Carbon Tax Center

Game Over for Keystone XL? Backing Up Hansen’s Oil Savings from a Carbon Tax

05/11/2012 by Charles Komanoff Comments (1)

“Game Over for the Climate,” Dr. James Hansen’s powerful op-ed in yesterday’s New York Times, adds a compelling new argument to the case for ditching the Keystone XL pipeline:

We should impose a gradually rising carbon fee, collected from fossil fuel companies … [T]he reduction in oil use resulting from the carbon price would be nearly six times as great as the oil supply from the proposed pipeline from Canada, rendering the pipeline superfluous, according to economic models driven by a slowly rising carbon price. (Emphasis added.)

Please be assured that Dr. Hansen’s “nearly six times” assertion is oil vs. oil, so that the substantial reductions in coal use are additional. His figure drew on modeling by the Carbon Tax Center, as I detail below.

The pipeline

The Keystone XL pipeline is primarily intended to carry crude oil refined from Alberta tar sands to various refineries in the U.S. Some crude would enter in Montana and Oklahoma as well, according to Wikipedia. Given the pipeline’s multiple entry and exit points, there may not be a definitive figure for the incremental tar sand crude it will deliver. Dr. Hansen’s figure is 830,000 barrels a day. Friends of the Earth, which is helping spearhead resistance to the pipeline, says “The Keystone XL pipeline would carry 900,000 barrels of dirty tar sands oil into the United States daily,” or 8-9% more than Hansen’s figure.

The carbon fee

As the graphic suggests, our modeling indicates that the oil savings in goods movement alone propelled by a carbon tax would be comparable to the oil delivered to this country by Keystone XL. And that’s just in the tax’s tenth year; the savings would grow further as the tax continued to ramp up, in contrast to Keystone’s maxed-out and eventually declining oil supply. Savings in each of the two top oil-consuming categories ― personal ground travel (mostly autos and light trucks, of course, but also recreational toys such as off-road vehicles and powerboats) ― and the catch-all “Other” (petroleum used in heating, construction, industry, agriculture, and oil refining itself) would be roughly double Keystone’s supply. All told, U.S. consumption of petroleum products in the tenth year of a carbon tax would be nearly 5 million barrels per day less than the business-as-usual projection, a reduction of 24%.

These savings assume the carbon tax devised by Rep. John B. Larson (D-CT) in 2009 and embodied in legislation he introduced in the House. That’s the carbon tax (or “fee,” to use the term Dr. Hansen prefers) that Jim assumed in his op-ed. It kicks off with a first-year level of $15/ton of carbon dioxide and rises at $10-$15/ton per year (we assume $12.50 in our modeling), reaching $127.50/ton of CO2 in its tenth year.

To be sure, Rep. Larson’s carbon tax proposal is an “aggressive” one. A carbon tax that gradually but steadily — unlike the violent gasoline price swings delivered by “the market” — raised prices of gasoline and other petroleum products by 10-12 cents a gallon each year would cut deeply into petroleum usage by driving consumers and businesses to make different (and more efficient) choices on both the demand and supply sides. And the tax would simultaneously reduce coal-burning for electricity generation — the source of one-third of all U.S. CO2 emissions from fossil fuel combustion until very recently — even more, because alternatives and low-cost opportunities for efficiency in that sector are even more abundant.

Here are some of the multitude of ways in which a predictably and steadily rising price for petroleum products would engender reductions in their provision and use:

