British Columbia’s Finance Minister Carole Taylor introduced a revenue-neutral carbon tax today that will serve as an excellent model for the United States. According to a story in the Canadian Press, the carbon tax will be effective July 1, will be phased in over five years and will start at a rate of $10 per tonne of carbon emissions. It will rise $5 a year to $30 per ton by 2012. The carbon tax revenues will be returned to taxpayers through personal income and business income tax cuts, according to Taylor. 

According to the same story, climate specialist Ian Bruce of the David Suzuki Foundation stated that "The Government has used the most powerful tool, a carbon tax, to reduce greenhouse gas emissions." As Bruce pointed out, "Green choices will become cheaper."

B.C. can now be proud of its natural beauty and its wise public policy designed to reduce the impact of climate change. Note that the proposed new carbon tax is very similar to the revenue-neutral, phased-in carbon tax proposed by the Carbon Tax Center. 

For more on the new B.C. carbon tax, see stories at right under "Latest Headlines." 

Photo: bfraz / flickr

In its just released Policy Options for Reducing CO2 Emissions, the non-partisan Congressional Budget Office confirms the superiority of carbon taxes over various types of cap-and-trade schemes. The CBO concludes that:

A tax on emissions would be the most efficient incentive-based option for reducing emissions and could be relatively easy to implement. If it was coordinated among major emitting countries, it would help minimize the cost of achieving a global target for emissions by providing consistent incentives for reducing emissions around the world. If other major nations used cap-and-trade programs rather than taxes on emissions, a U.S. tax could still provide roughly comparable incentives for emission reductions if the tax rate each year was set to equal the expected price of allowances under those programs.

Responding to interest in cap-and-trade programs, the CBO study "explores ways in which policymakers could preserve the structure of a cap-and-trade program but achieve some of the efficiency advantages of a tax." In other words, the CBO recognizes that a carbon tax is the "gold standard" and then tries to figure out how to reduce the disadvantages of cap-and-trade.

If Congress in its wisdom decides to approve a cap-and-trade program, it should make that program as similar as possible to the carbon tax "gold standard." But why settle for second best?

California, with a well-deserved reputation for leading the way on environmental protection, has done it again. Last week the Bay Area Air Quality Management District proposed a carbon fee that would apply to all Air District-permitted facilities emitting greenhouse gases. While the proposed fee is tiny — 4.2 cents per metric ton of carbon dioxide equivalent, versus the $10.00 per ton of CO2 tax we propose to be incremented each year — imposing the fee would lay a foundation for substantial carbon taxes in the future.

As proposed, the carbon fee is not revenue-neutral; it is designed to recover some costs associated with Climate Protection Program activities related to stationary sources. The small sums that would be collected don’t appear to warrant returning the money to Bay Area residents. If the fee is increased later on, the logic for making it revenue-neutral would be stronger.

According to a story in the Feb. 9 San Jose Mercury News, the proposal has elicited strong support from the Sierra Club. The Club’s executive director, Carl Pope, got it right when he stated, “There are costs associated with emitting carbon dioxide, and the people who emit it should pay the costs."

The Bay Area AQMD’s jurisdiction is all of Alameda, Contra Costa, Marin, San Francisco, San Mateo, Santa Clara and Napa Counties plus portions of Solano and Sonoma Counties. Click here to see the full proposal. Comments on the draft rule are due March 7.

The news is full of stories about ice caps melting, volatile weather and other dire consequences of climate change. The National Geographic Channel is hyping its upcoming series Six Degrees Could Change the World with promotional material including frightening images of likely consequences.

So, at first glance, it was heartening to see an article in Platts titled Timing of Carbon Control Measures Will Be Critical: EEI’s Kuhn. Could Thomas Kuhn, president and CEO of the Edison Electric Institute, be saying that immediate steps must be taken to reduce carbon dioxide emissions? Could Kuhn have recognized that the world has to reduce CO2 emissions starting NOW to avert runaway climate change? Could he be urging utilities to be receptive to a carbon tax?

Sorry, no. Kuhn’s concern in the story is that utilities be able to meet any carbon control mandates without adverse effects "such as increased strains on natural gas supply and demand." Concern about climate change never came up.

Photo: Silversprite / flickr

Assuming there really is such a thing as "clean coal," its future is looking increasingly bleak, according to After Washington Pulls Plug on FutureGen, Clean Coal Hopes Flicker in today’s Wall Street Journal. The WSJ describes the impact of DOE Secretary Samuel Bodman’s Jan. 30 decision "yanking its support for the project, whose price tag had ballooned to $1.8 billion, nearly double original estimates." The WSJ adds, "the nation could face supply shortages in coming years unlike anything seen in the past" without new coal plants and if "nuclear power also stumbles."

