The Carbon Tax Center is often asked why a carbon tax is needed; wouldn’t removing tax subsidies be sufficient to let efficiency and renewables compete on even terms with fossil fuels?
Our stock answer is that the subsidies the tax code confers on fossil fuels (as well as on some other extractive industries) are peanuts compared to their environmental subsidies, especially free dumping of CO2 into the atmosphere. The needed market corrective is huge and can come about only via a significant tax on carbon pollution.
But bioenergy presents a starkly different picture. As recently as a decade ago, bioenergy sources — biofuels for transportation and biomass for electricity — seemed to have gained full-fledged membership in the “renewable energy club” along with wind, solar, small hydro and geothermal energy. To boost bioenergy production, Congress endowed biofuels with subsidies that now amount to about $1 per gallon of ethanol and $2 per gallon of biodiesel.
Congress also enacted mandates that, if left in place, will compel a tripling of U.S. biofuel output by 2022. Biomass for electricity generation is also poised to gain a huge boost if the final version of EPA’s Clean Power Plan carries over a longstanding but highly questionable assumption that biomass burning is “carbon-neutral.”
Since that honeymoon, closer scrutiny of bioenergy’s lifecycle emissions has been revealing a complicated and far less promising picture. Biofuel production typically involves substantial fossil fuel inputs. Moreover, biofuel mandates and subsidies tend to push land out of other carbon-sequestering uses including food production. And closer study of biomass burning is calling into question the “carbon-neutral” assumption: that growing wood or other biomass captures the same amount of CO2 that subsequent burning for electricity generation releases.
We discuss these issues in detail — and with abundant links to the key literature — in our new “Carbon-Taxing Biofuels” page. While our views are still evolving, we think it’s clear that removing bioenergy subsidies and mandates and preventing EPA from letting electricity generators claim credit for biomass as carbon-neutral would do more to internalize the climate costs of bioenergy than even a hefty carbon tax.
It’s a thorny issue that will only grow more important. Take a look at our new page and let us know what you think.
Photo: Iowa State University Extension Service
Rick Knight says
Applying a carbon tax to biomass or biofuels would be a huge mistake for several reasons. First, it is simply scientifically wrong. The question should not be how long it takes to re-sequester the CO2. It should be: what would happen to the biomass carbon if not used for energy? There are 4 possibilities: (1) it degrades naturally to CO2 through microbial and fungal action; (2) it burns in a fire, natural or man-made; (3) it degrades anaerobically to form methane; or (4) it forms complex soil carbon compounds. Only process #4 would avoid returning the carbon to the atmosphere as a global warming gas. Consider a plot of privately owned forest (not virgin forest, which is quite rare and probably protected). Over time, deadwood and trash collect and must be removed to prevent a wildfire. Typically that material is cleaned out and piled up to be burned. If the excess wood is instead harvested for biofuel production, the embedded energy is used for transportation. If it is instead burned in piles, that same energy enters the environment as heat. If it is hauled to a landfill, some of it will degrade to methane, which is 84 times more potent a greenhouse gas than CO2. That is why the biomass component of a biofuel must be considered greenhouse neutral. If fossil fuels are used in the planting, fertilizing, growing, harvesting, removal, and transporting of the biomass to a biorefinery, they will be accounted for by the carbon tax that is applied to them upstream. Adding an additional carbon tax to the biofuel would be double taxation.
The other reason is raw politics. Passing a carbon tax already must face vicious opposition from lawmakers in coal and oil States. Imagine adding all farm and forest States to that list. Is there anything left?
James Handley says
Rick, thanks for wading into this complex topic.
I tend to agree that applying a carbon tax to bioenergy would be problematic. We found that mandates (which completely over-ride prices), subsidies and EPA’s “carbon-neutral” assumption for biomass distort bio-energy markets so profoundly that even a substantial carbon tax wouldn’t make much difference.
Our first option, to tax the fuel inputs of biofuels is not an attempt to double-tax biofuels. It would still leave them under-taxed based on carbon content, if not full lifecycle emissions. It’s actually more of an attempt to point out a potential loophole. For example, methane (“natural gas”) used to make fertilizer to grow corn for ethanol should not be exempted from a carbon tax on the pretext that it’s not “burned.” The CO2 emissions from “steam reforming” methane to make hydrogen, a feedstock for the Haber process to make fertilizer, are the same as if the methane were burned. (And there are additional GHG emissions of nitrogen oxides.) Our “option one” would simply put hydrogen production from methane on the same footing as hydrolysis using electricity generated from (hopefully) carbon-taxed fossil fuels. And it would treat all the other fossil fuel inputs, transportation, distillation, etc. the same way. In short: No exceptions for fossil fuels used to make biofuels.
The second option is our attempt to tax bioenergy the same as other carbon-based fuels, without trying to account for lifecycle emissions or sequestration. Its chief advantage is simplicity which could allow it to pass muster with WTO’s non-discrimination provisions.
The third option attempts to account for lifecycle emissions and sequestration of each type of bioenergy, without discriminating between like products, in order to comply with WTO. As you point out, this would involve a huge number of controversial assumptions.
Note that we’re not making recommendations. Our over-arching conclusion is just that bioenergy is even more subsidized and its markets seem even more distorted (especially by mandates) than fossil fuels. Given the gargantuan size of the climate externality currently omitted from fossil fuel prices, that struck us as remarkable.
Rick Knight says
Thanks for clarification. I am always concerned when taxing biomass carbon comes up, because there is definitely a contingent in the environmental community that is vehemently opposed to any form of bioenergy for reasons that have little to do with actual climate impact. Some of that comes from an overarching cultural hostility to the “Bigs”, whether it’s Big Oil, Big Coal, Big Pharma, or Big Ag. Only village-scale solutions are seen as acceptable, and this is a guarantee of inaction on the scale we need.
Regarding natural gas for steam reforming, I don’t think there is any question that the gas should be subject to the carbon tax at the source, as Citizens’ Climate Lobby recommends. An upstream tax would accomplish that and fully account for fossil inputs that affect the life cycle emissions. Naturally that would encourage fertilizer manufacturers to consider other sources for hydrogen. You are right that doesn’t affect the N2O question, which I believe is more relevant to what form of fertilizer is used. Note, however, that there is a wide range of fertilizer requirements for different biomass sources (corn vs. cane vs. perennial grasses vs. woody species) and so this issue would be best addressed through feedstock selection and cultivation practices. Perhaps N2O emissions factors based on feedstock source and growing method would be the best way to minimize this one.
I don’t like the idea of basing a tax on some predetermined LCA factor because that has two big drawbacks: (1) it opens the door to all kinds of dispute over how the LCA is calculated and by whom, which would inevitably lead to lawsuits; and (2) it inhibits innovation, e.g., why should a producer do anything to improve the LCA for their product if the EPA or DOE has already mandated an LCA for that category of biofuel?
I agree that EPA rules (RFS2) and subsidies are maddeningly complex and a poor substitute for a carbon tax.
Here is a pretty good overview of the biofuels situation that considers relevant factors and makes good points: http://www.worldwatch.org/node/5600