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. [Read more…]

The Carbon Tax Center told the U.S. Senate Finance Committee today that an economy-wide tax on the carbon content of coal, oil and gas will cut U.S. CO2 emissions more than twice as fast as proposed clean-energy subsidies delivered as tax credits.

This finding leads a new 22-page analysis, “Design of Economic Instruments for Reducing U.S. Carbon Emissions,” that we submitted today to Senate Finance Committee Chair Max Baucus. Our analysis is in the form of “Comments” on a Committee “Discussion Draft” that proposes replacing 42 federal energy tax subsidies with either credits for “clean (low-carbon) electricity” production and “clean fuels,” but also asks for input on the merits of a tax on carbon pollution instead.

Our comments can be boiled down to this ringing conclusion: A carbon tax will do everything the clean-energy credits will do, and much more. While simplifying and rationalizing the current hodgepodge of energy subsidies is all to the good, only a carbon tax can course through our entire economy and reward energy efficiencies and conservation along with low-carbon production.

Moreover, with the right design, a carbon tax can protect lower-income families and energy-intensive U.S. industries alike, at no cost to the Treasury. In contrast, even the proposed streamlined clean-energy subsidies could cost taxpayers more than $30 billion a year.

 

 

 

 

 

 

 

 

We performed our analysis using the Carbon Tax Center’s carbon tax spreadsheet model, which may be downloaded via this link. With the model, we estimated that the proposed subsidies would reduce U.S. carbon dioxide emissions by roughly 400 million metric tons a year, whereas an economy-wide carbon tax set at the same level as the subsidies would eliminate 960 million metric tons of emissions. (For comparison purposes, U.S. carbon dioxide emissions from burning fossil fuels totaled 5,221 million metric tons in 2012, the last year for which data are available.)

The Senate Finance Committee’s Dec. 18 statement, Baucus Unveils Proposal for Energy Tax Reform,” is available by clicking here. That two-page letter contains a link to the Committee staff’s 8-page discussion draft, which solicited comments on both the proposed subsidies realignment and on alternatives that would tax carbon emissions directly.

Our comments were submitted on behalf of the Citizens Climate Lobby and the Citizens Climate Education Corp. CCL/CCEC are the most visible and vociferous grassroots organizations advocating for a revenue-neutral U.S. carbon tax, and we are proud to stand with them. CCL chapters and members across the U.S. submitted their own comments backing a carbon tax as well.

Our hope is that the Senate Finance Committee’s discussion draft signals a new interest in carbon taxing among the tax-writing committees on Capitol Hill . . . and that CTC’s comments along with those from others will persuade incoming Committee Chair Sen. Ron Wyden (D-OR) to convene informational and/or legislative hearings this year on the optimal choice of economic instruments to reduce U.S. carbon emissions. (Longtime Committee Chair Baucus is leaving the Senate to serve as U.S. Ambassador to China.)

In the interim, we believe that our comments stand as the first broad quantification of the relative efficacy of a carbon tax vs. energy subsidies (even rationalized ones) to reduce emissions. As the figures in the table indicate, a carbon tax wins hands down.

CTC’s comments were researched and written by CTC director Charles Komanoff and CTC senior policy analyst James Handley. Support for their preparation and submittal was provided by the Alex C. Walker Educational and Charitable Foundation. We are grateful for their support.

Two weeks ago, I caught a tantalizing glimpse of a possible carbon tax in China.

I was part of an international delegation brought to Hangzhou to meet with 200 officials from 11 provinces, 30 cities, and at least a dozen universities at China’s first-ever “International Forum on Economic Policies for Traffic Congestion and Tailpipe Emissions.”

Traffic gridlock and tailpipe emissions are mounting in China’s megacities, and officials are looking to economic policy instruments to control both. It seems only a matter of time — and perhaps not much time — before Chinese cities begin to charge vehicles a fee to be driven into their central areas during peak periods.

And if congestion pricing is truly on the table for China, might a carbon tax, which is cut from the same cloth of cost internalization and price incentives, be close behind?

My experience in China, which you can read about here, reinforces my conviction that there will be a U.S. carbon tax.

Maybe, if we get lucky with the new Congress, as part of tax reform in 2015. Or perhaps not till after 2016 or even 2020, given our low-functioning political system.

The push may need to come from the states and spread to D.C., as it has for marriage equality. Or a carbon tax may be forced upon Congress as China and other countries enact carbon taxes and impose carbon tariffs on our exports.

But a national carbon tax will come. The moment will arrive when, to paraphrase Jim Hansen, the laws of physics and chemistry, not to mention economics, overwhelm even denialism and gridlock.

The Carbon Tax Center works to accelerate that moment. And to ensure that the carbon tax that eventually passes Washington isn’t piecemeal and opaque, but is rapidly rising, transparent, and just.

Just under the radar — ­ in think tanks, meeting halls and, yes, Congressional offices ­ — carbon pricing is inching back into conversations about climate, energy policy and fiscal and tax reform. And CTC is key to these discussions.

We run numbers for Capitol Hill staff, journalists and grassroots advocates. We cross-pollinate the carbon tax grapevine to keep others in the field up-to-date and connected. We help fellow climate proponents see that neither subsidies for clean-tech nor EPA regulations can rid our economy of fossil fuels fast enough . . . and to grasp that a robust and transparent carbon pollution tax is needed to level the entire playing field, not just select pieces.

The Carbon Tax Center does all this on a budget that barely qualifies as shoestring. With your help now, we’ll do it even more vocally, in more arenas, and more effectively in 2014.

