Why Don’t We Stop Stalling and Tax Carbon?

A year ago fall, 74 nations and more than 1,000 investors and businesses — companies such as Shell, Dow Chemical and Coca-Cola — signed a declaration calling for a global price on carbon and requiring countries to tax industries for their emissions of carbon dioxide.

Among the signatories were seven American states — California, Maryland, Massachusetts, Oregon, Rhode Island, Vermont and Washington — of the nine that have already embarked on permit
trading programs to control emissions. Another signer was China, now the world's biggest polluter (and choked by smog), which has these same "cap-and-trade" operations running in seven provinces.

“The most powerful move that a government can make in the fight against climate change is to put a price on carbon,” said Rachel Kyte, the World Bank’s vice president of sustainability.

Exxon Mobil has even said that it would support a carbon tax if in return for equal tax cuts elsewhere.

When 41 prominent economists were asked what would be the most efficient way to reduce emissions, 90% said a carbon tax. The monetary incentive would spur producers to find lower carbon substitutes for fossil fuels. Consumers would pass up higher carbon products bearing prices swollen by the tax.

So where in the world is the holdup? Where else but in the United States Congress. More on that later.

The principle is plain enough: at long last, industries that pollute should pay for the damage they do. Lacking such a charge, carbon emitters pay nothing for the social costs they leave in their wake — fouling the atmosphere as most would acknowledge, and causing everything from droughts to hurricanes to calving glaciers and rising seas as others would have it.

Any movement toward a worldwide carbon system must guard against obsessive accountancy such as in this article which says Apple "expects iPhone 5s to inject 70 kilograms — about 154 pounds — of carbon dioxide equivalent into the atmosphere over its lifetime". If perfectionists press for a carbon tax based on figuring the lifetime energy consumption of the world's tens of thousands of products, the changing climate will outrun its cure.

The key to any sensible scheme is that the tax would not be levied on the polluters themselves. Keeping track of and charging every energy user would make for a bureaucratic hairball. Rather, the tax would be more simply applied by charging it at or close to the point of energy's extraction. The tax on a coal producer's shipment would be calibrated by how much carbon dioxide its grade of coal will release into the atmosphere once burned. Oil would best be taxed at the refinery based on the same criterion, with the charge varied for the CO2 output of gasoline, heating oil, etc. Natural gas would not be taxed at the wellhead but by the pipeline company when it delivers into the economy. Solar, wind and hydroelectric producers would pay on the same principle, although far less, of course.

All would pay to the government for redistribution and would recover the tax cost in their invoices to the energy users, with the cost ultimately passed on in the prices of end products bought by the government, businesses and consumers.

Detractors argue that U.S. producers will see their export business plunge if burdened with yet another cost. Companies will simply ship still more jobs overseas to avoid the high energy charges the tax would impose. Another misgiving is that…

"any unilateral effort by the U.S. to restrain carbon emissions will…simply result in shifting carbon intensive activities to other countries. Given the carbon-intensive nature of transporting goods back to the U.S., … such efforts might actually increase carbon emissions world-wide.

But a "border-correction" charge would be levied on imported goods from countries that have not joined the carbon tax club, neutralizing the difference between the U.S. tax versus no tax elsewhere. Whether a toy, a cell phone or an auto, a tax would be levied according to the estimated energy expended in its making. Countries that also charge its producers a global carbon price would be exempt — as would be U.S. goods exported to them.

Outlier countries will pose something of that bureaucratic tangle avoided earlier. First there's the guessing at energy consumed in the making of the thousands of products we import in order to arrive at how much to charge that will level the field for our own products. Then will come the dealing with foreign manufacturers bleating that they have been unfairly or excessively charged. But they in turn would likely protest to their own governments to be rid of the border wars and we would see recalcitrant countries gradually fall in line by imposing their own carbon tax.

