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Category — Carbon Tax

Real Politic: Carbon Tax Pessimism (Part II)

“You can rank carbon regulations, carbon cap-and-trade, and carbon taxes however you wish. But at the end of the day we’re better off with no policy rather than bad policy.”

To continue from Part I yesterday, the carbon tax–on paper, on the white board, in the ivory tower–is better policy than cap-and-trade, which is better than ad hoc regulation. We could spend – and have spent – hundreds of hours explaining why cap-and-trade is a horrible idea, and why regulations are often blunt-objects that often cause huge unintended consequences, but that’s beyond this post.

And an ideal carbon tax can be shown to have only modest damage to the economy

But where are carbon tax proponents, particularly conservatives, wrong about carbon taxes? The answer provides a much longer list.

First, carbon taxes are not strictly a tax on “bads” (i.e. greenhouse gases), they are a tax on economic inputs: virtually all economic activity relies on energy consumption. In that regard, carbon taxes are taxes on both bads and goods. Sure, they tax greenhouse gases, but they also tax food, medicines, clothing, housing, transport, etc.

And in this sense, we already have carbon taxes. The U.S. (andCanada, and much of Europe) already have dozens of hidden carbon taxes–vehicle fuel economy standards, appliance standards, renewable fuel mandates, building insulation standards, mass-transit subsidies, etc.

All essentially forced energy “conservation” (called conservationism at this blog) is primarily to reduce emissions of all sorts, but largely GHGs, given that pollutants are covered by other regulatory regimes. [Read more →]

August 9, 2013   8 Comments

Real Politic: Carbon Tax Pessimism (Part I)

“The day after enactment, environmentalists will start calling for raising the carbon tax, decoupling it from revenue neutrality to finance more wind and solar boondoggles. And they’ll still want additional regulations to drive emissions down faster. If conservatives resist this, they’ll get the same ‘denier’ routine they get now.”

I first started working on climate policy in 1997, first in California, then Canada, and then in Washington, D.C. Having spent seven years inside the Beltway, I’ve now returned to Canada, working for the Fraser Institute on natural resource policy.

In the states, I watched the U.S. edge nearer-and-nearer to very bad climate policy, that being a mixture of cap-and-trade and ad hoc regulation. The inside-the-beltway “consensus” was that we were inevitably headed for national greenhouse gas (GHG) control legislation.

Study after study warned that national mitigation policies would cause significant economic damage, be regionally discriminatory, be economically regressive, and reduce U.S. competitiveness internationally. The climate effects from such policies were much more modest, if discernible. This very bad combination inspired the ‘all pain, no gain’ moniker from free-market groups.

Caps vs. Taxes: The Old Debate

In that policy environment, I co-authored a study at the American Enterprise Institute (AEI) with Kevin Hassett and Steve Hayward in 2007. Climate Change: Caps vs. Taxes explored what an ideal carbon tax would look like, and why such a tax would be better than cap-and-trade—and better than regulation.

Our study found that a $15/ton carbon tax [Read more →]

August 8, 2013   5 Comments

Dear Australia: Replace the Carbon Tax with . . . NOTHING (don’t cream consumers at the credit casino)

“Australia’s proposed Emissions Trading System is a variable and unpredictable carbon tax…. ETS is complex in operation; encourages brokers, lawyers and speculators; and will drain our money to middlemen and into the European carbon credit casino. And it will create a growing army of vested interests who will forever oppose its abolition.”

Australia’s destructive carbon tax is in full political play this election season. “If this election is about anything, it is about the carbon tax,” opposition leader Tony Abbott stated this week. “Getting rid of the carbon tax is fundamental to our plan for a stronger economy.”

At his candidacy’s home page, Abbott states (and promises):

Repealing the Carbon Tax will ease cost of living pressures on families, help small business and restore confidence to the economy.

On day one, the Finance Minister will notify the Clean Energy Finance Corporation that it should suspend its operations and instruct the Department of Finance to prepare legislation to permanently shut-down the Corporation.

I expect that the Parliament will respect the mandate of the people and repeal the Carbon Tax. To oppose the mandate of a government elected on a platform of abolishing the Carbon Tax would be as reprehensible as the [Julia] Gillard Government’s action to introduce a Carbon Tax without a mandate from the people.

Unlike the Prime Minister, I mean what I say: there will be no Carbon Tax under a government I lead.

Repeal, Don’t Replace

But Abbott’s forward steps are joined by a step back. “As soon as the Carbon Tax is repealed, the Environment Minister will introduce legislation to enact the Coalition’s Direct Action Plan on climate change and carbon emissions,” he promises. [Read more →]

August 7, 2013   1 Comment

Is the Carbon Tax Seance Over? (A reality check for a trumped-up ‘conservative’ cause)

When asked if a carbon tax was preferable to EPA regulations on greenhouse gases, David Kreutzer, a research fellow with the Heritage Foundation who sat on yesterday’s panel, described the question as a trap.

It’s like asking me what’s the most humane way to execute innocent people …. When conservatives talk about a carbon tax, the headline says, “Conservative supports carbon tax,” So I’m not going to be drawn into this fantasy world where we speculate on what might happen when we know it won’t, when it gives people ammo to misrepresent what I said.

