Category — Carbon Tax

“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. [Read more →]

“The tax will not be implemented in the politically aseptic world of academic modelers, but in the real world of intense  political pressures. Its assumed purity will not survive the onslaught [as demonstrated by] … Sanders-Boxer [where] the carbon tax is treated as a huge honeypot for allocating money to powerful groups, including overseas interests.”

The carbon tax, a serious proposal supported by some thoughtful people, deserves careful consideration. This tax is the subject of an extensive and often technical literature with top scholars making proposals for Resources for the Future and for the Brookings Institution. [1] The term “carbon tax,” however, has a chameleon-like quality, meaning something different in each of three different contexts.

Three Rationals

In the context of economic theory, the carbon tax is a way to deal with an imperfection in the energy market. In this world, carbon dioxide (CO2) emissions cause harm for which the emitter does not pay. The purpose of the tax is to impose the full cost of his activities onto the user of carbon-based fuel, so as to force him to incorporate the cost of the harm into the price of the fuel. Once the level of harm and its costs are included in market prices, then the energy market will work properly.

In this formulation there is no preconception about the proper level of the tax or the final outcome of the competition between sources of energy. The tax is set by careful assessment of the costs of the harm caused by the emissions, and the level of use of carbon fuels is then determined by market prices. [Read more →]

The major premise of the International Monetary Fund’s carbon tax proposal is the concept of social cost. According to the IMF, fossil-fuel consumers do not pay for all the harm they do to public health and the environment. Hence, the IMF reasons, fossil energy is under-priced, society consumes too much of it, and corrective (“Pigouvian”) taxes are needed to achieve “efficient” energy markets.

The IMF acknowledges that social cost of carbon (SCC) “estimates in the literature have varied considerably, ranging from $12 per ton (Nordhaus, 2011) to $85 per ton (Stern, 2006).” The IMF’s “estimates assume damages from global warming of $25 per ton of CO2 emissions, following the United States Interagency Working Group on Social Cost of Carbon (2010), an extensive and widely reviewed study.”

Actually, the Interagency Working Group recommends that agencies use four SCC estimates to calculate the per-ton benefits of CO2 reductions: $5, $21, $35, and $65. It’s unclear how the IMF split the difference and got $25.

Climate Science: Unknown Social Cost of Carbon

Be that as it may, SCC estimates are based on multi-layered assumptions about such issues as climate sensitivity, the impacts of warming on weather patterns and sea-level rise, the impacts of the latter on economic activity, and the impacts of changes in global temperature, weather, sea level-rise, and economic activity on public health and welfare.

As the range of estimates attests, the SCC is very much in the eye of the beholder. It is an unknown quantity. Try, for example, to discern carbon’s social cost in the following information: [Read more →]

 The International Monetary Fund (IMF) recently published a report urging the world’s governments to “reform” energy subsidies estimated at $1.9 trillion in 2011. Eliminating government policies designed to rig markets in favor of particular energy companies or industries is a worthy goal. Unfortunately, that’s not the agenda the IMF is pushing.

The IMF seeks to shame U.S. policymakers into enacting a carbon tax. Assuming $25 per ton as the “social cost of carbon” (SCC), the IMF claims the U.S. massively subsidizes coal, gas, and oil — simply by not taxing the carbon content of fuels. Our total energy subsidy is estimated to be $502 billion a year, making America the world’s biggest energy subsidizer!

Not Taxing = Subsidizing?

Some may find the IMF’s terminology counter-intuitive, even Orwellian — as if not taxing carbon is a subsidy on a par with cash payments to politically-preferred companies or industries funded at direct taxpayer or ratepayer expense. If we consider just those wealth transfers accomplished by specific acts of government intervention, fossil fuels are among the least subsidized energies in the U.S.

According to the U.S. Energy Information Administration (EIA), in 2010, federal energy subsidies (including cash grants, targeted tax breaks, R&D support, and preferential loans) totaled $37.1 billion. Renewables ($14.674 billion), end-use subsidies such as LIHEAP ($8.241 billion), and conservation programs ($6.597 billion) received substantially more than coal ($1.358 billion), natural gas and petroleum liquids ($2.820 billion), and nuclear power ($2.499 billion).

More pertinently, observes the Institute for Energy Research, per unit of energy produced, subsidies for renewable energy vastly exceed those for fossil fuels. In the electric sector, for example, ”solar is being subsidized by over 1200 times more than coal and oil and natural gas electricity production, and wind is being subsidized over 80 times more than the more conventional fossil fuels on a unit of production basis.”

Source: IER (based on EIA data)

Carbon-taxers disclaim any intent to pick energy-market winners and losers, but that is in fact the core function of a carbon tax. As with cap-and-trade, the policy objective is to handicap fossil energy and, thereby, ”finally make renewable energy the profitable kind of energy in America,” as President Obama charmingly put it. [Read more →]

“No matter how much you pay with a carbon levy, virtually nothing is received climatically…. No matter the level of domestic action that we take, it will pale in comparison to the rapid expansion of carbon dioxide emissions in other parts of the world.”