Senate Majority Leader Harry Reid had a somewhat different perspective last week. As reported in Platts, Senator Reid stated that, "I think the coal companies should be upfront with the American people that coal is one of the things that is ruining our world." Reid added:

The coal industry around the country is spending tens of millions of dollars to give false and misleading information to people around the country saying ‘all we want to do is have clean coal. Why won’t they let us do the clean coal’…My answer to that is that is doesn’t exist. There is no clean coal technology. There’s cleaner coal, there’s no clean coal technology.

Senator Reid doesn’t expect zero-emissions coal fired generation to be available for another twenty years and says we should "just back off" and look to cleaner energy sources like natural gas and renewables.

The key lesson of the FutureGen story, as well as past government attempts to pick winners (such as synfuels during the Carter and Reagan administrations), is the need to internalize the costs of CO2 emissions from burning fossil fuels in the price of energy via a carbon tax. With a carbon price, consumers and power producers could make rational economic choices to use less energy and substitute less carbon-intensive fuels for coal. Coal would lose its artificial competitive advantage, the economics of renewable energy would improve dramatically, and even more energy efficiency would become cost-effective. Who knows, even zero-emissions coal might become available — eventually.

Photo: Zach K / flickr

Rex Nutting’s Market Watch commentary (see "Quote of the Week") properly criticizes the presidential candidates for coming up with Rube Goldberg energy plans instead of having the guts to show leadership by proposing to increase the price of fossil fuels. It’s a fair critique, but it’s the rare candidate who has Senator Dodd’s courage to propose a tax while running for office. 

After the election, when there is less concern about cheap shots distorting policy discussions just before voting, it will be far easier to consider the best approach to reducing greenhouse gas emissions.  After the election it will be possible to explain that a revenue-neutral carbon tax is a tax-shift, not a tax increase, and that will be good for both the environment and the economy. After the election it will be easier to get past the rhetoric and to recognize that both carbon taxes and cap-and-trade increase prices. After the election, when there is an opportunity for a relatively objective analysis,  citizens and elected officials will be able to compare a revenue- neutral carbon tax (which raises prices gradually with an upwards trajectory that gives families and businesses time to adjust by using energy more efficiently and substituting renewable energy for coal and other fossil fuels) to cap-and-trade (which produces volatile energy prices and, under most proposed legislation, huge windfalls for polluters). 

For now, we can wait until after the election.  Or, take a look at the headlines to the right of this page to learn about the more serious discussions taking place in Canada and Europe.  

During last night’s Democratic Presidential Candidates Debate in New Hampshire, Charles Gibson, ABC-TV News Anchor, noted that none of the candidates on the stage favor a carbon tax and asked whether it’s a bad idea or just too politically unpalatable. No one would ‘fess up to lacking political courage, courage previously demonstrated by Senator Dodd (no longer a candidate), Senator Gravel (not present at the debate), and Mayor Bloomberg (possible candidate). Governor Richardson criticized a carbon tax for passing costs on to consumers and disingenuously implied the same isn’t true for cap-and-trade, Senator Obama was intellectually honest and corrected Governor Richardson. Senator Clinton avoided the question in her response and Senator Edwards didn’t say anything.

MR. GIBSON: All right. Let me turn to something else.

Reversing — you invoked the name of Al Gore a few moments ago.
Reversing or slowing global warming is going to take sacrifice. I’m
sort of sorry Chris Dodd isn’t here because he’s talked a lot about a
carbon tax in this election. Al Gore favors a carbon tax. None of
you have favored a carbon tax. Is it a bad idea? Or is it just so
politically unpalatable that you guys don’t want to propose it?

GOV. RICHARDSON: It’s — can I answer? You know, I was Energy
secretary. It’s a bad idea because when you have a carbon tax, first
of all, it’s not a mandate. What you want is a mandate on polluters,
on coal companies, on — on — on those that pollute to reduce
greenhouse gas emissions by a certain target — under my plan, 30
percent by the year 2020, 80 percent by the year 2040. It takes
international leadership.

The better way to do it is through a cap-and-trade system, which
is a mandate. Furthermore, a carbon tax, that’s passed on to
consumers. That’s passed on to the average person. That’s money you
take out of the economy. So it’s a bad idea. Cap-and-trade is
mandate, but it’s also going to take presidential leadership. It’s
going to take all of us here, every American, you know, to think more
efficiently about how we transport ourself, what vehicles we purchase,
appliances in our homes.

It’s going to take a transportation policy that doesn’t just build
more highways. We have to have commuter rail, light rail, open
spaces. We got to have — we got to have land use policies where we
improve people’s quality of life.

MR. SPRADLING: Senator Obama?

SEN. OBAMA: Well, I agree with Bill, that I think cap-and-trade
system makes more sense. That’s why I proposed it because you can be
very specific in terms of how we’re going to reduce the greenhouse
gases by a particular l level. Now what you have to do is you have to
combine it with a hundred percent auction. In other words, every
little bit of pollution that is sent up into the atmosphere that
polluter is getting charged for it. Not only does that ensure that
they don’t game the system, but you’re also generating billions of
dollars that can be invested in solar and wind and biodiesel.

