining 15% to green energy, weatherization and infrastructure “hardening” under a companion bill, the Sustainable Energy Act. The CPA bill includes border tax adjustments to protect U.S. energy-intensive industry and nudge our trading partners to enact their own carbon pricing measures.

Senators Boxer and Sanders Introduce Carbon Fee Legislation

Opening a packed Capitol Hill press briefing yesterday morning, Sanders inveighed against partisan squabbling which he insisted must yield before the ineluctable laws of physics. Earlier scientific projections were wrong, Sanders said, “the crisis facing our planet is much more serious than they previously believed.” Sanders and Boxer conveyed alarming warnings of “global climate disruption” from a Senate Environment and Public Works Committee briefing on Wednesday. The panel of four scientists had concluded that without aggressive action, the earth will warm by 8 degrees Fahrenheit within a century, with consequences including 3 – 6 feet of sea level rise, more frequent and forceful damaging storms, drought, extreme crop loss and submerging of coastal cities.

At Thursday’s press briefing, climate activist-author and 350.org founder Bill McKibben thanked Sanders and Boxer for grasping the “depth of the climate problem” and moving to end the fossil fuel industry’s free dumping of pollution into the atmosphere. Sierra Club director Michael Brune, Public Citizen’s Tyson Slocum, Tara McGuiness of the Center for American Progress and Meg Power of the National Community Action Foundation all praised the effectiveness and fairness of the bills.

Reporters immediately questioned how the two bills could move forward. Boxer said she has just begun seeking co-sponsors and hasn’t conferred with Majority Leader Harry Reid about scheduling. But she expects to conduct hearings and markup in Environment & Public Works and to bring the measures to the Senate floor by summer. Replying to a question about EPA greenhouse gas regulations, she said, “We’ve beaten back” Republican repeal efforts. “The Clean Air Act is the law of the land” which the President “must carry out.” Boxer suggested that public opinion on climate is “far ahead” of Congress, “no one is asking for dirtier air or water.” But she offered no plans to reach across the aisle to enact their bills, either in the Democratic-controlled Senate or the Republican House. She called on environmental and public interest organizations to build support for climate legislation. Sanders suggested that the public hold accountable “Republicans who refuse to even recognize the reality of climate change.”

The Climate Protection Act certainly sets a high standard. By our lights, it’s the most potent climate legislation ever introduced in the Senate. The Carbon Tax Center gauges efficacy primarily by the price polluters would pay. Along with most economists, we are convinced that a briskly-rising price on CO2 pollution is hands down the most broadly-effective and potent force to reduce emissions and open the way for renewables, efficiency and innovation. While the CPA’s price trajectory isn’t nearly as aggressive as our own “gold standard,” Rep. John Larson’s 2009 bill (which we’ve been told he will reintroduce soon), we view CPA as a good start. We estimate Sanders-Boxer would reduce emissions by about 12% below 2005 levels in a decade. (In contrast, Rep. Larson’s more robust carbon price ramp-up would reduce emissions by 30% in the same time period.)

CPA’s proposed direct distribution of 60% of revenue would protect most low- and moderate-income households from the effects of energy price increases, without diluting incentives for everyone to reduce fossil fuel use. Its 25% share of revenue designated for deficit reduction (essentially compelled by Congressional Budget Office accounting rules) could appeal to deficit hawks. We’re less confident that energy subsidies would be well spent. But as Senator Sanders noted, home weatherization that cuts utility bills is like a permanent tax cut. Instead of subsidies, we recommend more revenue return to households to ensure growing public support for continued brisk increases in the price of carbon pollution needed to achieve scientifically-mandated emissions reduction in the range of (or exceeding) 80% by 2050. In British Columbia, dedicating carbon tax revenues to cutting a range of other taxes on work, business and consumption has marshaled public support for four annual carbon tax increases.

As we heard the press conference, Boxer and Sanders seem to have written off every member of the Republican caucus as a potential collaborator on climate policy. If that’s the case, they may be writing off this Congress and the opportunity that a looming sequester and debt ceiling crisis may present to shift taxes on productive activity to taxes on CO2 pollution.

It’s true that the House Republican leadership has pledged to reject any climate measure that generates revenue. But that may still leave room for revenue-neutral tax swaps. Kevin Hassett (American Enterprise Institute), Adele Morris (Brookings) and Donald Marron (Tax Policy Center) have suggested funding cuts in corporate income tax rates with a carbon tax. That kind of proposal should interest legislators like Ways & Means chairman Dave Camp who has repeatedly stated his desire to cut corporate income tax rates.

A proposal like Sanders-Boxer combined with one like those of Hassett, Morris and Marron could yield a broad and popular carbon tax swap like British Columbia’s. We simply can’t afford to give up on this Congress and wait any longer to start putting the brakes on global climate disruption.

Photo: Flickr– Public Citizen

Breaking News: Alaska Sen. Murkowski Rejects $450/ton Carbon Tax

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The arguments being marshaled by U.S. Senator from Alaska Lisa Murkowski to reject either a carbon pollution tax or a carbon emissions cap are timeworn and easy to deflect. Equating more energy with prosperity (and less energy with deprivation) is so far behind the curve, it even got upended in a Super Bowl commercial. (OK, the spot only aired in the Tri-State New York region, but it still had a major car company pushing fuel efficiency with the punchline, “The only way to pay less for gas is to pay for gas, less.”)