Your contribution, of any size, will help us grow support for a U.S. carbon tax in Washington and the states. Please click here, now, to make your tax-deductible donation.

Thank you for your past and future support. Have a wonderful New Year.

  — Charles Komanoff, founder-director, Carbon Tax Center

Photo: Silvia Moroni, Mobility, Environment and Land Agency, Milan.

This post, co-written with Alex Matthiessen and published in the Huffington Post over Thanksgiving (2013), is reproduced here with a handful of minor changes. Alex, a CTC board member, is president and founder of Blue Marble Project, Inc., an environmental consulting firm.

Small beer is perhaps too kind a term for the prosaic proposals being batted around by New York Governor Andrew M. Cuomo’s tax reform commission: close loopholes, broaden the base, modernize collection of property taxes, stop taxing retirement income. Little about restructuring taxes to help New York State businesses create new jobs and give hard-pressed working families a break. And nothing about tax reform that could establish New York as a leader in curbing climate change.

Yet one possible reform, a carbon tax swap, can do all of the above — and is already being used successfully in other countries. With whole sections of the Philippines in ruins from Typhoon Haiyan, and the Warsaw global climate talks ending in tatters, the governor’s tax commission needs to go long and put a carbon tax swap at the top of its pending report.

What’s a carbon tax swap? It’s revenue-neutral tax reform in which a new fee collected on the carbon content of fossil fuels lets the state slash existing taxes that hamstring businesses and make it hard for middle class New Yorkers to make ends meet.

Albany wouldn’t keep a dime under the swap. Instead, taxes that stifle enterprise would be replaced by a fee on polluting fossil fuels that would motivate businesses and homeowners to accelerate the transition to clean energy.

One obvious candidate for tax relief is the state sales tax, which adds four cents onto each dollar spent on goods and services from Buffalo to Babylon. (Localities tack on another three to five cents.) NY State’s average combined rate, the country’s eighth highest, exerts a double drag on commerce, driving purchases — and businesses — out of state and cutting into households’ buying power.

A statewide carbon tax on oil, gas and coal used in vehicles, buildings, industry and power generation of $20 per ton of carbon dioxide — the equivalent of 19 cents per gallon of gasoline — would net $3.5 billion a year. With this revenue, legislators could reduce the state sales tax from 4 percent to 3 percent. Plus, there would still be $500 million to invest each year to finance storm-related infrastructure and help building-owners finance climate-friendly solar power systems.

Alternatively, the new revenue could pay down business taxes that place New York in the bottom 10 percent of Forbes‘ rankings of state business climates. Abolishing one such tax, the $2.7 billion corporation franchise tax, would give companies much-needed administrative and financial relief, and help attract businesses and jobs to New York.

Yes, the carbon tax will make electricity, gasoline and other fuels more expensive. That’s by design. But less-affluent families use less energy than average and thus will bear less of the burden. Meanwhile, upstate hydropower, which is carbon-free, will be exempt from the tax, offsetting many rural residents’ greater usage of gasoline and heating fuels. (New York City residents have smaller homes and drive less.) A reduction of the sales tax would disproportionately benefit lower-income family, thus mitigating further the impact of the swap on working families.

How much would a $20-per-ton carbon tax reduce New York’s emissions? Around 6 to 8 percent. While that’s barely a tenth of what most climate scientists believe must be the nationwide emissions-reduction target for 2050, it would constitute a strong start toward a 100 percent clean-energy economy for New York. It would also create a template that other states could follow, especially if, as some climate-policy specialists suggest, U.S. EPA lets states use carbon taxes to meet national carbon-pollution reduction standards.

A year ago, Hurricane Sandy made the devastating reality of climate change painfully clear to 20 million New Yorkers from Gov. Cuomo on down, as well as other Americans. Yet Congress has proven incapable of enacting even a single meaningful measure to mitigate it. On climate, as with marriage equality, the states will have to show the way.

Now the governor’s tax-reform push gives him the chance to provide national leadership on how states, with a single policy instrument, can start delivering both tax and climate relief to their people.

Click here for a 6-page brief backing up most of the tax-swap figures in this post. Go to CTC’s “States” Web page for info on how advocates in Oregon, Washington and elsewhere are working to advance state-level carbon taxes. 

In my in-box are a dozen e-mails wanting my reaction to Eduardo Porter’s column in yesterday’s New York Times in which he insisted that of all non-carbon based energy sources, nuclear power is “the cheapest and most readily scalable.”

Whether my correspondents knew that in my former life I meticulously established the spectacular failure of nuclear power plants to stay on budget and produce affordable electricity, or they simply thought I might have a halfway informed opinion on reactors’ proper role in combating the climate crisis, I can’t say. But I dutifully opened up Porter’s column and was quickly appalled.

The column fails the single most critical precept in nuclear economics: don’t confuse promise with performance. I made this point in 1979, a month before the Three Mile Island reactor accident, in a review of a book that plumbed that very theme. I was struck with how the authors of Light Water: How the Nuclear Dream Dissolved — two business academics with experience in the American and French Atomic Energy Commissions — showed that from Day One nuclear power proponents mesmerized themselves with idealized cost estimates that ignored reactors’ innate complexities and razor-thin tolerances — twin Achilles Heels that time and again broke project budgets and sowed mistrust among policymakers and the public, especially in the U.S.