The Energy Information Administration estimates that a carbon tax starting at $25 a ton and rising by 5% a year would result in carbon dioxide emissions from American power plants falling to only one-fifth of today's by 2040. The Brookings Institution figures that the pullback in fossil fuel use resulting from $16 a ton, rising by 4% a year above inflation, would exceed the emission reductions of President Obama's Clean Power Plan. But, in the bargain, a tax on each ton of carbon dioxide emissions has the advantage of raising a ton of money.

The damage cost of CO2 as estimated in various studies hovers at around $30 for each ton sent into the atmosphere (the White House arrived at $37). The Tax Policy Center has calculated that a tax of only $20 a ton would bring in 0.6% of the nation's gross domestic product, about $100 billion a year. A Congressional Research Service study in 2012 estimated that a $20 a ton tax, rising by 5.6% percent annually, could cut the projected 10-year deficit by roughly 50%.

A tax of these amounts would add about 20¢ to a gallon of gasoline. Today's gas tax has been locked at 18.4¢ a gallon since 1993 and should be 31¢ to adjust for inflation — not much of a difference to complain about. Household energy costs could rise by 5% to 20%, depending on the region and whether it has transitioned from cheap coal. Such costs are often cited by opponents of the tax for falling most heavily on the poor. The Congressional Budget Office calculates that the poorest fifth of Americans spend 21.4% of their income on gas and utilities compared to only 6.8% for the wealthiest fifth.

But the $100 billion cited above comes to over $800 a year for every household in the U.S. and most certainly, part of the money would be directed back on a graduated basis to low-income families and individuals to offset heightened costs.

Blocking action on carbon reduction are the Republicans in Congress. In his first year, President Obama induced House Democrats, then in the majority, to pass a cap-and-trade bill that would require power utilities to buy "credits" to permit a quanta of emissions, or sell surplus credits to other companies in need, with the overall quantity of credits declining every year so as to force reduced use of fossil fuels. If any proposal could have an appeal to Republicans, this would seem to be it, as it creates a trading market, but the bill died in the Senate in the face of a filibuster organized by coal country's Mitch McConnell, who branded cap-and-trade a “new national energy tax”.

Once there were Republican majorities first in the House and then in the Senate, Obama had no hope of pursuing his mission of combating climate change through legislation. Instead, he had the Environmental Protection Agency (EPA) develop his Clean Power Plan (covered here), relying on what the right views as an obscure and illegitimate part of the Clean Air Act.

McConnell, who in 2010 declared “The single most important thing we want to achieve” being “…for President Obama to be a one-term president”, is now doing his utmost to bring down the Clean Power Plan. As a senator from coal-producing Kentucky, he professes great concern for the loss of mining jobs.

“We’ve lost thousands of jobs", says a Kentucky state senator, "and we have nothing to replace them”. More than three-dozen U.S. coal operators have filed for bankruptcy in the past three years, says research firm SNL Energy, a couple of them prominent such as Alpha Natural Resources and Patriot Coal.

But the boom in natural gas has been the major cause, not Obama's plan, which has not yet begun. Nevertheless, McConnell last year sent letters to all 50 governors asking them to ignore the EPA program and its requirement to submit an emission reduction plan — an abuse of his position as Senate Majority Leader, carrying with it the implicit threat to states that if they don't march to his commands, there could be payback in what laws do or do not get brought to the floor of the Senate. His party believes market forces should work their will and loathes that the renewable industry receives subsidies, but protecting the coal industry in his home state is somehow not a contradiction for McConnell.

What is sure not to be brought to the Senate floor with McConnell standing athwart, is a carbon tax bill. How then, in this supposed democracy, do we overcome this one man using the power of his position for a parochial interest that is holding the country back? He obscures from view the many possibilities that might attract his fellow Republicans and those few opposed Democrats from energy-producing states.

Republicans view tax cuts as a universal cure-all which makes them constitutionally averse to raising taxes. Just about all of them in Congress even pledge to Grover Norquist's organization never to do so — never mind what their constituents back home might want.