• Purchasing and preferential use of more-efficient vehicles by individuals, businesses, fleets
• Spurring innovation to manufacture more-efficient cars, trucks, aircraft, etc., by optimizing vehicle shapes, materials, engine designs, controls, components, etc.
• Substitution of proximity for distance in location decisions by families, businesses, institutions
• Acceleration of recent trends away from suburbs and exurbs and toward urban centers
• Prioritization of local sourcing over trans-national or global supply chains
• Reductions in use of recreational motorized vehicles
• Increased provision and use of “active transportation” (cycling and walking) and public transit, with corresponding decreases in driving
• Logistical innovations in the trucking industry to increase load factors and miles per gallon
• Greater car-sharing via price incentives and real-time apps that pair drivers and riders
• Greater efficiencies in the food sector, including more-efficient irrigation and agricultural vehicles and/or their displacement by less energy-intensive farming methods
• Upgrading and maintaining building envelopes and heating systems in oil-fired homes, offices and factories
• Substitution of biofuels, electricity, natural gas, and/or hydrogen for petroleum products

While no econometric model can precisely predict the uptake of each of these measures, economists have combed empirical evidence for decades to infer sector-wide price-elasticities. (“Elasticity” is simply a measure of how much economic actors respond to price changes.) In our modeling of gasoline usage, we assume a 0.4 long-run price elasticity and a decarbonization rate of 1% for each $10/ton attached to CO2 emissions. For the various petroleum products that make up the “Other” category, we assume a slightly greater price-elasticity, 0.5, and the same decarbonization rate as for gasoline. (See further discussion on the Carbon Tax Center’s Web site, here.) The model also builds in lags to reflect lead times needed to adapt to the rising prices (note that legislating a steady ramp-up of the carbon tax would help compress the lags, since carbon-critical decisions could be made with an eye toward future prices rather than just last month’s).

Readers with an analytical bent may want to download the Carbon Tax Center’s carbon tax spreadsheet model. (Note that the link can also be found near the top of our home page, in the second-bulleted paragraph in the light yellow block of text.) With the model in hand, you may alter the carbon tax’s starting amount and the increase rate in the Summary page of the model, if you wish. On the Graph_CO2 page, the model plots emissions reductions compared to “business as usual,” giving an easily understood representation of the extent to which CO2 emissions would decline over time in response to the chosen carbon tax and rate of increase.

The section on “Annual Oil Requirements” begins at Row 173 of the Summary page. The tenth-year savings are shown in Column Y, corresponding to 2021, which would have been the tenth year of the Larson carbon tax, had it been enacted in 2010 or 2011 with startup in 2012.

The model, while skeletal in some ways, is intended to allow analysts and advocates to gauge the approximate impacts of different carbon-price designs on emissions, revenue, petroleum and other key parameters. We’re proud that Dr. Hansen relied on it in his Times op-ed, and we’re glad he continues to point to the enormous benefits of a steadily-rising carbon fee.

Majority in U.S. Support Revenue-Neutral Carbon Tax

12/2/2011 by James Handley Comments (1)

Sixty-five percent of Americans now support a modest revenue-neutral carbon tax to reduce pollution and create jobs, according to a survey of one thousand American adults conducted jointly last month by the Yale Project on Climate Communication and the George Mason University Center for Climate Change Communication. This is the first poll we have seen showing that a majority of Americans support a carbon tax.

Majority support for a carbon tax spanned the political spectrum in the Yale-George Mason poll, with 51% of self-identified Republicans, 69% of independents and 77% of Democrats supporting a carbon tax with revenue returned as lower taxes.

The survey found 60% support for a $10/ton CO2 tax if revenue is returned by reducing income taxes. (The pollsters helpfully noted that $10/ton CO2 equates to around 10 cents per gallon of gasoline.) That support slipped to 49% if revenue is returned via annual checks to families, with each family receiving the same amount. The apparent preference for an income tax shift over a “dividend” runs counter to the view that voters are more likely to embrace direct checks than tax shifts. The survey did not poll on monthly checks, nor on the payroll tax shift approach backed by many economists and embodied in Rep. John Larson’s carbon tax bill.

In the poll, 70% of respondents rated global warming as a high priority for the President and Congress, suggesting that reality in the form of this year’s record-breaking 14 weather-related disasters in the U.S. may be affecting public opinion more than the constant drumbeat of industry-funded climate science denial.

