Why taxes on carbon pollution are essential,
what’s happening now, and how you can help
An unrelenting string of extreme weather events, including Superstorm Sandy that devastated the New York area in 2012, and topped by Typhoon Haiyan, which reportedly packed the strongest storm winds ever recorded when it laid waste to Guiuan province in the Philippines last fall, bring the message home: Earth’s climate is changing in costly and painful ways. Yet we’ve barely started transitioning from fossil fuels to renewable energy and efficiency. Many factors stand in the way, including this: the price signals are too weak. The prices of fossil fuels don’t come close to reflecting their true costs. This puts clean efficiency and renewables at a stark disadvantage. A robust and briskly rising 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.
- A carbon tax is a direct tax on the carbon content of fossil fuels (coal, oil and natural gas).
- A carbon tax is the most economically efficient means to convey crucial price signals that spur carbon-reducing investment. Our spreadsheet shows how fast emissions will fall.
- Carbon taxes should be phased in so businesses and households have time to adapt.
- A carbon tax can be structured to soften the impacts of added costs by distributing tax revenues to households (“dividends”) or reducing other taxes (“tax-shifting”).
- Support for a carbon tax is growing among public officials; economists; scientists; policy experts; business, religious, and environmental leaders; and ordinary citizens.
Our Read These First page is a good place to learn about carbon taxing. Another is a point /counterpoint last year in Today’s General Counsel magazine between Carbon Tax Center director Charles Komanoff and a top fossil fuel industry lobbyist. And read our blog post summarizing the comments we submitted to the Senate Finance Committee on Jan. 31. They point the way to a new policy path: replacing the U.S.’s contradictory and costly energy subsidies with a carbon tax.
PS: CTC needs your financial support. Click here to donate. Thank you.
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04/16/2014 by Charles Komanoff
Alone among the major economies, Germany is moving purposefully to phase out fossil fuels while also shuttering nuclear power. Germany’s energy makeover, or “energiewende,” appears to be thriving, as evidenced by the country’s humming economy, low unemployment, robust exports, stable or declining CO2 emissions, and rapid uptake of renewables. Yet the world’s most influential newspaper casts this ambitious program as an incipient failure, even as elsewhere it decries the climate stalemate in Washington.
Here are ten packets of information worth bearing in mind as you sift through coverage in “the paper of record” of Germany’s transformative energy agenda.
1. The German economy is the world’s fourth largest ― after the United States, China and Japan. Of the three dozen highest-population countries, Germany boasts the highest per capita GDP, save for the U.S.
2. Germany has embarked upon a concerted program to transform its energy system from fossil fuels to renewable sources ― wind power, electricity from sunlight, and biological-based fuels. This energy makeover — energiewende, in German — is not an overnight phenomenon but the accumulation of a dozen synergistic laws and policy directives instituted over several decades. The energiewende is now reaching critical mass, such that last year over 20% of German-produced electricity was generated from renewable sources, not even counting traditional hydro-electricity: wind, 8.4%; biomass, 6.7%; photovoltaics, 4.7%; municipal waste, 0.8% (an additional 3.2% was from water power) ― more than triple the comparable percentage for the U.S. (see table), and the highest share by far of any major economy. Perhaps most notably, Germany, with cloudier skies, a more northerly location, and 1/27th the land area, produces more than three times as much photovoltaic electricity as the United States. PV’s share in Germany’s electricity generation mix is 20 times as large as that in the U.S.
3. The most powerful mechanism driving the energiewende has been a 1991 law guaranteeing an investable price for renewable-energy production through a policy known as Feed-in Tariffs (FiT). The intent of this law, as energy authority Hal Harvey noted in his 2013 brief on the energiewende, was not simply to provide more zero-carbon energy but to push renewable energies along their respective “technology learning curves” so that vast amounts of clean energy could become available at affordable prices in the future.