How much global warming will result from U.S. emissions over the course of this century, and how much of that could be prevented by a carbon tax? These two questions have the same simple answer—virtually none. One or two tenths of a degree a century out with–and without–a carbon tax makes the whole climate debate a peculiar exercise.

The Intergovernmental Panel on Climate Change (IPCC) estimates that the earth’s average temperature will increase somewhere between 1.1°C and 6.4°C over the 21^st century, depending on the assumed pathway of anthropogenic emissions (both greenhouse gases and aerosols) and the actual (but unknown) climate sensitivity.

A temperature rise towards the low end of this range is not worth worrying too much about (the ‘lukewarming’ position), while a rise near the higher end of the range is potentially much more problematic (the alarmist position). And while lukewarmers and alarmists stray apart when it comes to the amount of climate change they are expecting, they are bound together by the fact that there is practically nothing that can be done to change the situation, either way. Why? They use the same math.

But you won’t hear many alarmists admitting to that fact—if they did, you would never have heard of the terms like “cap-and-trade” or “carbon tax.” Instead, you’d be much more familiar with words like “planning” and “adaptation.”

How Much U.S.-Side Global Warming?

Lest alarmists protest, let’s work through the numbers to see just how much “global warming” is being caused by U.S. economic activity. [Read more →]

This summer Australia implemented a new tax on the country’s top 500 carbon emitters, which has already led to significant increase in electricity prices. Meanwhile, on August 2, Congressman Jim McDermott (D-Wash.) introduced his own carbon tax bill in the House of Representatives, which like the Australian tax is targeted at certain disfavored emitters.

Talk of a federal carbon tax has been recently revived by several conservative-leaning groups. Earlier this year Robert Inglis (former Republican Congressman from South Carolina) launched the Energy and Enterprise Institute, a new advocacy group aimed at marketing carbon taxes to Republicans. And last month rumors of carbon tax discussions at the American Enterprise Institute led AEI’s own Ken Green to reiterate his opposition to the carbon tax idea.

What sets the new conservative proponents of carbon taxes apart from traditional advocates is revenue neutrality. Instead of adding a carbon tax to existing taxes, Inglis proposes offsetting any increased revenue from a carbon tax with reductions in income and capital gains taxes. The question is: should we take the bait?

Some Carbon Tax Basics

The idea of shifting taxes away from income and investment to consumption has long been popular in conservative circles. But while revenue neutral tax swaps can make sense in theory, they are hard to achieve in practice. Even if a carbon tax is initially paired with other offsetting tax cuts, there is no guarantee that government won’t raise taxes a few years down the line and offset the offset. As economist Robert Murphy recently noted:

[W]hen the modern individual income tax was first introduced in 1913, it was touted as a relatively minor nuisance that would just affect the super rich. Indeed, the original bracket structure was very modest. Adjusting for inflation, the top rate of 7% kicked in on incomes above $11.3 million, while the bottom bracket applied to all incomes up to $453,000, with a tax rate of a mere 1%. [Read more →]

“Even in flush economic times, carbon taxes would be bad policy. When economies are already laboring under too much spending and are at diminishing-return levels of taxation, implementing a carbon tax would be a mistake.”

- Kenneth Green, Dissecting the Carbon Tax, The American, July 13, 2012.

Open-mindedness is a mark of scholarship. And some great lights of classical-liberal social thought in the 20th century changed their minds for theoretical/empirical reasons from a utilitarian perspective.

F. A. Hayek began as a democratic socialist. Milton Friedman started as a FDR New Dealer and Keynesian. [1] Friedman later in life even moved away from his (naive) view of a fixed-monetary rule where, as he once put it, a computer program could manage the money supply. [2] Turns out that ‘money supply’ is not a fixed, known quantity; turns out that money is a government monopoly subject to politics.

In resource thought, Julian Simon began as a Malthusian. But the data told a different story. The number of human beings and progress measures were positively, not negatively, correlated. The Malthusians, and now neo-Malthusians, were wrong, so Simon changed his mind.

‘Revenue Neutral’ … Really?

In 1977, James Buchanan and Richard Wagner published a classic book in what became known as ‘Public Choice’ economics, Democracy in Deficit: The Political Legacy of Lord Keynes (1977). Taxation in the name of Keynesian economics, whereby it was believed that public dollars could do what private dollars (caught in a ‘liquidity trap’) could not do, was the rationale and political rage of the day. Yet, such macroeconomic policy was not implemented by angels but man, namely political men and women.

In the 1998 foreword to Democracy in Deficit, Robert Tollison explained what the simple-but-radical message of Buchanan and Wagner was about: [Read more →]

House Energy and Commerce Committee members Henry Waxman (D-Calif.) and Bobby Rush (D-Ill.) have requested a climate-science hearing in light of a just-released report from the National Academy of Sciences (NAS). This report, “America’s Climate Choices,” however, presents no new science.

