A special report for the Carbon Tax Center by James F. Handley
For almost four decades, the powerhouse Natural Resources Defense Council has stood as the green movement’s stronghold for regulation-based eco-solutions. It has fought for, and won, energy-efficiency standards for appliances, cars and buildings; renewable-energy quotas for electricity supply; and parts–per-million regulations on chemicals in water, air and food have been NRDC’s stock-in-trade. But not price-based mechanisms like gasoline taxes, congestion tolls and carbon emissions pricing.
It was striking, therefore, to read NRDC finance advisor Andy Stevenson come out swinging for carbon emissions pricing. In Why Putting a Price on Carbon is Fast Becoming an Economic Necessity, posted this week on NRDC’s Web site, Stevenson warns that tightening
credit markets threaten to strangle investment in alternative energy. His solution — “cap and invest”:
The cap forms a limit on the amount of CO2 that can be emitted in a given year. This declining limit is then broken up into permits… auctioned off to emitting entities, creating a… revenue stream of roughly $150 billion a year over several decades that can be used to help collateralize the loans needed to put America back to work and move us in the right direction…. [O]ver a trillion dollars in the early years of a "cap and invest" program… to help finance innovative energy solutions for our economy… giving the banks confidence to once again finance longer-term investments at reasonable interest rates. Investments that will pay dividends both in terms of their economics under a carbon cap, as well as for their ability to help reduce our greenhouse gas emissions profile.
Once sufficient capital has been deployed to jump-start emerging energy technologies, this program would then be transformed from a "cap and invest" program into a "cap and dividend" program that would rebate energy revenues back to the American people.
We like that last piece, “dividend… to the people.” Why not start there?
Stevenson’s article suggests that NRDC is moving up the ladder from Boxer-Lieberman-style cap-and-trade towards "the gold standard" of a revenue-neutral carbon tax. Could the Council be following the progression laid out in the Congressional Budget Office’s “Caps vs. Taxes”
report, of steps to make cap-and-trade more effective (and more like a carbon tax)?
100% auction (drop all permit giveaways)
safety valves and price floors to dampen volatility
recycle revenue via dividend or tax-shift
regulate (or eliminate) traders.
NRDC’s proposed cap-and-trade includes 100% auction and a loose safety valve. With Stevenson’s call for eventual revenue recycling, the group is at least contemplating the first three of these steps.
Yet the NRDC-Stevenson "evolutionary" approach of moving to cap-and-dividend only after a long incubation in cap-and-invest is riddled with problems. For one thing, once traders and polluters owned permits they’d be invested in the system. They’d have to be bought out to take the next step up the ladder toward the "gold standard" of a straight carbon
tax. Moreover, "green energy" subsidies are addictive, even if (or especially when) they don’t reduce emissions. Subsidies for corn-based ethanol — which Sen. McCain denounced in the Sept. 26 presidential debate
—– are a case in point.
Furthermore, a dividend or tax shift seem essential to counteract the income impacts of any carbon pricing scheme, whether tax or cap. Without revenue distribution, carbon emissions pricing is a regressive tax. Yet under either a cap or a tax, carbon prices will have to rise substantially to meet the emission reduction targets NASA’s Jim Hansen and most other climate scientists warn are essential to prevent catastrophic climate instability. The current financial meltdown cries out for a dividend or a tax shift over a regressive tax increase, since consumers are already being bled dry.
But the case against cap-and-invest would be strong even in flush times. Our government is lousy at choosing technology winners, particularly this early in the technology race. Remember synfuels? Lieberman-Warner was loaded with subsidies for similar money holes like nukes, ethanol, and “clean coal.” Carbon auction or tax revenue diverted to "green energy" programs, even well-crafted ones, is unlikely to drive conservation and innovation nearly as well as the steeper price increase on fossil fuels that could be politically and economically sustained if a broadly distributed dividend or tax shift were coupled with a tax (or cap) on carbon fuel producers. That’s because we know our homes and businesses better
than the government. With the right price signals, we’ll be in a far better position than government-mediated program officers to make decisions about how to reduce our use of fossil fuels.