4. Although German authorities have reduced somewhat the rates offered for newer wind and solar production, the FiT’s have caused substantial rises in electricity prices. (Another factor is a tax on electricity, introduced in 2000 as part of ecological tax reform.) These price rises have been decried by some German industrialists as well as the American oil historian and energy consultant Daniel Yergin, whose recent report (available through this link) also took Germany to task for turning its back on the supposed cheap-energy bonanza offered by fracked natural gas. Nevertheless, Germany’s economy, by far Europe’s most robust, has weathered the long global recession better than any other Western country, including the U.S., with 5% job growth and nearly 5% real GDP growth from the end of 2007 to the end of 2013 (see graphs).
5. The Fifth Assessment Report of the Intergovernmental Panel on Climate Change, draft portions of which have emerged in recent weeks, is only the latest (if the most urgent) expert report to express the nearly unanimous view of the world’s leading climate scientists that failure to curb emissions of carbon dioxide, the major greenhouse gas and an automatic byproduct of fossil fuel use, consigns our planet to catastrophic climate change within the lifetimes of most people now living.
6. As if deaf to the drumbeat of such warnings over the past several decades, the world’s three largest economies are doubling down on long-standing policies that have entrenched carbon-based fossil fuels as the bulwark of their energy systems. Under a politically expedient but mutually cancelling “all of the above” rubric, the U.S. subsidizes virtually all energy production, whether from coal, oil and gas extraction or wind turbines; China, its burgeoning megacities encased in life-shortening smog, rocketed past the U.S. as the leading carbon emitter several years ago, while Japan remains mired in paralysis in the wake of the 2011 triple-reactor meltdown at Fukushima.
2.7-MW solar park in Neukirchen, Lower Saxony, on a former tar acid disposal site
7. The chief economist for the European Climate Federation (ECF), Thomas Fricke, reports that German exports doubled from 2000 to 2012, evidence that comparatively high energy prices have not dampened Germany’s ability to compete in global manufacturing. In his new brief, Climate and Competitiveness, Fricke cites the low share of energy in German industry’s cost structure (in part because of high energy efficiency), and argues that “factors like highly qualified labor, or the benefits of being integrated into well-functioning clusters, probably play a more important role.” Even Germany’s net exports of electricity reached a new high last year of nearly 34 billion kilowatt-hours, the equivalent of five large (million-kilowatt) reactors running at 75% of capacity.
8. Nevertheless, these considerations did not deter energy consultant Yergin from telling a New York Times reporter last month that “There has been a kind of waking up to the fact that the premises of the Energiewende, however well-intentioned they are, no longer hold because the world has changed” ― the insinuation being that pursuing renewables rather than fracking was a luxury Germany could no longer afford. The Times story, ominously headlined German Energy Push Runs Into Problems, warned dutifully that “The rise in energy prices has already cost Germany $52 billion in net exports and could prove even more damaging if steps are not taken to keep prices in check, according to the [Yergin] study.”
9. The negative slant of the Times’ story was of a piece with the paper’s ongoing reportage. Enter “energiewende” in the Times’ search engine and here’s what comes up, in reverse chronological order:
- German Energy Push Runs Into Problems, March 19, 2014 (just cited)
- Germany’s Clean-Energy Plan Faces Resistance to Power Lines, Feb. 5, 2014
- German Energy Official Sounds a Warning, Jan. 21, 2014
- Germany’s Effort at Clean Energy Proves Complex, Sept. 18, 2013
- Energy Price Increases Pose Challenge for Merkel, Oct. 16, 2012
As their headlines suggest, the articles are replete with negative comments such as “Germany’s plan to convert to renewable energy sources is running into problems in execution that are forcing Germans to face the costs” and “A year and a half later, the costs of that plan, known here as the Energiewende, or energy transformation, are becoming painfully clear.” Nowhere does the Times see fit to mention the dual service the energiewende provides to the world: helping contain emissions of greenhouse gases, and driving down the price of renewable energy worldwide by propelling wind and solar technologies further along Hal Harvey’s “technology learning curves.”
