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Bait-and-Switch Carbon Tax Act of 2013

“The ‘bait’ for legislators is each gets to ‘bring home the bacon’ in the form of rebate checks to voters and huge new tax revenues for the federal government…. The ‘switch’ … is to propose baby steps for the first 10 years [versus what will be necessary] … in the out years.”

The “Climate Protection Act” (House) and Sustainable Energy Act” (Senate), are the latest, and perhaps the most onerous, in a series of legislative proposals that seek to tap the immense revenue stream promised by taxing carbon dioxide (CO2) emissions from  fossil-fuel burning.

So-called Boxer-Sanders will neither “protect” the climate nor protect consumers and taxpayers despite its start-small provisions and gentle rhetoric.

Bait …

Sen. Barbara Boxer (D-Calif.), chair of the Environment and Public Works Committee, recently signed on as a co-sponsor of Sen. Bernie Sanders’ (I-Vt.) “fee and dividend” carbon tax legislative proposal. The law would impose a “fee” on carbon emissions at their source and rebate a “dividend” to “legal residents of the U.S.” for a portion of the cost impact of the tax, along with other incentives. The legislation carefully substitutes the more benign “fee” in place of the more pejorative “tax,” which it is. The government will also slice off a healthy portion of the carbon tax revenue for its own use.

The legislative proposals enable collection of the tax beginning at $20 per ton of carbon or methane equivalent emissions, rising at a rate of 5.6% a year for 10 years (effectively a 72.4% compounded increase). The tax would be extracted at the point of sale as well as from fossil fuel importers. Sanders estimates his carbon tax plan would generate about $1.2 trillion in new government revenue over the first 10 years covered by the legislation, although the legislation is written with a much longer effective period in mind, through 2050.

The legislation also directs the government how to spend its newly collected bounty. A portion of the proceeds will be used for infrastructure improvements, about 60% would be distributed to residents in the form of rebates and other efficiency projects, and the balance, about 25% of the revenue, will go to the federal government for deficit reduction, which is a meaningless gesture unless matching expenditures are simultaneously curbed.

The scheme has a little something for almost everyone, no doubt intended to attract the necessary votes for passage.

… and Switch

The sales pitch obviously self-identifies as the old bait-and-switch scheme. The “bait” for legislators is each gets to “bring home the bacon” in the form of rebate checks to voters and huge new tax revenues for the federal government. For carbon control proponents, the bait is found in the Sanders/Boxer Climate Legislation summary: “setting a long-term emission reduction goal of 80 percent or more by 2050 as science calls for.”

For the rest of us, we are being asked to defer to the “experts” and believe that anthropogenic emissions cause an increase in global average ambient temperatures, an assumption that current facts don’t support (see my “Where’s the Warming?” Feb. 2013). This statement is a standard rhetorical device known as an argument from authority, certainly not the foundation upon which to build a multi-trillion-dollar tax structure.

The “switch” part of the scheme comes in two parts. The first part is found in the body of the legislation. Sanders’s response to the “crisis facing our planet [that] is much more serious than they [scientists] had previously believed” is to propose baby steps for the first ten years, when huge leaps in emissions reductions are required, if you believe the rationale for the legislation. Yet, over these 10 years the proposed carbon tax will have no discernible impact on global average temperatures, ostensibly the basis of the legislation.

The second part of the switch is what happens in the out years. Assuming emissions decrease by 20% during the first decade, the tax rate will necessarily skyrocket to achieve the overall goal of 80% reduction by 2050. Physics reminds us that the difficulty and cost of the last 20% will be exponentially higher than the relatively easy first 20% reduction. After a decade, the carbon tax will metastasize throughout the economy and the government will be addicted to the cash.

NERA Carbon-Tax Study

NERA Economic Consulting has rigorously examined the potential effects of a carbon tax based on a more conservative 4% annual increase of the introductory $20/ton carbon tax rate, plus a projection of the large increase in the carbon tax rate necessary to achieve the 80% reduction by 2050 goal.

Economic Outcomes of a U.S. Carbon Taxconcludes that a “carbon tax would have a devastating impact” on the economy due to higher prices for natural gas and electricity and other energy commodities causing “output in energy intensive industries [to] drop by as much as 15 percent and 7.7 percent in non-energy intensive sections,” according to National Association of Manufacturers Vice President Ross Eisenberg, quoting report findings.