NRDC’s thinking is evolving. But cap-and-invest is still a regressive policy that won’t do much good up-front. And down the line, as the cap tightens and fossil fuel prices soar, it will become wildly unpopular. Stevenson is right to suggest revenue recycling to offset that pain, but why wait? Why not skip “cap-and-invest” and go straight for “tax-and-dividend.” Economists
ranging from Ken Green on the right, Bill Nordhaus in the center and Robert Shapiro on the left are all saying “go for the gold” – a revenue-neutral carbon tax. Keep climbing, NRDC!
Photo: Flickr / Charlie Brewer.
Andy Stevenson says
I thank you for including me in the dialogue on this. I think the invest portion of a cap, invest, and dividend program is essential to bringing forward the deployment of several critical energy technologies such as carbon capture and storage that wouldn’t become commercially available without meaningful financial suppport. A tax is not enough to drive the deployment of these technologies to scale as most are still facing the famous "mountain of death" costs associated with deploying first to market technologies. Cap and invest is designed to buy down the costs of deploying these technologies as soon as possible for use not just in the US, but in China and India as well. Remember that in China, one out of every three millionaires is a millionaire because of a coal plant. The coal plants being built there are extremely well entrenched and without an affordable economic solution like CCS, hundreds of millions of tons of CO2 from these coal plants will continue to flow into the atmosphere unabated.
Further, in terms of benefit to the consumer, a cap and invest program will drive energy down costs far faster than under a straight tax. The invest portion allows more capital to be deployed to advance clean energy infrastructure and transmission which will not only pay back the consumer in terms of lower energy prices but improve our balance of payments and national security as well.
David Collins says
I see one major problem with "Cap’n Investment" — the initial phase — it is regressive. Cap’n Investment will raise the price of fuel, which will be no skin off the shins of the well-to-do but which will be a real and present hardship for many of the less financially blessed. Politically, there are more than enough obstacles to getting any real climate-protection legislation through Congress and past the White House: implementing a CO2-reduction program which hits the less fortunate hard and brings real hardship to some among them will invite demagogues to do their mischief. And invited demagogues never turn down the invitation.
andy stevenson says
I think the idea that cap and invest is regressive assumes that 1) there isn’t money in the bill for low income families (which there is) 2) the money would not benefit consumers through lower energy prices sooner, and 3) more jobs would be created through a tax which is not the case. Creating a new energy infrastructure is very labor intensive and cap and invest allows us to capitalize on this to the benefit of all. Cap and invest provides jobs not a check in the early years. This is especially important to the construction industry that has been devastated by the recent economic turmoil. Energy efficiency incentives are a main plank to cap and invest and that is a very labor intensive business, especially for residential and commercial retrofits and that will employ thousands and thousands of American workers that wouldn’t get paid under a straight tax. Look at the tragedy that is unfolding with LIHEAP this winter. LIHEAP is supposed to be providing help to up to 75mln Americans this year but doesn’t have near enough money to do the job. Cap and invest gets this done, largely with energy efficiency programs that will both employ and benefit of low income families. I am not saying these programs will be perfect but they offer some hope that we can get our energy costs under control. This does not even touch upon the health benefits that would be afforded lower income families from cleaner energy sooner.
Charles Komanoff says
Dear Andy (Stevenson) —
Thanks much for your constructive comments (both rounds).
We at CTC are 100% supportive of energy efficiency. Much of our respective careers have been devoted to advancing EE, and we are long-time admirers and supporters of NRDC’s pioneering work on EE in buildings, appliances, autos, etc.
We also agree with you that a carbon price alone (whether via cap-and-trade or a carbon tax) will be insufficient to bring forth all of the necessary EE + renewables (+ CCS, about which I am profoundly skeptical, but that’s for another time). We strongly support government involvement and investment in EE and RE and even in CCS R&D. We feel, however, that these funds should come from other pots than carbon revenues. (Yes, we do have suggestions as to where and what.)