10. A related current running through the Times’ coverage is that Germany’s accelerated closure of nuclear power plants in the wake of the 2011 Fukushima meltdowns is causing a surge in carbon emissions through increased usage of existing coal generators and decisions to build new ones. But the new coal-fired plants were set in motion prior to Fukushima in order to replace older, obsolete ones; moreover, from 2010 to 2012 ― a period encompassing Fukushima and Germany’s shutdown of six reactors ― Germany actually held constant its use of fossil fuels to make electricity, as the loss in nuclear generation was made up by growth in solar-photovoltaic and wind generation and increased energy efficiency.
The Times is not alone in its simplistic coverage of the energiewende. See, for example, Sunny, Windy, Costly and Dirty in the Economist, earlier this year, and, just yesterday, in Bloomberg News, Coal Rises Vampire-Like As German Utilities Seek Survival. One expects better, though, from the paper that sets the tone for other outlets and whose coverage of coal-burning’s climate consequences and immediate health costs is often hard-hitting, as evidenced by the links to potent stories sprinkled through this post.
For an alternative model, the Times could turn to another Establishment redoubt, Foreign Affairs. In a compact (1,700 words) yet comprehensive report published last September, Power Hungry: Will Angela Merkel Complete Germany’s Energy Revolution?, Berlin-based writer Paul Hockenos chronicled the energiewende’s achievements without skimping on the challenges it poses, not just for Germany’s electric grid but for the whole of society.
“Germany’s switch to clean power is nothing less than a new industrial revolution,” Hockenos wrote, “which is forcing Germans to contemplate uncomfortable changes to their entire society, including everything from mobility to urban architecture to farming to finance.” Precisely. Weaning an advanced industrial economy off of fossil fuels and nuclear power goes way beyond just flipping a different switch. But Hockenos also credits the energiewende’s “booming industrial and service sector based on renewables,” the increased tax receipts, the development benefits to Germany’s lagging eastern sector, and the boost to exports — none of which has been fit to print in the Times.
Whether makeover, transformation, revolution, or all three, the energiewende is the most hopeful development in energy and climate policy this century. It, and our planet, deserve thoughtful coverage.
Notes for Table
Electricity data for Germany are from Table 5 of file, Entwicklung der Energieversorgung 2013.pdf, provided by German Association of Energy and Water Industries (BDEW) except for these minor modifications aided by data from Christian Bantle of BDEW (email, 14-April-2014): (i) Geothermal is a nearly negligible 0.2 TWh; (ii) Municipal Waste (here labeled Waste) is split evenly between renewable and non-renewable; (iii) Other has been reduced from 25.4 TWh in BDEW’s Table 5 by 5 TWh of Waste Non-Renewable just noted. For those interested, Coal is 124.0 TWh and Lignite 162.0 TWh.
Electricity data for USA are from U.S. Energy Information Administration, Monthly Energy Review, March 2014, Table 7.2a: Electricity Net Generation,Total (All Sectors), except (i) Lignite is subsumed under Coal; (ii) Water (Hydro) Power has been netted by 4.424 TWh consumed by pumped-storage facilities; (iii) reported net electricity from Waste, 19.957 TWh, has been split evenly between renewable and non-renewable to match the German convention; (iv) Other has been added to true up calculated sum to reported Total.
Population, land area and GDP are from Wikipedia’s Lists of Countries (by population, by area, by GDP). Population is as of 30-Sept-2013 (Germany) and 15-April-2014 (USA). GDP is per International Monetary Fund.
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03/13/2014 by Charles Komanoff
Ev’rybody’s talkin’ ’bout Revolution, Evolution, Masturbation, Flagellation, Regulation, Integrations, Mediations, United Nations, Congratulations — John Lennon, “Give Peace a Chance”
The number-one energy meme of late is “fracking changes everything,” with fracked oil and methane (gas) having turned the United States almost overnight into the world’s leading extractor of hydrocarbons and, perhaps soon, even a net exporter. And that was before Russia annexed the Crimea and muscled in on the rest of Ukraine. Now the chorus of voices calling on Congress and the White House to neutralize Vladmir Putin’s use of natural gas as a geopolitical weapon by making America the “arsenal of energy” for Eastern Europe, as a former Bush NSC official urged in the New York Times, has moved into the higher decibels.