But some right-leaning commentators are tempted to write of "a carbon tax, properly constructed" where conservatives could trade their votes to gain several pet concessions. They could agree to the tax in return for a reduction of corporate taxes, for example, even their elimination, fulfilling a passionate desire. That could work, because in later years the rising carbon tax should dwarf what corporations pay now in profits taxes.

Apart from aiding the poor with their utility bills, as mentioned above, the carbon tax revenue could fill in for cuts in the Social Security and Medicare payroll taxes.

Or, the income could go toward balancing future budgets; it is clear from Paul Ryan's annual budgets that spending cuts alone cannot achieve that goal. More revenue from somewhere is a must and taxing families and individuals is anathema to those on the right.

Conservatives could revel in the cancellation of all subsidies to green energy, if there were a carbon tax. Propping up alternative energy should no longer be needed and would no longer be deserved if taxes on fossil fuels made the price of renewables competitive.

As intimated by that last item, environmentalists will need to shelve their dreams of funding green research and jobs with a windfall of carbon tax proceeds because Republicans will have none of that. To gain their vote, the gift basket will have to be filled to overflowing. In return for the carbon tax, they might even insist on a rollback of the CAFE fuel efficiency standards for autos and trucks, arguing that progressives don't get to have both. Republicans could also say that progressives don't get to have both the tax and the objectionable regulations of Obama's Clean Power Plan.

But what must be curbed is thinking such as that from the conservative magazine, The Weekly Standard, which advocates…

for the EPA to allow states flexibility to pursue their own carbon taxes in lieu of subjecting themselves to new greenhouse gas regulation. Such an approach could prove a hugely attractive political option for Republican office-seekers, who would be able to promise cuts to state income, property, or sales taxes, while giving the boot to EPA busybodies.

Once again the dogma of returning everything to the states intrudes. The states imposing their 50 sets of carbon taxes and rules as swag to help politicians get re-elected (and with no "border-correction")? That's a dreadful idea.

A long list of countries already tax carbon by one or another means, and to a degree that should come as a surprise. Europe leads the way, as might be expected, as a means to curtail oil imports. The average tax is $68.4 per metric ton of carbon dioxide for the 34 nations of the Organization for Economic Cooperation and Development (OECD). One up from the bottom among the industrialized nations is the United States, with nothing but its gasoline tax.

Major corporations worldwide believe a carbon tax is inevitable. They factor it into their forward planning. Five big oil companies — Exxon Mobil, ConocoPhillips,Chevron, BP and Shell — do so. This article cites Microsoft, General Electric, Walt Disney, ConAgra Foods, Wells Fargo, DuPont, Duke Energy, Google and Delta Air Lines hedging against the future as well. Anticipation of a global carbon price "drives internal decision-making”, says Tom Carnac of CDP, a non-profit that advises such companies. “It’s climate change as a line item".

But not Koch Industries. Much like the National Rifle Association, its practice has been to fund Tea Party groups that campaign against Republicans who show any leanings toward a belief that the climate is changing. Koch also funds the American Energy Alliance, a Washington-based advocacy group that targets lawmakers that let slip an interest in a carbon tax. And locking down Congress they have their obstructionist ally Mitch McConnell.

One of a group of economists on the right who do support a carbon tax is Irwin Stelzer, who in this article poses some challenging questions to Republicans opposed to any form of tax:

What is your plan when it becomes clear that we can’t finance an adequate military from current revenues? Worried about Chinese expansion at the expense of America’s allies? A resurgent Russia that has its eyes on the territory of some of our NATO allies? Beefing up our southern borders so that we can proceed with immigration reform without triggering a new wave of illegal entry? Larger deficits? Then you will need money. Would you prefer higher income taxes? Increased wealth taxes?

A carbon tax should tempt. And offers the most straightforward way to encourage the transition to renewable fuels and away from burning hydrocarbons, says a rising consensus. Democratic Governor of Washington, Jay Inslee, says we should break the logjam and get about it: "We are the first generation to feel the impact of climate change and the last generation that can do something about it.”