Our doubts on cap-and-invest center on two related points: one, we fear that much if not most of the "invest" part will inevitably be siphoned to low-quality, high-risk energy-supply such as nukes, ethanol, and even more fossil fuels; two, it’s not just low-income families that will need to be buffered against the higher carbon price (though of course they will be most in need) but the entire middle-class. Allocating enough "investment" to help the latter will use up most if not all of the "invest" piece; given that, why not just distribute the revenues pro rata, as both Peter Barnes of cap-and-dividend and we at CTC propose?
This only scratches the surface. We (CTC) appreciate your engaging us here and we look forward to more dialogue. Best wishes and keep up the good work.
James Handley says
Further evidence that Congress would mis-spend carbon tax revenues: The Senate’s add-ons to the "Bailout" bill include funds and subsidies to tar sands, oil shale, and coal-to-liquid fuels. (To their credit, they also extended the tax credit on renewables.)
David Levy says
I used to work at NRDC and I understand their strategy to get inside the boardrooms and cloakrooms rather than stay outside in the streets. But I wonder whether "half a loaf is better than none" is misplaced here. We all should be mindful of an election that is taking place in one month. As it looks right now, according to electionprojection.com, the democrats will have comfortable majorities in both houses of Congress and Obama will be in the White House. I don’t think it is wild-eyed optimism to suggest that we think big and go for the best solution — a carbon tax with revenues directed toward (1) those individuals (not corporations) most affected by the increased costs (truck drivers, small farmers, etc) and (2) ‘green economic stimulus’ projects on renewable and ecologically benign energy.
Joe Sixpack says
MYTH 1: Global temperatures are rising at a rapid, unprecedented rate.
FACT: Accurate satellite, balloon and mountain top observations made over the last three decades have not shown any significant change in the long term rate of increase in global temperatures. Average ground station readings do show a mild warming of 0.6 to 0.8Cover the last 100 years, which is well within the natural variations recorded in the last millennium. The ground station network suffers from an uneven distribution across the globe; the stations are preferentially located in growing urban and industrial areas ("heat islands"), which show substantially higher readings than adjacent rural areas ("land use effects").
There has been no catastrophic warming recorded. MYTH 2: The "hockey stick" graph proves that the earth has experienced a steady, very gradual temperature increase for 1000 years, then recently began a sudden increase.
FACT: Significant changes in climate have continually occurred throughout geologic time. For instance, the Medieval Warm Period, from around 1000 to1200 AD (when the Vikings farmed on Greenland) was followed by a period known as the Little Ice Age. Since the end of the 17th Century the "average global temperature" has been rising at the low steady rate mentioned above; although from 1940 – 1970 temperatures actually dropped, leading to a Global Cooling scare.
The "hockey stick", a poster boy of both the UN’s IPCC and Canada’s Environment Department, ignores historical recorded climatic swings, and has now also been proven to be flawed and statistically unreliable as well. It is a computer construct and a faulty one at that.
FACT: Carbon dioxide levels have indeed changed for various reasons, human and otherwise, just as they have throughout geologic time. Since the beginning of the industrial revolution, the CO2 content of the atmosphere has increased. The RATE of growth during this period has also increased from about 0.2% per year to the present rate of about 0.4% per year,which growth rate has now been constant for the past 25 years. However, there is no proof that CO2 is the main driver of global warming. As measured in ice cores dated over many thousands of years, CO2 levels move up and down AFTER the temperature has done so, and thus are the RESULT OF, NOT THE CAUSE of warming. Geological field work in recent sediments confirms this causal relationship. There is solid evidence that, as temperatures move up and down naturally and cyclically through solar radiation, orbital and galactic influences, the warming surface layers of the earth’s oceans expel more CO2 as a result.