Greater funding for research on renewable energy was supported by an overwhelming 78% of respondents, with greenhouse gas regulation supported by 63%, slightly less than the 65% support for a carbon tax. The survey also found that 70% of respondents oppose fossil fuel subsidies, including a whopping 80% opposition among independent voters.

The Carbon Tax Center has long urged polling organizations to query voters on revenue-neutral carbon taxes, in order to test opinions on carbon taxes apart from anti-government sentiments. The strong public support for a revenue-neutral carbon tax evidenced by this groundbreaking survey suggests we are on the right track.

Brookings Panel Points To “Grand Bargain” – Carbon Tax to Reduce GHG Pollution and Deficit

05/21/2011 by James Handley Comments (0)

Last Wednesday, the Brookings Institution hosted “America’s Energy Future: New Solutions to Fuel Economic Growth and Prosperity.” The first panel, “New Policies for a Cleaner Economy,” featured heavy-hitters: John Deutch (MIT “Institute” professor, former CIA Director…), Joseph Aldy (former Obama assistant on climate & energy), as well as Brookings Senior Fellows Ted Gayer and Michael Greenstone, who moderated.

Greenstone opened by noting how closely-linked energy consumption is to our well-being, but strongly cautioned about very serious un-priced side effects, especially from fossil fuels. Gayer recommended reforming government cost-benefit analysis to focus more on those un-priced externalities, especially since consumer benefits, he noted, are already efficiently priced into markets. Deutch advocated creation of a national energy technology research corporation to harness private sector investment free of a Department of Energy that “is mostly about bombs.” Aldy proposed a technology-neutral “National Clean Electricity Standard” to tax carbon-intense electricity generation and credit low- and zero-carbon electricity,  while providing federal revenue.

Greenstone asked the panel if their proposals wouldn’t be better replaced by a “grand bargain” to provide more of what we like: income, and less of what we dislike: carbon pollution. “[T]he giant prize standing in front of us is the realization that one could raise revenue instead of raising income taxes… through a carbon tax or some kind of carbon charge.” Aldy enthusiastically agreed, claiming “evidence of bipartisan support” and pointing out that he and Brookings economist Adele Morris proposed a carbon tax to the Obama deficit commission.

Deutch chimed in, “I couldn’t agree more with a proposal to do a comprehensive greenhouse gas tax. It depends, of course, on how it’s designed… and how you allocate the revenue. So if you put onto a tax proposal like you say a revenue proposal, then you have at least some chance of selling it.” Deutch urged return of some revenue to taxpayers as “walking around money.” “We’ve got to get the legislation passed,” he concluded.

Shocker: NY Times ‘Energy’ Special is More Hot Air

04/6/2011 by Charles Komanoff Comments (1)

What a mess is Can We Do Without the Mideast?, the tedious and simplistic headliner of last week’s New York Times special “Energy” section.

Jeff Stahler, Columbus Dispatch, 2011

Times reporter Clifford Krauss expended three thousand words trying to say what Columbus (OH) Dispatch cartoonist Jeff Stahler conveyed in eight words and a drawing: that for four decades U.S. administrations have postured rather than acted to reduce petroleum consumption and oil imports.

Overlooked entirely was the principal reason U.S. imports remain around 50 percent of consumption: the failure to raise taxes on transportation fuels — gasoline, diesel and jet fuel — and instill incentives to move people and goods less frequently, less inefficiently, and for shorter distances.

Krauss ascribes the singular success in reducing imports — temporarily halving them from 1977 to 1982 — to “the efforts of the Nixon, Ford and Carter administrations.” Yet what made auto-efficiency and other fuel-saving standards politically viable while motivating millions of households and businesses to economize on oil was the rise in petroleum prices.

