Sanders-Boxer “Climate Protection Act”

On February 14, 2013, Senators Bernie Sanders (I-Vt) and Barbara Boxer (D-CA) introduced the Climate Protection Act, the first legislative proposal for a carbon tax in the 113th Congress.  Sanders-Boxer would end free dumping of CO2 into the atmosphere by imposing an economy-wide tax on CO2 pollution, starting at $20/T CO2 and rising over a decade to $33/T CO2.  At just 25 pages, the bill sets a crystal clear, gradually-rising price for carbon pollution, creating the needed price signals for innovation, implementation of low- and zero-carbon energy, while efficiently phasing out high carbon energy.   Using the Carbon Tax Center’s price elasticity model, we estimate that CPA’s price signal and trajectory would reduce CO2 emissions by 12% over a decade.  And the measure’s border tax adjustments would create the strong incentives for other nations to enact their own carbon taxes.

The Progressive “Back to Work” Budget

The House Progressive Caucus has also included a carbon tax in their “Back to Work” Budget proposal released March 14, 2013.  The tax would start at $25/T CO2 and rise 5.6% annually, raising $1.1 trillion in revenue between 2014-2023.



Carbon Tax bills by Reps. Stark and Larson.  Both are gradually-increasing upstream carbon tax proposals. Additionally, the Larson bill would “recycle” the bulk of revenue by eliminating payroll taxes on approximately the first $3,800 of earnings and providing a 10% supplement to Social Security recipients.

Rep. Bob Inglis introduced a similar “Raise Wages, Cut Carbon Act of 2009” — an upstream carbon tax whose revenues would be used reduce the payroll tax rate.

Adjustable rate and “managed price” bills by Reps. McDermott and Doggett.  The McDermott bill authorizes the Treasury Department to set and adjust carbon pricing on a five year cycle to meet emissions targets.  Under Rep. Doggett’s measure Treasury would auction permits with authority to adjust the supply to meet price targets for the first ten years.

“Cap-and-Dividend” bills by Sen. Cantwell and  Rep. Van Hollen.  Cantwell’s “Carbon Limits and Energy for American Renewal Act” relies on a “cap” with a price floor and ceiling and would distribute 75% of revenues to households.  The remaining 25% of revenue would be appropriated by Congress for mitigation and adaptation projects. Van Hollen’s bill does not include a price collar and would distribute all revenue to housholds.

Cap-and-Trade provisions of ACESA by Reps. Waxman and Markey.  The House Energy and Commerce Committee’s “American Clean Energy and Security Act” includes a cap-and-trade title, including 2 billion tons of offsets (up to 75% international) effectively delaying U.S. emissions reductions by at least a decade.  The bill gives away 85% of allowances auctioning only 15%.  (Grist summary here.)

Free Allowances to Energy-Intensive, Trade-Exposed Industries.  Reps. Inslee and Doyle added to ACESA provisions to give allowances to energy intensive industries for at least 15 years, ostensibly to prevent unregulated foreign competitors from gaining advantage.  (Resources for the Future recently analyzed the impact of carbon pricing on energy intensive trade-exposed industries concluding that limited assistance should be provided, but phased out within a decade as firms adjust inputs and adopt carbon and energy saving strategies.)


Carbon Tax Proposals:

Rep. Stark (D-Ca) introduced H.R. 594 “Save Our Climate Act of 2009″ (1/15/09):

  • A carbon-content tax on fossil fuels starting at $10/ton CO2
  • Increasing by $10 every year.
  • Upstream:  Fossil fuels taxed they enter the U.S. economy (i.e., at the production or importation level).
  • Revenue use: not specified.
  • Exports credited for carbon tax.