MYTH 4: CO2 is the most common greenhouse gas. FACT: Greenhouse gases form about 3 % of the atmosphere by volume. They consist of varying amounts, (about 97%) of water vapour and clouds, with the remainder being gases like CO2, CH4, Ozone and N2O, of which carbon dioxide is the largest amount. Hence, CO2 constitutes about 0.037% of the atmosphere. While the minor gases are more effective as "greenhouse agents" than water vapour and clouds, the latter are overwhelming the effect by their sheer volume and – in the end – are thought to be responsible for 60% of the "Greenhouse effect".
Those attributing climate change to CO2 rarely mention this important fact.
MYTH 5: Computer models verify that CO2 increases will cause significant global warming.
FACT: Computer models can be made to "verify" anything by changing some of the 5 million input parameters or any of a multitude of negative and positive feedbacks in the program used.. They do not "prove" anything. Also, computer models predicting global warming are incapable of properly including the effects of the sun, cosmic rays and the clouds. The sun is a major cause of temperature variation on the earth surface as its received radiation changes all the time, This happens largely in cyclical fashion. The number and the lengths in time of sunspots can be correlated very closely with average temperatures on earth, e.g. the Little Ice Age and the Medieval Warm Period. Varying intensity of solar heat radiation affects the surface temperature of the oceans and the currents. Warmer ocean water expels gases, some of which are CO2. Solar radiation interferes with the cosmic ray flux, thus influencing the amount ionized nuclei which control cloud cover. MYTH 6: The UN proved that man–made CO2 causes global warming.
FACT: In a 1996 report by the UN on global warming, two statements were deleted from the final draft. Here they are: 1) “None of the studies cited above has shown clear evidence that we can attribute the observed climate changes to increases in greenhouse gases.”2) “No study to date has positively attributed all or part of the climate change to man–made causes”
To the present day there is still no scientific proof that man-made CO2 causes significant global warming.
MYTH 7: CO2 is a pollutant.FACT: This is absolutely not true. Nitrogen forms 80% of our atmosphere. We could not live in 100% nitrogen either. Carbon dioxide is no more a pollutant than nitrogen is. CO2 is essential to life on earth. It is necessary for plant growth since increased CO2 intake as a result of increased atmospheric concentration causes many trees and other plants to grow more vigorously. Unfortunately, the Canadian Government has included CO2 with a number of truly toxic and noxious substances listed by the Environmental Protection Act, only as their means to politically control it.
MYTH 8: Global warming will cause more storms and other weather extremes.
FACT: There is no scientific or statistical evidence whatsoever that supports such claims on a global scale. Regional variations may occur. Growing insurance and infrastructure repair costs, particularly in coastal areas, are sometimes claimed to be the result of increasing frequency and severity of storms, whereas in reality they are a function of increasing population density, escalating development value, and ever more media reporting.
MYTH 9: Receding glaciers and the calving of ice shelves are proof of global warming.
FACT: Glaciers have been receding and growing cyclically for hundreds of years. Recent glacier melting is a consequence of coming out of the very cool period of the Little Ice Age. Ice shelves have been breaking off for centuries. Scientists know of at least 33 periods of glaciers growing and then retreating. It’s normal. Besides, glacier’s health is dependent as much on precipitation as on temperature.
MYTH 10: The earth’s poles are warming; polar ice caps are breaking up and melting and the sea level rising.
FACT: The earth is variable. The western Arctic may be getting somewhat warmer, due to unrelated cyclic events in the Pacific Ocean, but the Eastern Arctic and Greenland are getting colder. The small Palmer Peninsula of Antarctica is getting warmer, while the main Antarctic continent is actually cooling. Ice thicknesses are increasing both on Greenland and in Antarctica.
Sea level monitoring in the Pacific (Tuvalu) and Indian Oceans (Maldives) has shown no sign of any sea level rise.
Please don’t not remove because you disagree with facts.
Source: Friends of Science website. MYTH 3: Human produced carbon dioxide has increased over the last 100 years, adding to the Greenhouse effect, thus warming the earth.