Things haven’t changed. In June, Porter’s colleague Matt Wald, who has covered the nuclear industry for the Times since the early eighties, reported on a nuclear plant under construction in Georgia named Vogtle — one of two reactor projects underway in the U.S. First, Wald summarized the disastrous cost escalation at predecessor projects 30 years ago:

In those decades parts of plants were built, ripped out and rebuilt because of design and regulatory problems, leading to ruinous costs. Examples sit across the muddy construction site: Vogtle 1 and 2, which opened in 1987 and 1989, cost $8.87 billion. When they were proposed in 1971 the estimated cost was $660 million.

Wald noted that the new project, Vogtle 3 and 4, had instituted cost-control measures to lock-in plant designs and also replace often-chaotic field assembly with prefabricated parts. But, he noted:

[T]he company that was supposed to be making prefabricated parts like clockwork, from a factory in Lake Charles, La., was shipping them with some parts missing or without required paperwork. Southern [Company, the reactor owner] built a cavernous “module assembly building,” 120 feet high and 300 feet long, where the parts were supposed to be welded together, largely by robots, into segments weighing thousands of tons. But shipments stopped last August and are still arriving too slowly.

“[I]t remained to be seen,” the Georgia state construction monitor told Wald, “whether modular construction would actually save time.” Meanwhile, 5,000 miles away from Vogtle and “stifling” U.S. regulations that for decades have been blamed for “suffocating” nuclear power here, an ambitious reactor project in Olkiluoto, Finland has run completely off the rails.

“The massive power plant under construction on muddy terrain on this Finnish island was supposed to be the showpiece of a nuclear renaissance,” the Times reported back in 2009. “The most powerful reactor ever built, its modular design was supposed to make it faster and cheaper to build. And it was supposed to be safer, too.”

Instead, the Times reported then, “after four years of construction and thousands of recorded defects and deficiencies, the price tag . . .  has climbed at least 50 percent.” That was just the beginning. By December 2012, three-and-a-half years after the Times article appeared, the cost of the Olkiluoto reactor had doubled again, according to Wikipedia, to 8.5 billion euro — nearly triple the original €3 billion delivery price. So calamitous is the cost spiral that the Finnish electric utility owner and the French reactor supplier are suing each other.

Why bring up Vogtle and Olkiluoto? Because they exemplify the real-world experience that Porter ignored. (They also constitute a majority of reactor construction now underway in the Western economies.) Instead, Porter hung his column on — you guessed it — paper cost estimates from the U.S. Energy Information Administration and the U.K. government. Here’s Porter’s faithful workup of nuclear vs. wind and solar, per EIA:

Take the Energy Information Agency’s [sic] estimate of the cost of generating power. The agency’s [sic] number-crunchers include everything from the initial investment to the cost of fuel and the expense to operate, maintain and decommission old plants. Its latest estimate, published earlier this year, suggests that power generated by a new-generation nuclear plant that entered service in 2018 would be $108.40 per megawatt-hour. . . This is not cheap. . . Still, nuclear power is likely to be cheaper than most power made with renewables. Land-based wind farms could generate power at a relatively low cost of $86.60 per MWh, but acceptable locations are growing increasingly scarce. Solar costs $144.30 per MWh, the agency estimates. A megawatt-hour of power fueled by an offshore wind farm costs a whopping $221.50.

Case closed, eh? $108.40 a MWh for nukes, $144.30 for solar, $221.50 for offshore wind? I’ll leave it to others to see if the EIA figures for renewables properly credit the still-ongoing declines in unit costs for photovoltaics and wind. My point here is that the nuclear numbers in Porter’s column overlooked not just Vogtle and Olkiluoto but the deep-seated problem that invariably leaves paper estimates of reactor costs bearing as little resemblance to the real thing as campaign promises bear to officials’ actual policies: the fabulous energy density that makes nuclear power so appealing in theory requires heroic countermeasures that demand degrees of perfection that are only achievable, if at all, through a punishing array of rules, regulations, paper trails, quality assurance, inspection, checking and double-checking that come at enormous cost.

I documented this in painstaking detail long ago in a book, Power Plant Cost Escalation, that took me several years to conceptualize and several more to quantify and compose and finally publish, in 1981. The book’s bottom line was that through the 1970s, costs of completed U.S. nuclear plants rose twice as fast as costs of completed coal-fired plants; while the higher costs at least paid for coal plants to become much cleaner but not for nuclear plants to be made any safer, judging by the steady drip of nuclear mishaps that culminated in the meltdown of the final nuclear plant in my database, Three Mile Island Unit 2. (The book is on-line here, as a 12MB pdf, or you can pick up a hard copy from me, cheap; send me an e-mail.)

This work went viral in the energy and business world of the time, giving me a good run as expert witness for state government agencies charged with representing utility consumers in electricity rate cases. Eventually I moved on — to bicycling advocacy, road traffic pricing, and, of course, carbon taxing. These days I mostly steer clear of nukes per se, and, indeed, of specific technologies, preferring to agitate to get the most-level playing field possible, via full-cost carbon pollution pricing.

The problems with Porter’s column don’t stop with his slavish adherence to paper estimates of reactor costs. He flogs Germany for its 0.9% bump in CO2 emissions last year (“even as they declined in the United States and most of Western Europe”), ignoring that German GDP grew relative to that of every other major European economy, and that the drop in U.S. CO2 was mostly due to the horrific (and possibly transitory) boom in fracked natural gas.