In the past week, the Times’ editorial board and the director of the Geopolitics of Energy Project at Harvard University’s Kennedy School have been among those urging stepped-up U.S. oil and gas exports (and, hence, more fracking). And that’s just on the center-lib part of the spectrum. Kentucky Senator Rand Paul is demanding approval of the Keystone XL Pipeline, and pretty much the entire U.S. Right wants our oil-and-gas spigot on full bore as well.
To paraphrase John Lennon, everybody’s talking about gas fracking, well drilling, hydrocarbing, tar sands spilling (well, not spilling). But no one, it seems, is talking about exporting a different brand of energy to gas-dependent Eastern Europe: energy efficiency and renewables. Yet therm for therm, both would be just as effective as U.S. hydrocarbons at reducing the need for Russian gas. And, it almost goes without saying, efficiency and renewable could be in place a lot faster — and in a fashion that could allow Ukrainians, Czechs, Hungarians and Poles to be active participants in their liberation.
The question arises: Why can’t the U.S. propose and take the lead in a new Marshall Plan — this one targeting Eastern Europe — that would: weatherize millions of homes; install combined heat-and-power systems in tens of thousands of schools, churches, and commercial buildings; replace every last electricity-guzzling incandescent bulb between the Elbe and the Dnieper with LED’s; and do likewise with refrigerators and other major home appliances? And, with only slightly longer lead times, build the bulb and appliance factories, train the engineers and installers, and groom the finance guys to put the pieces together? While of course retrofitting a million or more roofs with photovoltaics and erecting tens of thousands of industrial-size wind turbines? Who knows how big the gas savings (and CO2 reductions) would run, but they’re bound to be enormous.
OK, dream on — this is the US of A, locked into an “all of the above” energy policy and exporting mostly soybeans, coal and drones. But then, why not Germany to lead the way? After all, Chancellor Angela Merkel is visibly repelled by Russia’s incursion into Crimea; Financial Times today reported her charge that Russia is pursuing “law of the jungle” policies. Yet Germany is doing at home precisely what Eastern Europe needs: implementing a society-wide energy transition, or energiewende, to steadily supplant fossil and nuclear power with wind, sunlight, biomass and efficiency.
Of all the world’s nations, Germany is by far the best situated — geographically, financially, technologically, and by virtue of its historical debt — to lead its Eastern European neighbors to sustainable independence from both East and West.
“You could say I’m a dreamer,” John sang, “but I’m not the only one.” Helping Eastern Europe transition from big-power supplicant to model for true energy progress could help many dreams come true.
Note: You may also want to read our two brief posts from yesterday: Goodbye to Old Rubbish: A Proper Sendoff to a Coal-Fired Relic, and More Nuke Amnesia — This Time At The Top.
03/12/2014 by Charles Komanoff
It was 1972, toward the end of another Manhattan winter that wouldn’t quit. I was pulling 7-day weeks in a dingy loft over a garage near Canal Street — in what is now trendy Tribeca — helping put the finishing touches on a mammoth exposé of environmental pollution in the U.S. electric power industry. Our study for the Council on Economic Priorities, grandly titled “The Price of Power,” encompassed 15 utility companies that together owned and operated nearly 200 fossil-fuel power plants.
A few polluters stood out: coal-burning Four Corners in northern New Mexico, which notoriously spewed particulates into Colorado Plateau canyon country; Con Edison’s oil-fired Ravenswood plant, which smudged skies over New York City when it wasn’t on the fritz; and the massive (1,425-megawatt) Muskingum River coal-fired power station in Ohio, which singlehandedly accounted, we calculated, for one percent of SO2 pollution from all sources in the fifty states.
That stat was a stunner: with so much sulfur-laden coal and oil being burned for power and heat, a single, anonymous power station was responsible for 1% of U.S. sulfur emissions. That fact came to mind Tuesday, when the Muskingum River plant was featured in a New York Times story bemoaning its impending retirement, along with other Appalachia and Midwest coal-fired generators:
Scores of old coal-fired power plants in the Midwest will close in the next year or so because of federal pollution rules intended to cut emissions of mercury, chlorine and other toxic pollutants. [F]or utilities, another frigid winter like this one could lead to a squeeze in supply, making it harder — and much more expensive — to supply power to consumers during periods of peak demand.