Rep. Larson (D-Ct) introduced H.R. 1337 “America’s Energy Security Trust Fund Act of 2009″ (3/5/09):

  • A carbon-content tax on fossil fuels starting at $15/ton CO2.
  • Increasing by $10 each year, but in any year that EPA-identified emission targets (based on reaching 80% below 2005 emissions by 2050) are not met, the tax would increase by $15.
  • We have estimated the carbon-reducing impact of the Larson bill, using CTC’s 4-Sector Carbon Tax Impact Model. Projected emissions reduction trajectory would meet 80% by 2050.
  • Upstream (at production or importation).
  • Revenue use:
    • 1/6 of first year’s revenue for clean energy technology research (funding amount remains fixed at tax rate increases),
    • 1/12 (declining to zero over 10 years) for affected industry transition assistance,
    • All remaining revenue distributed to individuals. Returns payroll taxes via a federal income tax credit. In the first year, payroll taxes on the first $3,800 of earnings returned; amount of returned revenue rising with the tax rate. Social Security recipients receive a 10% supplement.
  • Border Adjustments: carbon equivalency fee on carbon-intensive goods imported from non-carbon taxing nations.  Exported goods credited for carbon tax.

Rep. Inglis (R- SC) introduced H.R. 2380, “Raise Wages, Cut Carbon Act of 2009’’ (5/13/09):

  • Upstream carbon tax.
  • Starting at $15/ton CO2 rising to $100 in 30 years.
  • All revenue used to reduce payroll tax rate.  (Contrast with Larson bill which would exempt first ~ $3,800 earned from payroll tax.)
  • Tax reduction split between employer and employee.
  • Border Adjustments: equivalent tax on imports, exports credited.

Hybrid” (Dynamically-Adjusting) Carbon Tax Proposal:

Rep. McDermott (D-Wa) introduced H.R. 1683 “Clean Environment and Stable Energy Market Act of 2009″ (3/24/09):

  • Producers and importers of “GHG emission substances” (fossil fuels, methane, nitrous oxide, sulfur hexafluoride, perfluorocarbons, hydrofluorocarbon) must purchase permits for each ton of CO2 emissions or equivalent.  Permits not tradeable; effectively a carbon-content tax.  Treasury annually sets emission permits price based on declining annual total emission allocations specified in the bill.  (6835 million tons CO2 equiv. for 2011 declining to 1337 tons in 2050.)
  • Treasury to publish price schedules every five years, may modify if allowance targets “significantly” missed within the five-year periods. If the permits sold exceed allocations for a particular year, subsequent year allocations reduced.
  • Upstream- permit required at first point of sale or importation.
  • Revenue use: not specified.
  • Exports credited for permit fee.

Managed Market” Proposal:

Rep. Doggett (D-Tx) introduced H.R. 1666 “Safe Markets Development Act of 2009″ (3/23/09):

  • Cap-and-trade program to reduce greenhouse gas emissions from covered sources from 6.153 billion metric tons in 2012 to 253 million in 2050.
  • Treasury to auction 100% of allowances quarterly.
  • Board (6 members, appointed by President) sets targets for allowance prices, manages quarterly auctions by changing supply of allowances to maintain a smooth price path through 2019, oversees secondary markets (not clear how).
  • Covered entities may bank up to 5% of allowances from a calendar year.
  • Revenue use: not specified.

“Cap and Dividend” Proposals:

Senators Cantwell (D- WA.) and Collins (R-ME.) introduced the Carbon Limits and Energy for America’s Renewal (CLEAR) Act (12/11/09).   While retaining a “cap” and limited trading, CLEAR would avoid the most profound flaws of the Waxman-Markey bill (passed by the House in June) and the Kerry-Boxer bill, now stalled in the Senate.  CLEAR would set a floor and ceiling (“collar”) on carbon allowance prices, authorize only  “covered entities” to hold allowances and would not allow offsets to be used in place of allowances.  Perhaps most noteworthy is CLEAR’s proposal to “recycle” 75% of revenue directly to households, contrasting sharply with the cap-and-trade bills’ give-away of carbon revenue and its equivalent in free allowances to an array of special interests and energy projects.  With Sen. Susan Collins’ (R-ME) co-sponsorship, CLEAR begins as a bipartisan proposal.

CLEAR purports to preclude a secondary market (or “derivatives”) in carbon allowances.  But analysts are uncertain about whether the bill can prevent large energy users  from contracting to hedge against seasonal and cyclical price swings. Also, the low price range of bill — $7 to $21 per ton of CO2 in the initial year, 2012, rising each year at approximately 6% above inflation — is not nearly sufficient to achieve the needed emissions reductions.  CTC’s Carbon Tax Impact Model suggests that this price trajectory will only lead to a 7.5% drop in U.S. CO2 emissions from 2005 levels in 2020. Instead of a substantial price signal, the bill relies much more heavily on subsidies for clean-energy investment which would come from the 25% of revenue not returned to households.  CLEAR’s goal is emissions reductions of 20% from a 2005 baseline by 2020.