Indeed, from 2010 to 2012, a two-year period encompassing the March, 2011 Fukushima catastrophe and Germany’s subsequent decision to turn off 29% of its nuclear power production (reducing reactor output from 140.6 terrawatt-hours in 2010 to 99.5 TWh in 2012), Germany actually held constant its use of fossil fuels to make electricity.

How did German society make up for the 41.1 TWh drop in reactors’ electricity generation? Numerically, it was simple:

• German solar-photovoltaic generation grew from 11.7 TWh to 28.0 TWh (a rise of 16.3 TWh).
• Wind generation grew from 37.8 TWh to 46.0 TWh (a rise of 8.2 TWh).
• Total consumption of electricity fell by 16.4 TWh (from 610.9 TWh to 594.5 TWh), despite GDP growth.

(Figures are based on data from Bundesministerium für Wirtschaft und Technologie, Statistisches Bundesamt, Arbeitsgruppe Erneuerbare Energien-Statistik (AGEE-Stat).)

The institutional mechanisms are more complex and involve feed-in-tariffs and other mechanisms to elicit investment in renewables. (You can get the full scoop on how Germany turned off nearly 30% of its nuclear power without burning more fossil fuels from the excellent Energy Transition (The German Energiewende) blog run by Craig Morris at the Heinrich Boll Institute.)

Now that’s a story worth pursuing, and one I pitched to Porter in an e-mail the week before Labor Day. Perhaps my note was too gentle. In retrospect, I might have ripped a page from Nate Silver’s playbook and muttered a cautionary tale about the 2012 election pundits who went with discredited over robust poll data and predicted a Romney victory.

Photo: BBC World Service / Flickr.

U.S. carbon emissions have been dropping, thanks to a confluence of factors, led by stagnating household incomes, cheap fracked methane, booming wind power, and “peak driving.” From 2005 to 2012, releases of CO2 from fossil fuel burning fell an estimated 685 million metric tons, from 5,906 MMT to 5,221. The lion’s share of that reduction, 379 million metric tons, came in the electricity sector, as wind and gas grabbed market share from coal (3 percentage points went to wind and nearly 12 points to gas) while total power generation stayed flat.

(Emissions data come from CTC’s carbon tax spreadsheet model. Electricity market shares may be calculated from EIA data.)

The second largest emissions source, which I call “Personal Ground Travel” (driving) to distinguish it from goods movement (mostly by trucks), shrank only modestly, from 1,246 MMT to 1,184, a drop of just 62 million metric tons, or 5%. So imagine my surprise when I read in a New York Times editorial last month that “increased fuel efficiency helped reduce carbon dioxide emissions from passenger cars by 16 percent from 2005 to 2012.”

That August 10 editorial, A Clean-Car Boom, was nearly euphoric. Here’s its lede:

In a welcome development for the planet, the cars on American streets are becoming much more climate-friendly much sooner than many had expected. Consumers are increasingly buying fuel-efficient hybrid and electric vehicles thanks to breakthrough innovations and supportive government policies.

True enough about consumers buying … not so the earlier part about emissions dropping by 16%. In fact, in the few seconds it took to follow the editorial’s link, it became clear that the 16% passenger-car reduction applies just to new autos rather than the entire sector, which necessarily takes many years to “turn over” to more-efficient models. What also became clear, in back-and-forth e-mails w/ the editorial board, was that the Times wasn’t going to publish a correction clarifying that CO2 emissions from cars fell just 5% from 2005 to 2012, not 16%.

“I assume [the writer of the editorial] meant new models, not entire existing fleets and that is the way readers would see it,” an editor advised me in an e-mail. “I will have to check with EPA and DOT,” he added, ignoring my offer to lead him to the numbers.

Would readers “see it” as the editor assumed? Would they get that CO2 reductions from driving were only inching along rather than galloping as the Times editorial suggested? I’m not sure. As I wrote to the editor in my final e-mail:

Why does this matter (apart from getting numbers right, generally)? A certain complacency has set in about heartening/surprising progress in cutting U.S. greenhouse gas emissions, especially in mainstream environmentalist thought. Indeed, this complacency may help explain how the [editorial] writer slipped into his/her error. More importantly, it has implications for policy/politics around climate, carbon taxing, “radical” vs. “incremental” approaches, etc.

The implications I had in mind are obvious but worth saying: If you “learn” that regulations have already eliminated one-sixth of carbon emissions from driving in just seven years, you’ll be more inclined to trust that further application of regulations can get induce more reductions. And if regulations are up to the task, the need to take on the tougher job of enacting a meaningful carbon tax dissipates.

Would that were so. But regulations aren’t up to the task of eliminating 80% or more of U.S. CO2 emissions. They’re intrinsically piecemeal, long lead-time, backward-casting, and suboptimizing. They also produce no revenue, thus giving them zero salience in any possible budget deal. As I wrote here late last year, only a carbon tax can

broadcast …  a clear price signal to begin shifting millions of decisions toward less energy and emissions — big decisions that determine design of vehicles and transport and that set the pace and nature of investment in low- and non-carbon energy; as well as the full gamut of household-level decisions …  Almost as importantly, a robust carbon tax changes the culture by broadening the definition of pollution and valorizing conserving behaviors with monetary rewards.

Or, as CTC’s Washington rep, James Handley, put it, in an early-2012 post dissecting putative EPA regulations of CO2 emissions from power plants, “EPA regulations might, optimistically, achieve significant near-term reductions, albeit at a higher cost than a CO2 pollution pricing system. But more importantly, those regulations can’t be expected to induce further innovation.”