For decades after passage of the 1970 Clean Air Act, the plant’s owner, American Electric Power Co., fought tooth-and-nail against cleanup, in the state capitals where it operated, in Congress, and in the courts. AEP finally outfitted Muskingum River with SO2 scrubbers in the 1990s, but as the Times reported, it has now made a cold-cash determination against investing further to comply with other emission rules. Perhaps the possibility of a future carbon pollution price was part of that calculation.
Good riddance to Muskingum River. With AEP’s trademark tall stacks hurling its effluent for hundreds of miles downwind, it helped poison lakes and woods throughout the Northeast and New England for forty years. Its demise should be celebrated, not mourned. Too bad, though, that AEP didn’t invest some of the effort it put into fighting clean-air upgrades into delivering deep energy retrofits to the millions of homes in its service territory. There is a way out from coal-fired pollution and unaffordable, unavailable electricity. We just need to mainstream it.
03/12/2014 by Charles Komanoff
“After Fukushima, Utilities Prepare for Worst,” announced the New York Times in a story timed to this week’s third anniversary of the Japanese triple reactor meltdown. The story described measures ranging from keeping earth-moving machines at the ready (to maintain plant access after disabling earthquakes) to stocking regional depots with tractor-trailers able to deliver emergency gear to stop reactor disasters from spinning out of control.
But the story also pointed, inadvertently, to a striking lapse in institutional memory at the top echelon of the U.S. Nuclear Regulatory Commission. Here’s the quote (with emphasis added):
“Fukushima woke up the world nuclear industry, not just the U.S.,” said the chairwoman of the Nuclear Regulatory Commission, Allison M. Macfarlane, in an interview. “It woke everybody up and said: ‘Hey, you didn’t even think about these different issues happening. You never thought about an earthquake that could create a tsunami that would swamp your emergency diesel generators and leave you without power for an extended period. You . . . have to think about that now.’ “
Never? Really? The record says otherwise. As far back as the 1970s, U.S. reactor operators were required, as a condition of their operating licenses, to plan for and make precautions against seismic-induced flooding (tsunamis). Here’s what Revision 2 of NRC Regulatory Guide 1.59, “Design Basis Floods for Nuclear Power Plants,” said on the subject in August 1977 (again, emphasis added):
The conditions resulting from the worst site-related flood probable at the nuclear power plants (e.g., PMF [Probable Maximum Flood], seismically induced flood, seiche [standing wave], surge, severe local precipitation) with attendant wind-generated wave activity constitute the design basis flood conditions that safety-related structures, systems, and components identified in Regulatory Guide 1.29 [pertaining to safety-related structures, systems and components] should be designed to withstand and retain capability for cold shutdown and maintenance thereof.
You can read more about Reg Guide 1.29 ― in fact, about the entire safety/danger axis on which U.S. reactor costs spun out of control in the seventies and eighties ― in my 1981 book, Power Plant Cost Escalation (large pdf). The point is that Fukushima, catastrophic and eye-opening as it was and is, shouldn’t have been anyone’s wake-up call, much less the NRC chairwoman’s, about the need for equipment and procedures to protect reactors from tsunamis. The need for such safeguards have been written into U.S. reactor licensing requirements for over 35 years.
Dr. Macfarlane’s memory lapse doesn’t bode well for NRC’s safety culture. It certainly doesn’t inspire confidence in the commission’s ability to preside over new-generation nuclear power plants that some envision as an antidote to reliance on coal-fired electricity.
10/20/2013 by James Handley
A new paper, “Deficit Reduction and Carbon Taxes: Budgetary, Economic, and Distributional Impacts” by economists at the Washington, DC think-tank Resources for the Future, finds that a $30/ton tax on CO2 pollution would reduce U.S. emissions 16% by 2025. The report concludes that dedicating the carbon tax revenues, estimated at $200 billion each year, to “down payment” of the federal budget deficit offers greater economic-efficiency benefits than other revenue-return options. Moreover, according to RFF, using the carbon tax revenues to pay down the deficit would especially benefit the young, by curbing global warming and its associated future costs, and by reducing tax burdens of today’s young people far into the future.