James Handley says
An idea as far-reaching and gravely serious as global warming isn’t easy for anyone to accept. It’s devastating. But the evidence gets stronger every day: Our wasteful and thoughtless accelerating burning of fossil fuels and rainforests portends a brutal end to civilization and the extinction of tens of thousands of other creatures. I’m not taking it well myself.
You and I are both angry – you seem to be angry at the messenger, while I’m angry at the message and I’m determined to do what I can about it. Our difference is that I’ve found the scientific evidence convincing, while apparently you have not. Perhaps you’ll be interested in an article I wrote summarizing and linking to source documents on the evidence of human-induced climate change, including some dramatic satellite images of the receding ice sheets on Greenland and Antarctica.
You might also be interested to know that conservative economists conclude that shifting to pollution taxes (including carbon taxes) would improve economic output, even if we weren’t concerned about global warming. So the good news here is that we can use pollution pricing to help our economy and our environment. This approach minimizes regulations and bureaucracy while maximizing individual choice.
James Handley says
Here’s a working link to my "Climate Chaos, An Escalating Avalanche" explaining global warming in lay terms, from first principles.
Most authoritative is the Fourth Assessment Report by the Nobel prize winning Intergovernmental Panel on Climate Change. The very readable summary is includes a clear discussion of the evidence for human-caused global warming with graphical representations of the sources of climate forcing. The analysis accounts for reductions in solar radiation, increases in atmospheric particulates and cloud albedo that slightly offset the driving forces (mainly CO2 and methane emissions) of global warming.
Bill Shore says
I sent this message to NRDC yesterday and included an earlier response to NRDC’s argument:
I was pleased to read Andrew Stevenson’s comments on carbontax.org to see NRDC gradually moving toward a carbon tax. But I would still argue for a position change NOW.
NRDC chose cap-and-trade at least in part because you thought anything called a tax could not be soldToday, the opposite may be true. I suggest that a carbon tax returned 100% to individual Americans would be easier to sell. It would be both an economic stimulus and an economic shake up toward environmental protection. Now—quickly–is the time to do it, when the price of gasoline and other petroleum products has dropped sharply but we know the price will rise again when world prosperity returns. That price will increase much less if we begin a gradually rising tax on carbon emitting products and practices. Further, we are failing to get environmental issues into the election campaign. Both presidential candidates have almost silently endorsed cap-and-trade, with no electoral education about what and why. If we could get some safe-seat members of Congress to begin to discuss a carbon tax, public education would begin.I am confident that if NRDC came out clearly for a carbon tax now, we could begin the necessary public education—with support from the lower-income
Americans who would get more money back than the tax would cost them.
Tonight, I’ll post this argument on carbontax.org.
From Bill Moyers Journal, Oct. 10: GEORGE SOROS:,,,You must have, in my opinion, you need, for instance, a tax on carbon emissions. But that is unacceptable politically. So we are going to have cap and trade. And the trading will have all kinds of loopholes and misuse of the regulations and all kinds of ways of making money without actually dealing with the problem that it’s designed to cure. So that’s how the political process distorts things.
With great respect and appreciation for NRDC,
Bill Shore Executive Secretary, Nature Network
From: Bill Shore [mailto:firstname.lastname@example.org] Sent: Wednesday, September 17, 2008 6:02 PMTo: ‘Frances Beinecke, NRDC’Subject: RE: Carbon Tax–a plea to change NRDC’s position
Dear Frances: In bold, my response to NRDC’s argument. Can we continue the conversation until one or the other of us is convinced?
Dear Mr. Shore,
Thanks for writing. I’m sorry I haven’t gotten back to you sooner, as I’ve been out of town.