Indeed, James’s post drew on work by noted Resources for the Future economist Dallas Burtraw to conclude that in the near term, EPA regulation of greenhouse gases was unlikely to reduce carbon pollution any more than a small carbon tax, say, one starting at $10/ton of CO2 and rising by just $3.50/ton per year. “Moreover,” James noted, “it’s not clear how much further EPA regulation could reduce emissions after 2020. That’s because regulations are essentially static and do little to induce innovation or to reduce fossil fuel demand via conservation.”

With or without a correction by the Times, there’s no getting around the need for a robustly rising carbon tax.

* * * * *

Separately, we call your attention to a new report by prolific automobile researcher Michael Sivak and two colleagues at the University of Michigan Transportation Research Institute, “A Survey of Driver Opinion About Carbon Capture in Vehicles.” Using an opinion survey, the three inferred that Americans “appeared to be willing to pay about $100 for a 20% reduction in [their car’s] carbon dioxide emissions.” Applying an average 25 mpg fuel economy for newly purchased vehicles, an annual distance driven per vehicle of 11,000 miles, and a typical 11-year vehicle life, that 20% reduction equates to 9.5 tons of CO2. A willingness to pay $100 to eliminate 9.5 tons equates to just $10-$11 per ton of CO2 removed, suggesting that relying on Americans’ altruism isn’t going to do the heavy lifting of reducing carbon emissions.

Photo: Veee Man, via Flickr.

We present this guest post by Robert J. Shapiro, Co-founder and Chairman of Sonecon, LLC, and U.S. Under Secretary of Commerce for Economic Affairs during 1997-2001. Click here for his full bio, and here for the same post on Sonecon’s blog. Dr. Shapiro joined CTC’s board earlier this year. 

The Supreme Court’s blockbuster decisions on voting rights and same-sex marriage attracted most of the attention, but President Obama also moved decisively last week, on climate change. The facts that drove the President are scientifically undisputed. Increasing concentrations of greenhouse gas emissions in the earth’s atmosphere continue to raise global temperatures; and without serious action, the long-term effects on sea levels and climate could be catastrophic. Yet climate-change deniers on the far right have a tight hold on a majority of congressional Republicans, who now won’t even acknowledge the threat. With no hope of reaching a reasonable accommodation, the President put forward new regulations that don’t need their approval — and ultimately will be less effective and more costly for average Americans than the alternatives which Congress won’t consider.

For a while now, most climate experts and economists have broadly agreed that the most efficient and effective way to reduce these carbon and other greenhouse gas (GHG) emissions is the direct approach: Raise the price of fuels based on the GHG emissions they produce, and so raise the price of all goods and services based on the emissions created to produce them. In principle, this approach could attract bipartisan support. It rests on one of the bedrock tenets of conservatism, the power of prices in free markets, as well as the liberal disposition to create national programs to improve the general welfare. Yes, the most straightforward way to achieve such climate-friendly fuel prices is apply a dreaded tax to all forms of energy based on their carbon dioxide (CO2) and other GHG emissions. But even that, in more placid political times, could be a basis for attracting broad support, since the revenues from a climate tax could be dedicated to cutting payroll, corporate and other, more economically-distorting taxes.

The truth is that every other serious approach to climate — from a cap-and-trade system to the President’s new regulations — also would raise prices: Directly or indirectly, they make it more expensive to use fuels that emit more than their share of greenhouse gases, relative to other fuels that damage the climate less. Over time, those price differences should gradually move millions of businesses and tens of millions of households to favor the cheaper, more climate-friendly fuels and technologies, and the goods and services produced using them.

The sobering news is, we don’t have much time. Scientists warn that however broadly we might adopt the current generation of cleaner fuels and technologies, the atmospheric concentrations of CO₂ and other GHG will soon reach levels that will produce serious climate changes. However, the economics of setting a clear and hefty price on carbon and other GHG would also create new incentives that could extend the frontiers of climate technology. If energy companies, scientists and entrepreneurs can be certain about the price of carbon and other greenhouse gases, looking forward — if they know how much more it will cost people to use climate-damaging fuels, compared to climate-friendly ones — that would create strong incentives to develop and adopt the next generation of climate-friendly fuels and technologies.

The question is, how efficient and effective are each of these approaches, and which is most likely to spur new advances? The question highlights the costs of the extreme right’s current hold on congressional Republicans, which drives the political stalemate on climate policy and has left President Obama with few options apart from executive regulation. His new regulatory agenda has three parts. It includes, first, higher energy-efficiency standards for appliances and buildings, aimed at reducing energy use whether clean or otherwise. There also are new loan guarantees for projects to reduce or isolate the greenhouse gases emitted by fossil fuels, and additional grants to develop more efficient biofuels. These guarantees and grants are designed to promote greater use of more climate-friendly technologies and fuels by reducing the cost of capital to develop them. While these measures provide a sense of the administration moving on many fronts, their combined impact on the climate crisis will be modest.

There is one measure that could matter a great deal more: The President has directed the EPA to develop new CO2 and other GHG emission standards for existing power plants. This follows EPA regulations proposed last year that set similar standards for new power plants. The logic is straight-forward: Set standards that will force utilities to rapidly shift from coal to natural gas and renewable fuels. This makes sense, since the use of cheap coal to generate electricity accounts for about half of worldwide carbon and other GHG. Shifting to natural gas worldwide would cut life-cycle GHG emissions by 20 percent, and shifting to renewable fuels would reduce those emissions by as much as 40 percent.