For example, the report predicts the price of gasoline will be $14.57 per gallon in 2053, with $9.06 in tax, compared to $5.51 per gallon with no carbon tax baseline. NERA concluded that a carbon tax under an “80% reduction tax case” would cost the economy up to 20 million jobs by 2053 and would reduce wages about 7% and wage growth over 8% due to increased cost of energy.

Practice Patience

The most current U.S. EPA data shows that U.S. greenhouse gas (GHG) emissions were 11.8% less in 2012 than in 2005 (the proposed baseline year). The trend in emissions reductions already has a negative slope without a carbon tax. In fact, fuel switching from coal to gas will surely further depress GHG emissions in the coming years.

I counsel patience. Allow the economy to recover and encourage its continuing transition to domestic oil and gas production, and we’ll watch the carbon emissions continue to decline. A soft landing is always preferable to a crash and burn.

————–

Robert Peltier (Ph.D; PE) is editor-in-chief of POWER magazine. This post is a revised version of the May 1, 2013, Speaking of Power editorial.

5 comments

1 Ed Reid { 05.07.13 at 8:46 am }

A national carbon tax in the US would “have no discernible impact on global average temperatures” ever, though its impact might perhaps be estimated. However, were we to fortuitously enter into a period of global cooling, or even continue the current period of global temperature stasis, the proponents of this legislation might claim causation.

I would be interested to see the calculations which established the environmental externalities costs of CO2 emissions at $20 per ton; and, determined that those costs would increase at the rate of 5.6% per year. Perhaps the 5.6% per year is an estimate of the future rate of growth of China’s CO2 emissions, which would cause the environmental externalities costs of global (and thus US) CO2 emissions to increase correspondingly.

“Enquiring minds want to know.”

2 JohnInMA { 05.07.13 at 11:50 am }

As far as I am concerned, the domestic talk and effort around creating carbon pricing, and corresponding markets, has always centered on the money as much as the ‘climate impact.’ Many presentations within bigger energy technology conferences I’ve attended in the last 4 or 5 years have included carbon pricing topics. And in every case, engineers and non-engineers alike (typically PhDs) agree on the overall ‘social benefit’ from a carbon market.

In short, the motivation is the avoidance of catastrophe (isn’t it always?). But everyone always manages to highlight the secondary economic benefits as if they are as large a motivator. It’s a morality play. What, you are against helping the poor in developed nations and the energy-less in undeveloped nations? You can almost see the sparkle in their eyes as they imagine the enormity of the cash pool and what can be done with it.

And aren’t we proving currently that progressives are more than willing to sacrifice some degree of prosperity/growth/ranking in order that the “greater good” be satisfied? Isn’t that the point of dangerously agressive spending and higher taxation in the most simple view?

3 DCP { 05.07.13 at 9:29 pm }

Ed Reid’s suggestion about China is off base. China is launching its first carbon market in less than a month, and plans on a carbon tax in 2015. They’re acting rationally to address climate.

Also, Mr. Peltier’s post reads like a Jenga puzzle. Pull out the false statements about climate science, and everything falls apart. I’m sure he wishes climate science weren’t true, as do I. I however accept the tested conclusions of scientists around the world that are based on basic thermal physics. In response, I support a tepid carbon tax, even though much more drastic action and investment in new technologies are needed.

4 rbradley { 05.08.13 at 7:56 am }

DCP

The whole governmental effort, and even our little debate, about climate change is very wastful in the sense that resources could be spent on human needs and wealth creation to make future weather and climate change less impactful on our lives.

The growing case for ‘global lukewarming’ in place of catastrophic warming means that there is less of a problem to begin with and less that even successful government action can reverse out.

Question: at what point does ‘government failure’ become great enough in the eyes of the “Left” to want to stop fighting ‘climate change’ and help real people here and now? And promote capitalism in place of statism in the developing world to help them deal with weather/climate?

5 Ed Reid { 05.08.13 at 9:09 am }

DCP @ 3

China is currently increasing its annual CO2 emissions at a rate of ~11% per year. My (sarcastic) suggestion regarding the 5.6% proposed annual increase in the US carbon tax proposed in Sanders-Boxer would represent an ~50% reduction in that annual rate of growth.

I suspect that the 5.6% rate of growth in the US carbon tax proposed in Sanders-Boxer was chosen to distinguish it from the 7% growth rate built into the US baseline budget, to suggest that there was some interest on the part of our congresscritters in something other than the incremental revenue.

You might consider resetting your sarcasm filter.

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