I know you’ve spoken with a few folks on our staff about the cap-and-trad vs. carbon tax issue. We agree with you that the Lieberman-Warner bill was complicated, but we believe it is the necessary policy approach. The key goal and driver needs to be a cap on emissions. A carbon tax, which would be just as politically difficult to enact, [It would not carry the burden of “tax and spend liberals” because the returns would not be spent, they would be returned to the taxpayer.] would raise costs and marginally reduce emissions, but it would need to be exceptionally high to shift industry investment on the scale that is needed. [Wouldn’t the added cost have to be the same for cap-and-trade as for the carbon tax to do the same job—but cap-and-trade would be higher because Wall Street would add processing costs (and who knows what other machinations)?]
From the polling we have done, we know that limits on pollution and standards for industry are concepts that the public understands and has confidence in. Our challenge is to do a much better job communicating the core value of enacting pollution limits and investing in a new energy economy to get the job done. [Yes, we need to level with Americans about how bad the condition is. You can be sure that when cap-and-trade is fully debated, the opponents will use all the arguments they would use against a carbon tax. But the carbon tax proponents won’t have to carry the burden of (1) “tax and spend,” (2) the government is not the best agency to pick alternative energy winners—see ethanol and coal carbon burial, (3)are you ready to trust Wall Street? (4) why so complicated—I couldn’t possibly understand it, (5) why add administrative costs far greater than collecting a tax? To me, selling cap-and trade in an open public debate would be far harder than selling a carbon tax fully returned to the taxpayer. The only political benefit to cap-and-trade would come from not having the public understand its impact on them—and the debate in the Senate suggests the opponents won’t let that happen.]
We have made tremendous progress over the past two years, much more than public opinion surveys would suggest, advancing mandatory cap-and-trade efforts in the Northeast, Western, and Midwestern regions, as well as in Congress. [RGGI took years to formulate and applies only to electricity.] The US Climate Action Partnership also has reached agreement on climate legislative principles based on the cap-and-trade approach, which is helping to move the dial in Washington. [Interesting that business partners don’t listen to the many conservative economists who universally (as far as I’ve read) favor a carbon tax! If NRDC and EDF supported a carbon tax, that might make even faster progress. Perhaps you could change your policy to support either—let the public and Congress decide.] We and most other experts agree that if we are to reverse the growth of global warming pollution, we have to enact mandatory limits and accelerate investment in a range of technologies.
While we should avoid focusing on any one technology [and on letting the politicians choose what sounds best for the industries in their districts!], we need to devise robust incentives that will drive investment in sustainable, low-carbon energy technology across the board,[In another document, I have written that the U.S. needs a dozen research centers setting priorities not only for renewable energy technology but for policy changes in agriculture, land-use planning, fresh water, oceans and more. That would get us farther than letting Congress choose priority technologies.] and do it much faster than a carbon tax that depends on a demand response in the market. [Hasn’t demand response been demonstrated with $4 gasoline? If people know the cost of carbon-based energy is going to cost more permanently, the tax will achieve what cap-and-trade would achieve, without the extra burdens. If the price at one time doesn’t achieve the needed cap, it can be raised. Cap-and-trade processes will have to be adjusted to a myriad of current unknowns.]
Regarding the election, NRDC, as a 501c3 non-profit organization, is legally prohibited from taking a position on the candidates, their records, and their proposals. [I had no intention of injecting NRDC into an endorsement, only using your strong voice and deserved good reputation to put this issue on the political agenda during the campaign. Where we disagree, perhaps, is whether having the public pay the cost of reducing carbon emissions should be debated as the extremely high priority issue that it is—or keep it quiet until after the election and hope a solution so complicated that the public doesn’t know what’s happening to it can slide through Congress and past Obama or McCain.] But you can be sure that whoever the next president is, we’ll be speaking out – loud and clear – about the policies of the new administration, and working hard to move the ball forward, especially when it comes to the fight against climate change. [That may be later than we have to leave it, and every day counts! I have just learned that the Green Party in Canada has injected a carbon tax into their election campaign. Are American voters less rational? (Maybe)]
Thanks, as always, for your support. We’re truly grateful for it.