There is no doubt that sufficient regulation could move the United States to a path under which our GHG emissions would decline in a sustained way. But using regulation in this way will cost Americans a great deal more than a carbon tax with the same result.

Under the new regulation, existing power plants will have to develop and adopt new investments that meet a new, uniform standard by reducing their emissions from fossil fuels or converting their plants to use cleaner fuels. To begin, monitoring and enforcing such regulation will cost a lot more than collecting a tax. More important, the program suffers from the inefficiencies of most regulation, because some utilities will be able to meet the regulation much more cheaply than others, based on the state of their current plants. For example, plant A could reduce its emissions by a required unit by investing $1,000,000, while plant B could reduce its emissions by the same unit for $250,000, and by two units for $500,000. So, reducing emissions by two units under the regulation will cost $1,250,000, while plant B could achieve the same result for the climate under a tax or a cap-and-trade system for $500,000. Under all of these alternatives, most of the costs are passed along to the ratepayers and consumers. But a tax with offsetting tax reductions could return much of those costs to everyone. Based on a simulation from several years ago, those costs could average some $1,500 per-household, year after year.

Finally, while the new regulations should spur technological innovations to enable utilities to meet the standard more efficiently, the incentive to innovate will dissipate once the standard is met. By contrast, the economic incentives to develop and adopt cleaner fuels and technologies never go away under an emissions tax, since every incremental advance would reduce the tax and, with it, the price of energy.

This past weekend, President Obama also devoted his weekly address to his new climate program. He deserves credit for refusing to be cowed by his opponents’ intransigence. He could truly elevate his presidency, however, by taking the case for a carbon/GHG tax with offsetting tax cuts to the country, and beating his opponents on one of the most fateful challenges we face today.

Guest post by Lindsay Sturman, a writer living in Los Angeles with her family.

We all hate taxes, but we also want and need government services. Rather than raise taxes or cut services, there’s a Third Way that has been overlooked: tax behavior that costs the public money.

“Sin taxes,” or better yet, “Smart Taxes” create a virtuous cycle – the tax raises the price of the product, causing consumption to drop, thus reducing the costly and damaging behavior. It’s Economics 101 – if we raise the price, we’ll get less of the behavior.

It’s unusual in government to have your cake and eat it too – but “Smart Taxes” is one of those rare perfect storms.

Tobacco is a great example, because most people wish fewer of us smoked, especially children. Over a hundred studies have shown that raising the price of cigarettes causes consumption to go down. Smoking also costs taxpayers dearly in health care costs treating Medicare and Medicaid patients for lung cancer, emphysema, chronic pulmonary disease and heart disease. Economists across the political spectrum agree that a pack of cigarettes should be taxed to reflect the true cost to society of smoking so taxpayers are not subsidizing tobacco companies.

Think about it: tobacco companies put out a product that causes disease and death, they make a handsome profit, and society is stuck with a huge bill estimated to cost the U.S. $96 billion a year, according to the Campaign for Tobacco-Free Kids. Economists have a word for the damage: an “externality.” In a perfect capitalist system, the cost of the externality of lung cancer would be captured in the price of a pack of cigarettes.

Carbon combustion is another area that costs us dearly – in higher rates of diseases such as asthma, traffic crashes, tailpipe and smokestack pollution, and the potentially catastrophic effects of global warming. Why should taxpayers subsidize the corporate pollution and the detrimental effects of a product, while the polluters walk away with a huge profit? Let the polluters pay, and let the price reflect the cost.

Along with cigarette taxes, another smart tax in use for decades is alcohol taxes, which cover at least some of the cost of alcohol-related disease and accidents. Along the same lines, a tax on bullets could offset some of the societal costs of shootings – the costs to hospitals, police departments and the court and prison system; this was once a political non-starter, but there is now a growing movement calling for this change. We could also be made better off, economically and health-wise, by taxing sugar and soda consumption that contributes to the marked increase in diabetes and obesity-related diseases; the costs are staggering, with obesity alone costing America a shocking $147 billion a year.

Here are examples of Smart Tax proposals from across the political spectrum:

• Carbon tax — Carbon Tax Center puts revenue in the trillions with a substantial cut in emissions – $1.5 trillion over 8 years.
• Soda tax — 1 cent per what? tax would raise $160 billion over 10 years while motivating 8-10% decline in consumption, lowering our health care costs.
• Tobacco tax— 50 cent per pack rise could raise $80 billion in 10 years (Congressional Budget Office).
• Marijuana tax – In states where legal, could raise $90 billion in 10 years and save the same in reduced law enforcement. Net gain: $180 billion.

By taxing “bads” we can achieve the trifecta: raise money to treat the disease/damage/costs, reduce consumption and thus prevent disease/damage/costs in the first place, and make a dent in health care spending and the cost of government across the board. Not to mention avoiding the incredible suffering these diseases cause – which is the best reason to do it.

Smart Taxes do not have to be a tax increase, but rather a tax shift. For every dollar raised in carbon, alcohol, and tobacco taxes, another tax could be lowered dollar for dollar: payroll taxes, income taxes, business taxes, or sales taxes. Lowering those taxes would encourage the economic activity that we want more of but which our upside-down tax system inhibits. Republicans and Democrats alike agree that sales taxes cut down on sales and payroll taxes impede job growth.

Smart Taxes could motivate the next taxpayer revolution. Whatever our political persuasion, we as citizens need to demand that our elected officials lower taxes on “goods” and raise them on “bads.”

Photo: A.C.N. Photography, via Flickr.