Using a new intergenerational economic model, RFF economists examined different ways to use revenue generated by carbon taxes, revealing the impacts of those choices across the age spectrum of the U.S. population. They modeled four scenarios: three in which the carbon tax revenues are used to reduce taxes on 1) capital, 2) labor, and 3) sales of goods, and a fourth in which the revenues are returned in lump sum “dividends.” RFF found the differences in annual aggregate welfare among the four options to be relative small ― less than 3 percent. Interestingly, returning revenue as lump-sum dividends offers a slightly more progressive income distribution than a labor tax shift.
More striking differences are revealed across the age spectrum: people who are now too young to vote would benefit most from a carbon tax used to fund deficit reduction, according to RFF. The authors conclude: “[E]nacting such a policy [a carbon tax used to pay down the deficit] will be politically difficult unless current generations are altruistic” enough to act now to curb global warming and to pay down deficits, both of whose impacts will be greatest on the young. That’s an understatement.
07/7/2013 by James Handley
Not all carbon tax proposals are equal. Some would raise the level of the tax robustly enough over time to transform the energy supply and the ways everyone uses energy. Others envision miniature carbon taxes meant to generate revenue targeted for specific purposes. The Breakthrough Institute (BTI) advocates a miniature version: a $5/T CO2 tax to fund energy R&D that they insist will unleash cheap new sources of low-carbon energy to undercut fossil fuels. In contrast, the Carbon Tax Center finds that a briskly-rising economy-wide carbon price is needed for energy efficiency and renewable energy to displace the vast bulk of fossil fuels by mid-century. An excellent example is the measure proposed by Rep. John B. Larson (D-CT) in 2009 for a CO2 tax starting at $15/T, rising to more than $100/T over a decade, which we estimate would reduce U.S. CO2 emissions by one-third in that time.
The “robust” carbon tax met the “miniature” carbon tax at the BTI meeting last month in Sausalito, CA. James Handley, the Carbon Tax Center’s Washington DC representative, discussed his paper, “Reaffirming the Case for a Briskly Rising Carbon Tax,” which responded to BTI’s draft (and not yet citable) paper, “Costs and Complexities of Carbon Pricing.” The BTI paper asserts that only a fully revenue-neutral carbon tax set at a socially-optimal price with full participation by other nations would be more effective than subsidies and regulations at reducing CO2 emissions. The paper points to the ineffectiveness of the low carbon prices induced by the European Union’s Emissions Trading Scheme and argues that the public won’t tolerate carbon prices rising to levels high enough to reduce emissions substantially. Because modest carbon taxes can’t deliver the needed emissions reductions, BTI argues that the carbon tax to shoot for is a small one funding targeted R&D that will unleash a technology breakthrough leading to abundant, cheap energy. (BTI supports “fourth generation” nuclear power, using fast breeder reactors as touted in the film “Pandora’s Promise.”)
In rebuttal, Handley argued that taxing CO2 pollution instead of productive activity such as work and investment is a climate policy offering enormous climate benefits at little or no cost. Successful carbon taxes in British Columbia and Sweden are proof that voters can be persuaded to embrace carbon taxes that reduce taxes on individual and business income, retail sales and payrolls. These taxes, along with Australia’s new carbon tax, demonstrate that well-designed carbon taxes can effectively reduce emissions quickly, at minimal cost, without stunting economic growth.
Handley further noted that the effectiveness of BTI’s proposal hinges on the ability (and willingness) of Congress and federal agencies to identify and fund nascent low-carbon energy technologies capable of breaking fossil fuels’ economic dominance. Yet a steadily-rising economy-wide carbon price can perform this task far more broadly and effectively, Handley argued, by encouraging every energy supplier and every energy user to look for ways to reduce emissions, spurring innovation across the entire spectrum of energy supply and use. He noted that diverting carbon tax revenues to R&D would preclude using carbon tax revenue to reduce other taxes, thus undercutting political support.