The notion of a carbon tax received its token mention, as did the existence of something called climate change. Otherwise, the article was one dreary cheer for dirty energy including shale gas (a winner, “presuming that the oil and gas industry can answer growing environmental concerns surrounding their hydraulic fracturing practices”), synthetic oil from tar sands (speciously, “if the United States does not import that oil, China will”), and even nukes (astoundingly, “In the aftermath of the Japanese disaster, nuclear power will need to be put on safer footing and expanded.”).

You can’t make this stuff up.

Bidder 70 Tim DeChristopher Personifies the Carbon Tax for “Generation Hot”

03/1/2011 by James Handley Comments (1)

Tim DeChristopher, “Bidder 70” in a 2008 Department of Interior Utah oil lease auction, goes to trial this week amidst throngs of supporters, celebrities and media coverage. Tim is charged with two felonies: making false statements and violating federal oil leasing laws, both for entering the winning (highest) bid on a U.S. government oil lease in Utah canyon country, without funds to consummate the purchase. For these alleged offenses, he faces up to ten years in prison.

Yesterday, Federal District Judge Dee Benson instructed the jury not to consider Tim’s defense that he acted out of “necessity” in the face of the global climate emergency. Invoking Gandhi’s maxim to “Be the change you want to see in the world,” Tim explained in an interview with Good Magazine:

“[T]he change that most of us wish to see is a carbon tax, but our leaders aren’t doing that for us, so Gandhi’s call is then for us to be the carbon tax… [t]o cost the fossil fuel industry money in any way that we can… [g]etting in their way, slowing them down, shutting them down. Doing whatever we can to be that tax. It forces our leaders to make a choice—to either be more explicit in their war on the young generation, or to get serious about stopping climate change.”

The Carbon Tax Center expresses profound thanks to Tim for putting his liberty on the line for “Generation Hot” and for calling out the policy change that’s urgently necessary: a carbon tax that makes the prices of fossil fuels reflect at least some of the damage their use costs nature, communities and humanity.

Former Fed Vice-Chair Urges — Show The CO2 Price Now! (Two Years Ahead of Time)

01/31/2011 by James Handley Comments (7)

Everyone from the President on down professes to want more hi-tech jobs and cleaner energy. Here’s a prescription for getting them: enact a gradually-rising carbon tax but delay its implementation for two years to avoid dampening the fragile economic recovery.

That’s former Fed Vice-chair and Princeton Econ. professor Alan Blinder’s message in “The Carbon Tax Miracle Cure,” broadcast today from the pulpit of free-market orthodoxy, the editorial page of the Wall Street Journal:

[A] carbon tax… should be enacted now [but] set at zero for 2011 and 2012. After that, it would ramp up gradually… What’s critical is that we lock in higher future costs of carbon today.

Once America’s entrepreneurs and corporate executives see lucrative opportunities from carbon-saving devices and technologies, they will start investing right away—and in ways that make the most economic sense… I can hardly wait to witness the outpouring of ideas it would unleash. The next Steve Jobs, Bill Gates and Mark Zuckerberg are waiting in the wings to make themselves rich by helping the environment.  Jobs follow investment, and we need jobs now.

Blinder recommends using carbon tax revenue to reduce the deficit and underscores the advantages of a carbon tax over other deficit reduction strategies:

[E]very realistic observer knows that closing our humongous federal budget deficit will require a mix of higher taxes and lower spending as shares of GDP. Forget about value-added taxes and other new levies you may have heard about. A CO2 tax trumps them all… reducing our trade deficit, making our economy more efficient, ameliorating global warming, and showing the world that American capitalism has not lost its edge.

Now that “hiding the price” behind cap-and-trade has crashed politically, Prof. Blinder is urging Congress to try the opposite: show the price—two years ahead of time—and let the expectation of a rising price on CO2 pollution do its job-creation and climate work. As for the politics, Blinder drags out the familiar Churchill quote: “You can always count on Americans to do the right thing—after they’ve tried everything else.” It’s a cliché, all right, but it might just apply.