CLEAR’s price collar would make carbon prices more predictable and in that sense the bill is much closer to the “gold standard” of a carbon tax than cap-and-trade proposals.  But its $7 – 21 range is wide enough to allow significant volatility that could discourage investment in alternatives and efficiency while generating profits for speculators.  Potential volatility combined with CLEAR’s low price mean that its price signal would be “noisy” and small — not the clear upwardly trending price signal that would most strongly encourage low-carbon energy.

Finally, a volatile price makes linkage to international carbon markets (or carbon taxes) needlessly complex or even impossible.

Rep. Van Hollen (D-Md) introduced H.R. 1862 “Cap and Dividend Act of 2009″ (1/1/09)

  • - CO2  Cap.   Fossil fuel producers, importers surrender permits for CO2 emissions each year.  Permits decline annually, leading to an 85% reduction below 2005 CO2 emissions from covered entities by 2050.
  • 100% auction of permits
  • Permits tradeable.
  • Volatility-limiting measures: Unlimited banking. Borrowing if permit prices increase more than 100%.
  • Revenue use:  Funds distributed monthly in equal amounts to those with a social security number.
  • Border Adjustments:  Exporters credited, Importers pay “carbon equivalency fee.”

Cap-and-Trade Proposal:

Reps. Waxman (D-Ca) and Markey (D-Ma) introduced the “The American Clean Energy and Security Act of 2009″ (H.R. 2454) which includes a cap-and-trade proposal (Title III).  The bill also proposes efficiency standards and renewable energy purchasing requirements for electric utilities, a tax on electricity to fund research to attempt to develop carbon capture and sequestration (a.k.a. “clean coal”) and numerous regulations on consumer goods, building standards and auto fuel efficiency.

  • Covered entities required to buy annually declining number of permits.
  • Offsets (1 B ton domestic, 1 B ton international) may be used to meet compliance obligations (approximately 30% in 2012).  EPA to determine offset projects eligibility.
  • Volatility-limiting measures: unlimited banking and borrowing.
  • 85% of allowances given away free, 15% auctioned.
  • 30% of allowance value allocated to Local Distribution Companies with stipulations that they pass on allowance value to electricity consumers.
  • 15% auction revenues dedicated to low-income assistance.
  • New coal fired power plants permitted through 2020 but must retrofit for “carbon capture and sequestration” when (if?) commercially available.

Free Allowances (under Cap-and-Trade) for “Energy Intensive, Trade-Exposed” Industries:

Reps. Inslee (D-Wa) and Doyle (D-Pa), introduced H.R. 1759, “Emission Migration Prevention with Long-term Output Yields Act” (2/26/09) now included in the Waxman-Markey bill which allocates 15% of allowances to “energy intensive-trade exposed industries.”

  • Free allowances to energy-intensive industries that are trade-exposed and potentially subject to carbon leakage (i.e., movement of industry to  countries without GHG emissions controls).
  • Compensates for costs of complying with emission reductions (direct costs) and for increased electricity costs resulting from utilities complying with a reduction program (indirect costs).
  • Compensation based on 85% of the specific industry’s greenhouse gas intensity per unit of output for direct costs, and 85% of the specific industry’s electricity efficiency per unit of  output for indirect costs.
  • Phase-out of the free allowance allocation would begin in 2026 and continue over 10 years, unless the EPA determines it appropriate to either delay or accelerate it.

Kerry-Lieberman “American Power Act” (May 12, 2010).  The Carbon Tax Center estimates that the price provisions in the Kerry-Lieberman bill will yield only a 3% reduction of CO2 emissions, in 2020, vs. actual 2009 emissions. click here. (For a graphic representation, go to the spreadsheet’s sixth worksheet “tab,” entitled Graph_CO2.)

Last updated: March 18, 2013