What’s harder to absorb is Murkowski’s embrace of that equation at the dawn of the 113th Congress, when enacting a U.S. carbon tax requires at least a modicum of Republican support.

Sen. Murkowski in 2006 with her catch of the day: a 63-lb King Salmon

Murkowski, the ranking Republican on the Senate Energy Committee, has long been regarded as the Republican Senator most likely to someday go for a carbon tax. Back in 2007 she even co-sponsored a carbon cap-and-trade bill, in part because she understood that her state has been experiencing even more severe temperature upheavals than the other 49. Not to mention that the Alaska  Permanent Fund’s pro rata distribution of North Slope oil royalties to households has become a model for the fee-and-dividend carbon tax approach.

All of which makes it confounding that, according to press reports, Murkowski’s new energy “blueprint” brings down the hammer on both carbon price disincentives and limits on fossil fuels:

A carbon tax or a cap and trade proposal or something that is going to make energy more expensive is not going to help us . . . We like to be comfortable in our temperatures. We like to be able to move around. This is the mark of a successful and an economically healthy world. Where you have energy these are the prosperous areas.

Those remarks are not from Murkowski’s energy blueprint, called Energy 20/20, which isn’t Web-available yet. They’re direct quotes from the Senator, from a carefully reported article last weekend in the Anchorage Daily News. The same article helpfully reminded readers that “Murkowski herself co-sponsored an attempt in 2007 to impose a cap on carbon emissions, saying at the time that ‘the permafrost is melting, Arctic ice is disappearing and wildlife habitat is changing.’“

But that was then, as the saying goes. The article makes painfully clear that after years of tantalizing climate advocates, Murkowski has resolved to steer clear of carbon tax legislation — at least for now. Indeed, the headline, “Murkowski energy plan calls for more drilling, nothing to rein in greenhouse gases,” says that loud and clear. But here’s the topper:

If you’re sitting in Aniak [a town 300 miles west of Anchorage] and you get a press release from your senator saying the good news is we are going to address emissions, the bad news is you’re no longer going to be paying $6.99 a gallon for your fuel you’re going to be paying $10.99 then do you feel good about that? I can’t do that.

Where to begin? Well, to raise petroleum product prices by $4.00 a gallon, a carbon tax would need to be around $450 per ton of CO2. That’s literally off the charts: $450/ton is quadruple the 10th-year tax level in the Carbon Tax Center’s preferred bill, Rep. John Larson’s America’s Energy Security Trust Fund Act, and 10-20 times as high as taxes advocated by the Brookings Institution, among others.

And the upside of such a massive carbon tax ― of any carbon tax ― is the revenue it raises, which Murkowski’s “Aniak” sound-bite ignored. Carbon tax revenues could be dedicated to reducing the regressive and stifling payroll tax; or they could be “dividended” to Americans. In the latter scenario, Sen. Murkowski’s implied $450/ton carbon tax would yield annual dividend checks to every American household of $8,000, or six times the size of Alaska Permanent Fund checks.

Maybe that would play in Aniak after all.

Photo: Flickr / Esteban Salazar Herrera.

Cap-and-Trade Post-Mortems Overlook Fatal Flaw of “Hide the Price”

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Two new autopsies of the failed 2008-10 effort to pass comprehensive climate legislation are deservedly generating buzz: the commentary includes posts in Grist by David Roberts (3 posts), Bill McKibben, Eric Pooley, and Joe Romm, in Time by Michael Grunwald and a Washington Post interview by Brad Plumer.

Hiding The Price Allowed Heritage Foundation To Exaggerate the Cost of Cap & Trade

The heftier of the two reports, weighing in at 145 pages, is by Harvard Poli Sci Professor Theda Skocpol. Her exhaustive but riveting narrative, “Countering Extremism, Engaging Americans in the Fight against Global Warming,” is a pointed rebuke to complaints by Big Green leaders like EDF’s Fred Krupp and NRDC’s Dan Lashof that President Obama’s decision to tee up health care reform first spelled doom for cap-and-trade legislation.

Skocpol contrasts the extensive grassroots network built to educate the public and support health care reform with green groups’ obsessive insider-dealing to win backing for cap-and-trade from fossil fuel interests. She cites a May 2009 Rasmussen poll conducted on the eve of the House vote on the 1400-page Waxman-Markey cap-and-trade bill showing that more than three-quarters of respondents had no idea what cap-and-trade meant. [Skocpol, p 53].