Guest Post by Sieren Ernst, Principal of Ethics & Environment.  [See 3/23 post-script, below.] 

Whether or not simplicity is a personal virtue, it’s certainly an important advantage of a carbon tax over other forms of carbon pricing. Thus, the “discussion draft” on carbon taxes released last week by a bicameral task force headed by Rep. Henry A. Waxman (D-CA) and Sen. Sheldon Whitehouse (D-RI) shows a laudable trend toward simpler, more transparent ways to price carbon pollution. Despite that encouraging trend, some aspects of the draft seem to have steered out of the way to complicate an otherwise elegant concept.

Dozens of peer-reviewed economic papers have examined the key design questions that the Waxman-Whitehouse draft asks: How high should the tax start? What should the escalation rate be? Where to use the revenue? The Waxman-Whitehouse task force offered up a menu of options and asked the public to weigh in, reality-tv style, on their favorites at cutcarbon@mail.house.gov.

It’s axiomatic to microeconomics that larger price signals produce larger responses on both the supply and demand side. One need not consult economic models to know that the impact of a low carbon price and tiny escalation rate — such as the task force’s low-end option of $15 per ton of CO2 with an escalator of 2% per year — would be minuscule. Would you modify your driving behaviors more than slightly over an increase of 15 cents per gallon of gasoline? Clearly, we need the task force’s higher-end option — $35 per ton and 8% escalator — to put a real dent in U.S. CO2 emissions, or at least to top the expected reductions from EPA regulatory proposals.

But the task force didn’t ask for input on a myriad of important design issues that needlessly clutter up the proposal. A major advantage of a carbon tax over cap-and-trade is its simplicity and crystal-clear price signal. An advantage touted by cap-and-trade supporters over a carbon tax is that the pricing mechanism is flexible. The ‘discussion draft’ seems to offer a carbon tax with cap-and-trade characteristics that isn’t especially simple nor flexible.

For starters, the bill uses a confusing and complex upstream/downstream approach, imposing the tax upstream in some instances and downstream in others. The “backgrounder” accompanying Waxman-Whitehouse proposal claims that this is “simpler” and imposes a lower reporting requirement. The background document asserts that “taxing carbon in natural gas at the point of production may be impractical, as there are over 500,000 produce natural gas wells in the United States.” But the number of natural gas wells isn’t the operative figure, insofar as a single corporate entity can control thousands of wells. Even the authors of the backgrounder seem to realize they may have picked an unwieldy point of regulation. They concede, “Applying a tax at the first point of sale would require establishing a new regime, as the federal government does not currently tax the vast majority of natural gas production.” True. Most carbon tax proposals suggest taxing natural gas “midstream” at the pipeline level because there are relatively few pipeline companies and they’re already regulated.

The Waxman-Whitehouse task force suggests that their approach would cover a larger share of the economy. But according to the Congressional Research Service, the Climate Protection Act, an upstream carbon tax proposed last month by Senators Sanders and Boxer, would cover 2,869 facilities and 85% of the greenhouse gas emissions in the economy. According to EPA, the Waxman-Whitehouse discussion draft would cover 7,000 facilities and…85% to 90% of the economy. The EPA and CRS’s methodology may differ but it seems clear enough that imposing the tax upstream would create far less administrative and regulatory burden.

The discussion draft instructs the Department of Treasury to sell polluters permits for each ton of CO2 emitted. But the proposal stresses that permits can’t be banked, borrowed, or traded. So why add the extra machinery for a permit-based system instead of a straight point-of-sale tax?

All in all, Waxman and Whitehouse’s proposal looks like an enormous stride, especially when compared to complex, opaque proposals of just a few years ago. But its choice of a permit-based system raises the question of whether their aim is to start with a carbon tax but wind up with linked cap-and-trade systems as Australia and South Africa have announced they will do. Which leads one to ask: Why not continue the trend toward simplicity with a simple, upstream carbon tax with a substantial escalator calibrated to hit long-term emissions targets?

Photo: flickr, Wikipedia: Rube Goldberg machine (“Self-operating napkin”)

 

Post Script: Coverage of Non-CO2 Greenhouse Gases (3/23/13):

In addition to taxing CO2 pollution, the Waxman-Whitehouse “discussion draft” would tax six non-CO2 greenhouse gases (GHGs): methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbon-23, perfluorinated chemicals and nitrogen triflouride at CO2-equivalent rates. According to the “backgrounder” released with the discussion draft, these non-CO2 GHGs account for about 20% of the climate damage from U.S. GHG emissions. To address that sector, the draft would apply emission fees to facilities whose emissions of those gases exceed the 25,000 ton CO2-equivalent per year threshold in EPA’s GHG reporting rule.

Those emissions total about 263.3 million tons CO2-equiv. That’s substantial: it’s roughly 4% of the 6.7 billion tons CO2-equiv of U.S. GHG emissions in 2011 and helps explain the Waxman-Whitehouse proposal’s reported coverage of 85-90% of emissions; 5% more than the 85% coverage of the Boxer-Sanders proposal that applies only to CO2 emissions.

But it’s striking that the Waxman-Whitehouse proposal would cover only 263.3 million of the 1.1 billion tons of non-CO2 GHG’s in EPA’s inventory. Given the potent climate impacts of non-CO2 greenhouse gases and reports indicating substantial fugitive methane emissions, we recommend a more comprehensive approach, either by applying the tax further upstream (where more of the emissions would be attributable to large emitters above the threshold) or by reducing the 25,000 ton CO-equiv. threshold, or both.