So no, a carbon tax is not preferable to EPA regulations.

- Evan Lehmann, “Conservatives Attack Each Other Over Carbon Tax Plans,” ClimateWire, July 18, 2013.

“[Ken] Green delighted his mostly conservative audience by comparing a carbon tax to a vampire who must be staked, beheaded and sprinkled over water — ‘preferably holy water’.”

- Jean Chemnick, “Panel Urges Conservatives to ‘Just Say No’ to Carbon Tax,” Energy & Environment Daily, July 18, 2013.

Last week, the Institute for Energy Research (IER) held a panel event in Washington, “A U.S. Carbon Tax: The Rest of the Story,” featuring four critics of such a levy:

Robert Murphy, Senior Economist, Institute for Energy Research

Ross McKitrick, Professor of Economics at the University of Guelph, Ontario;

Kenneth Green, Senior Director of Energy and Natural Resource Studies at the Fraser Institute; and

David Kreutzer, Research Fellow in Energy Economics and Climate Change, Heritage Foundation.

Opening Comments

I moderated the panel for IER (I am founder and CEO of the organization). My comments attempted to put the current tax debate in perspective: [Read more →]

July 22, 2013   4 Comments

Carbon Tax: Vote and Eviscerate (depoliticize, not repoliticize, energy)

“The American people and the 133 cosponsors of this concurrent resolution understand that a carbon tax is not about protecting the environment, but rather it is a cynical attempt to raise revenue for Washington’s insatiable appetite for more and more spending.”

Federal carbon-dioxide cap-and-trade legislation was defeated in 2009 with no prospect of a retry. Now, the even less popular carbon tax is being floated by non-conservatives and wannabe-be conservatives as somehow “free market” and “efficient.” This very well financed desperado push needs a reality check in Congress.

Any new qualitative tax, and certainly one as huge and far reaching as this one, is an open sesame to bigger government and politicized energy. Some argue that there is a “free market” case for a carbon levy, but there is not a “limited government’ case. There is a big difference between assumption-driven “in theory” and real-world “in practice.”

It is a “pipedream,” to use Marlo Lewis’s word, to believe that politicians will not offset but use this huge new revenue stream ($100–200 billion annually) to avoid spending cuts and to introduce new programs. And as Lewis goes on to argue, the carbon tax fails as economic, environmental, and climate policy.

It is time to put this proposal out of its misery. Resources on both sides of the debate need to go in other directions.

It is time for a floor vote in the House of Representatives on the carbon tax to put this proposal out of its misery. We need to move on to fundamental change of the tax code that is not energy-tax-specific and not anti-energy driven. 

To this end, the following June 12th coalition letter was sent on June 12, 2013, to House Speaker John Boehner and House Majority Leader Eric Cantor. [Read more →]

June 20, 2013   5 Comments

Carbon Taxation: Just Say No (NAM-led letter represents a broad business front)

“A carbon tax would have a net negative effect on consumption, investment and jobs, resulting in lower federal revenues from taxes on capital and labor. Any revenue raised by a carbon tax would be far outweighed by the negative impacts to the overall economy.”

Pricing carbon dioxide (CO2) to wring competitive advantage and to appease environmental pressure groups once drew notable business support from the big players, such as Ken Lay’s Enron and John Browne’s BP. But not from Lee Raymond’s Exxon Mobil, although Rex Tillerson’s Exxon Mobil supports a carbon tax as an alternative to cap-and-trade.

But presumably, as a key member of the National Association of Manufacturers (NAM), Exxon Mobil is opposed to a carbon tax in the current political environment. Another big energy and political player, Dow Chemical, which dropped out of NAM on the gas export issue, is against a carbon tax judging from its Australian experience.

Where are other big companies, or small-business groups, when it comes to a carbon tax? No doubt their math shows that such a tax would hurt the bottom line given that a tax on energy is a tax on just about everything. And little doubt that the idea of a “revenue neutral” tax swap is rejected as other worldly (as something from the academic world, not the real world).

Carbon Tax Center: Business Shutout?

The The Carbon Tax Center (CTC), for example, lists various groups of tax supporters–editorialists, scientists, economists, opinion leaders, writers, pundits, and conservatives–but has no category for business groups. The Center’s arguments for a carbon tax–better weather and job creation–are about as weak as they come. Here is the pitch:

A string of extreme weather events, topped recently by Superstorm Sandy, bring the message home: Earth’s climate is changing in costly and painful ways. And yet we’ve barely started transitioning from fossil fuels to renewable energy and efficiency. Why not? Because price signals are too weak. The prices of fossil fuels don’t come close to reflecting their true costs. A permanent and increasing U.S. carbon tax will reduce the emissions that are driving global warming and generate revenue to pay for cutting regressive taxes that thwart job-creation. [Read more →]

May 24, 2013   2 Comments

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. [Read more →]

May 7, 2013   5 Comments

The Five Circles of Carbon Tax Hell

“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 →]

May 3, 2013   8 Comments

IMF’s Carbon Tax Shenanigans: Part II

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 →]

April 10, 2013   7 Comments

IMF’s Carbon Tax Shenanigans: Part I

 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 →]

April 9, 2013   8 Comments