Skocpol concludes that:

[G]lobal warming reformers must mobilize broad, popularly rooted support for carbon-capping measures that have something concrete to offer not just to big corporate players, but also to ordinary American citizens and to local and state groups. Another legislative effort based on insider bargains and pay-offs is not likely to be successful – given conservative capacities to mobilize grassroots opposition, plus the level of distrust that most Americans now have about complex insider bargains in Washington DC. [p 113]

The other post-mortem, “The Too Polite Revolution, Why the Recent Campaign to Pass Comprehensive Climate Legislation in the United States Failed,” is by journalists Petra Bartosiewicz and Marissa Miley. Their report offers juicy details from the months of heated back-room negotiations by the Big Green-led US Climate Action Partnership (USCAP) to win support from the polluters whose emissions would be “capped” by Waxman-Markey. Like Skocpol, who relied heavily on Bartosiewicz and Miley’s interviews and research, they urge greens who want effective climate policy to start by building, or tapping into, a strong grassroots movement.

Both reports applaud legislation proposed in 2009 by Senators Cantwell (D-WA) and Collins (R-ME) to “cap” U.S. CO2 emissions by requiring polluters to bid on a declining supply of pollution allowances. But unlike Waxman-Markey’s attempt to pay off polluters, Cantwell-Collins would initially return 75% of auction revenue to households in the form of pro rata monthly “dividend” payments. (The fraction of revenue returned to households would decline as the “cap” tightened.) Skocpol concludes that, in contrast to cap-and-trade, “Citizens could understand and trust this policy.” [p 125]

Skocpol acknowledges the overwhelming preference of economists for an even more transparent and straightforward approach: a straight tax on carbon pollution. Yet she nevertheless dismisses efforts to include a carbon tax in fiscal and tax reform as the “latest quixotic DC quest for an insider bargain on climate change.” [p 113] She points out that, immediately following Obama’s re-election, the entire House GOP leadership signed the “no climate tax pledge” of the Koch brothers-backed Americans for Prosperity. She concedes that a carbon tax might find its way into fiscal or tax reform legislation; but citing Congress’ failure in 1993 to enact a “BTU tax” (which broke down in squabbling over exemptions), she concludes that a carbon tax would pass only if:

a lot of moderate Congressional Democrats got exceptions for their favorite regional fossil-fuel industries and were convinced that revenues from this tax are vital to reducing the deficit without eliminating or squeezing other federal programs they want to preserve… [I]f a carbon tax happens this way, it will look corrupt and not be very understandable to most ordinary American citizens – and so it will be easily ridiculed and demonized by rightwing advocates and media figures who have already demonstrated their ability to rouse populist opposition and stoke public fears about complex, opaque insider measures. [p 112]

At this point, you may be tempted to tear up Skocpol’s paper in frustration. We certainly were. In dismissing prospects for building a carbon tax into comprehensive tax reform, Skocpol has rejected the possibility that a transparent, understandable proposal can spark the public education and movement-building that she herself forcefully advocates. In contrast to the opacity and complexity of cap-and-trade – a policy practically built for back-room dealing – a simple, transparent economy-wide tax on carbon pollution can be explained as a way to offset fossil fuels’ artificial advantage over energy efficiency and renewable energy. Moreover, if the alternative to a carbon tax is higher taxes on productive activity such as work and investment, might not the public, and even some Republicans, be supportive?

Skocpol is also critical of efforts (by NRDC and others) to bypass Congress via EPA regulation of greenhouse gases. While we at the Carbon Tax Center have pointed out the limited effectiveness of such regulatory steps, she points out that they also face substantial political obstacles:

Some anti-global warming reformers fantasize that the second Obama administration can act freely through the EPA without worrying about Congress or national popular support… Even bold regulatory steps by the EPA – such as using its authority under the Clean Air Act to crack down on existing coal-fired electric-generating plants – are likely to be blocked or undercut as long as GOP radicals have major leverage in Congress.

Where do these bleak diagnoses leave us? Still reeling from Hurricane Sandy, the not-too-distant memory of Hurricane Katrina, 332 consecutive months of above-average global temperatures, and a worldwide pattern of chaotic, extreme weather, voters seem to be refocusing on global warming. President Obama placed climate high on his inaugural agenda, but within days press secretary Jay Carney repeated his post-election disclaimer: the Administration has no intention of proposing a carbon tax. The Sierra Club and 350.org are organizing (yet another) climate demonstration in Washington DC on February 17 to demand Obama disapprove the Keystone XL pipeline. Yet they don’t demand a tax on carbon pollution but instead resort to the fuzzy euphemism for cap-and-trade, “put a price on carbon.”

Both Skocpol’s and Bartosiewicz & Miley’s post-mortems conclude that cap-and-trade was killed by a collision with intransigent Republicans, abetted by the folly of Big Green’s attempt to buy off polluters. They call for a broad movement to support a cap on greenhouse gas emissions and suggest it could be built on distribution of auction revenue to the public via a “dividend.” But their autopsies overlook another insidious poison: the duplicity inherent in advocating an emissions “cap” while denying that unless revenue return is included in the legislation, cap-and-trade is a hidden, volatile and regressive tax collected and securitized by Wall Street traders.

The real lesson of the Waxman-Markey debacle is that cutting deals with polluters while hiding the price doesn’t work. How about, instead, a genuine public education and organizing effort with a full-throated call from the environmental community for a substantial, briskly-rising tax on carbon pollution, with no exemptions?