One day after 48 climate protesters were arrested at the White House and three days before what is billed as “the largest climate rally in history,” Senators Bernie Sanders (I-VT) and Barbara Boxer (D-CA) set a new “gold standard” for transparent, effective climate legislation. Their Climate Protection Act (“CPA”) would impose an upstream carbon pollution fee starting at $20 per ton of CO2, rising in ten years to $33/T, and would tax methane emissions at their CO2 climate equivalency. Gone are “hide the price” gimmicks of cap-and-trade. No trading, offsets, banking, borrowing or allowance give-aways to polluters. Sanders-Boxer would return 60% of revenue directly to households monthly, allot 25% to deficit reduction and dedicate the remaining 15% to green energy, weatherization and infrastructure “hardening” under a companion bill, the Sustainable Energy Act. The CPA bill includes border tax adjustments to protect U.S. energy-intensive industry and nudge our trading partners to enact their own carbon pricing measures.

Opening a packed Capitol Hill press briefing yesterday morning, Sanders inveighed against partisan squabbling which he insisted must yield before the ineluctable laws of physics. Earlier scientific projections were wrong, Sanders said, “the crisis facing our planet is much more serious than they previously believed.” Sanders and Boxer conveyed alarming warnings of “global climate disruption” from a Senate Environment and Public Works Committee briefing on Wednesday. The panel of four scientists had concluded that without aggressive action, the earth will warm by 8 degrees Fahrenheit within a century, with consequences including 3 – 6 feet of sea level rise, more frequent and forceful damaging storms, drought, extreme crop loss and submerging of coastal cities.

At Thursday’s press briefing, climate activist-author and 350.org founder Bill McKibben thanked Sanders and Boxer for grasping the “depth of the climate problem” and moving to end the fossil fuel industry’s free dumping of pollution into the atmosphere. Sierra Club director Michael Brune, Public Citizen’s Tyson Slocum, Tara McGuiness of the Center for American Progress and Meg Power of the National Community Action Foundation all praised the effectiveness and fairness of the bills.

Reporters immediately questioned how the two bills could move forward. Boxer said she has just begun seeking co-sponsors and hasn’t conferred with Majority Leader Harry Reid about scheduling. But she expects to conduct hearings and markup in Environment & Public Works and to bring the measures to the Senate floor by summer. Replying to a question about EPA greenhouse gas regulations, she said, “We’ve beaten back” Republican repeal efforts. “The Clean Air Act is the law of the land” which the President “must carry out.” Boxer suggested that public opinion on climate is “far ahead” of Congress, “no one is asking for dirtier air or water.” But she offered no plans to reach across the aisle to enact their bills, either in the Democratic-controlled Senate or the Republican House. She called on environmental and public interest organizations to build support for climate legislation. Sanders suggested that the public hold accountable “Republicans who refuse to even recognize the reality of climate change.”

The Climate Protection Act certainly sets a high standard. By our lights, it’s the most potent climate legislation ever introduced in the Senate. The Carbon Tax Center gauges efficacy primarily by the price polluters would pay. Along with most economists, we are convinced that a briskly-rising price on CO2 pollution is hands down the most broadly-effective and potent force to reduce emissions and open the way for renewables, efficiency and innovation. While the CPA’s price trajectory isn’t nearly as aggressive as our own “gold standard,” Rep. John Larson’s 2009 bill (which we’ve been told he will reintroduce soon), we view CPA as a good start. We estimate Sanders-Boxer would reduce emissions by about 12% below 2005 levels in a decade. (In contrast, Rep. Larson’s more robust carbon price ramp-up would reduce emissions by 30% in the same time period.)

CPA’s proposed direct distribution of 60% of revenue would protect most low- and moderate-income households from the effects of energy price increases, without diluting incentives for everyone to reduce fossil fuel use. Its 25% share of revenue designated for deficit reduction (essentially compelled by Congressional Budget Office accounting rules) could appeal to deficit hawks. We’re less confident that energy subsidies would be well spent. But as Senator Sanders noted, home weatherization that cuts utility bills is like a permanent tax cut. Instead of subsidies, we recommend more revenue return to households to ensure growing public support for continued brisk increases in the price of carbon pollution needed to achieve scientifically-mandated emissions reduction in the range of (or exceeding) 80% by 2050. In British Columbia, dedicating carbon tax revenues to cutting a range of other taxes on work, business and consumption has marshaled public support for four annual carbon tax increases.

As we heard the press conference, Boxer and Sanders seem to have written off every member of the Republican caucus as a potential collaborator on climate policy. If that’s the case, they may be writing off this Congress and the opportunity that a looming sequester and debt ceiling crisis may present to shift taxes on productive activity to taxes on CO2 pollution.

It’s true that the House Republican leadership has pledged to reject any climate measure that generates revenue. But that may still leave room for revenue-neutral tax swaps. Kevin Hassett (American Enterprise Institute), Adele Morris (Brookings) and Donald Marron (Tax Policy Center) have suggested funding cuts in corporate income tax rates with a carbon tax. That kind of proposal should interest legislators like Ways & Means chairman Dave Camp who has repeatedly stated his desire to cut corporate income tax rates.

A proposal like Sanders-Boxer combined with one like those of Hassett, Morris and Marron could yield a broad and popular carbon tax swap like British Columbia’s. We simply can’t afford to give up on this Congress and wait any longer to start putting the brakes on global climate disruption.

Photo: Flickr– Public Citizen