Instead, as climate scientist Chip Knappenberger explains below, the NAS document lays out a strategy for manufacturing a crisis by exaggerating the climate threat and artificially raising fossil-fuel prices in an effort to compel American’s to emit less greenhouse gases.

Congress has heard all of this before and has been unmoved to pass legislation which will raise the price of living and doing business in America by taxing our primary energies–Editor.

Plentiful and inexpensive fossil fuels are the preferred energy source, whether it be to run your car, heat your home, or generate electricity. Oil, gas, and coal are relatively safe, readily portable, fairly efficient, and relatively energy dense. While fossil fuels perhaps are not the perfect energy source, they do go a long way towards meeting our current needs, and the infrastructure (and know how) is in place to allow for rapid expansion into the future. So, all in all, fossil fuels are pretty darn good now–and as far as the eye can see.

Hydrocarbon supplies are not depleting–just the opposite. New technologies (such as those used for hydraulic fracturing, tar sands, and deepwater drilling) are expanding our ability to retrieve fossil fuels from the earth, As a consequence, the supply is keeping up with the growing demand and more—a demand driven not only a growing population of humans, but a growing number of existing humans who are wanting more energy to improve their standard of living. Julian Simon lives!

But the final report from a just-completed investigative effort from the National Academy of Sciences (NAS) seeks to interrupt and reverse the natural improvement of human ingenuity applied to the master resource. Theirs is a manufactured crisis—and one that elevates concerns over climate change above energy reality and concern over the energy-dependent economy.

There are other forms of crisis however, such as that posed by an existing (or perceived) threat. From such crises, new technologies can emerge faster than they would have otherwise. Take the atomic bomb or the space race as an example.

For fossil fuels, the potential for a threat-based crisis arises from their role in climate change and the possible risks to our health and welfare there from. Alas (for some anyway), climate change does not carry the same sense of threat as, say that of a foreign enemy with its sights set on U.S. soil. So the notion of a climate crisis, either now or in the near future, has been slow to (widely) catch on.

The NAS Strategy

A committee assembled by the National Academy of Sciences (NAS), seeks to remedy that situation. [Read more →]

Barring the trickery of a lame duck conference committee, cap-and-trade is dead in the 111th Congress. Some blame President Obama for not taking a more hands-on role. Others blame environmental groups for waging a $100 million lobbying campaign without winning a single GOP convert to the Kerry-Lieberman bill. Others blame the allegedly “well-funded denial machine,” even though proponents, who include major corporations like BP as well as Big Green, must have outspent free-market and conservative advocacy groups by more than 100 to 1.

The August 11 edition of Climatewire (subscription required) featured interviews with Exelon Corp. VP Betsy Moler and Resources for the Future President Phil Sharp, who lament that Republican lawmakers, the “inventors” of “market-based” environmental policy, turned against their own “invention.” Moler and Sharp are trying to spin GOP opposition to cap-and-trade as self-contradictory, hence as unstable, hence as reversible. As Climatewire reports, Moler is not ready to “throw in the towel” and Sharp entertains the hope that a “new kind of coalition” will emerge in the next Congress.

Now, let’s look at this notion, peddled by Moler and Sharp, that Republicans flip-flopped and trashed their own legacy by nixing cap-and-trade. [Read more →]

George Carlin once asked, “Is it really possible to have a civil war?” Readers of Joe Romm’s pronouncements on greenhouse gas legislation would answer in the negative. Romm has always been a caustic critic of the “anti-science disinformers” who do not toe the line on the alleged scientific consensus, but lately he has turned his fire on former allies who dare to question the legislative developments in Washington.

An illustration of this internal squabbling is Romm’s recent post on the “cap and dividend” proposal put forth by Senators Cantwell and Collins. Here’s Romm’s take (emphasis added):

Climate politics can be very strange indeed.  Because cap-and-trade bills like Waxman-Markey are seen as having no chance of passing the Senate, some enviros appear to be shifting their support to bills that are politically even less attractive and environmentally even less adequate.

The latest misguided missile is the Carbon Limits and Energy for America’s Renewal (CLEAR) Act put forward by Maria Cantwell (D-WA) and Susan Collins (R-ME) — full text and info here.  Supporters call it “Cap-and-Dividend,” but right now I think the best term for it is, “Cap-and-Divide,” since it has no chance whatsoever of becoming law but is serving to undercut the tripartisan effort by Graham, Kerry, and Lieberman to develop a bill that might get 60 votes….

Cap-and-Divide…doesn’t even pass the environmental viability test, as the first-rate researchers at World Resources Institute have shown…. And while W-M is far from perfect environmentally, as I’ve said many times,  it would enable a global deal.  W-M’s biggest problem is that it can’t get 60 votes in the Senate or even close.   But “cap-and-divide” is certainly less politically viable than Waxman-Markey or Kerry-Boxer. [Read more →]