I do disagree with one thing, though, that Bill said, and that is
that on a carbon tax the cost will be passed onto consumers and that
won’t happen with a cap-and-trade. Under a cap-and-trade there will
be a cost. Plants are going to have to retrofit their equipment, and
that’s going to cost money, and they will pass it onto consumers. We
have an obligation to use some of the money that we generate to shield
low-income and fixed-income individuals from high electricity prices,
but we’re also going to have to ask the American people to change how
they use energy. Everybody’s going to have to change their light
bulbs. Everybody’s going to have to insulate their homes. And that
will be a sacrifice, but it’s a sacrifice that we can meet. Over the
long term it will generate jobs and businesses and can drive our
economy for many decades.

SEN. CLINTON: Charlie, let me make a connection here that I
think is really important.

I think the economy is slipping toward a recession — the
unemployment figure on Friday hitting 5 percent, the $100 a barrel oil
that we also hit this week, the fall of the dollar.

There’s a lot of pressures on middle-class families, and the kind of
costs that they have to keep up with have all gone up astronomically.
I mean, you know, the energy costs of the typical family in New
Hampshire since George Bush has been president have tripled, and
that’s far beyond what — the cost of the tax cuts that they got from
George Bush.

So what we’ve got to do is use energy as an opportunity to
actually jump-start economic recovery. We need to quickly move toward
energy efficiency. We should require the utilities to begin to work
for energy efficiency and conservation, costs that will be shared and
decrease the pressure on families. We need a weatherization and low-
income heating emergency program that is out there now helping
families in New Hampshire and elsewhere to cover their costs. And we
need to look at how doing what is right about energy is not only good
for our security and good for the fight against global warming, but it
will be essential in dealing with the economic challenges that we
face.

Imagine Mayor Bloomberg had been on the stage and had repeated what he said at the United States Conference of Mayors in November:

Both cap-and-trade and pollution pricing present their own challenges —
but there is an important difference between the two. The primary flaw
of cap-and-trade is economic — price uncertainty. While the primary
flaw of a pollution fee is political, the difficulty of getting it
through Congress. But I’ve never been one to let short-term politics
get in the way of long-term success. The job of an elected official is
to lead – not to stick a finger in the wind. It’s to stand up and say
what we believe — no matter what the polls say is popular or what the
pundits say is political suicide.

Or, Senator Dodd might have repeated his earlier statement that "The American people handle the truth very, very well. What they don’t handle well is people in public life promising results without talking about what has to be done to get those results." Senator Gravel might have repeated his earlier response to the statement that some people say supporting a carbon tax would be political suicide, "I back it in any case."

Political courage is hard to find in a presidential campaign. Fortunately, the real decisions on how to address climate change will likely be made after the November elections when Congress and the new Administration will be able to focus more on economics and good policy.

We established the Carbon Tax Center in January 2007. As we look back on our first year, we are thrilled by what we’ve accomplished.

CTC has established a reputation as the go-to web site for objective, non-partisan information on carbon taxes, with hundreds of hits almost every day. We have participated in conferences and debates in New York, Washington and Boston, we have appeared on national television, and we’ve been featured in newspapers, magazines and blogs. Congressional staff, academics, students and interested citizens of all stripes and from many countries have all turned to our site to get up to speed on a topic that is going to become increasingly vital as Congress and a new President grapple with reducing greenhouse gas emissions and limiting the damage from climate change.

The good news is two-fold. One, CTC has established a very solid foundation. Two, there is widespread support for revenue-neutral carbon taxes across the political spectrum from economists, business leaders, pundits and other opinion leaders. Just take a look at our Supporters page.

But we are not naïve. We know that powerful polluters who use the atmosphere as a free dumping ground are not going to give up that entitlement without a struggle. We know that cap-and-trade has well-connected advocates, many of them with a strong economic self-interest to favor their second-best alternative over carbon taxes. We know that carbon tax opponents have tremendous financial resources they will exploit to maintain their advantages.

And we are mindful that the “T” word is unpopular with politicians. Fortunately, awareness is growing that “putting a price on carbon” is an essential element of any successful strategy to significantly reduce greenhouse gas emissions. While debate continues over the two basic ways to put a price on carbon, a carbon tax or cap-and-trade, we remain convinced that the advantages of carbon taxes are becoming increasingly clear.

A legislated price on carbon is unlikely before a new Congress and President take office, providing time for careful examination of the relative merits of a carbon tax and cap-and-trade. We intend to use the time to frame the choice between an equitable revenue-neutral carbon tax and cap-and-trade schemes that provide huge windfalls to polluting industries and the financial community. This will help voters and elected officials grasp the huge benefits of the prompt reductions in greenhouse gas emissions that will result from an easily implemented revenue-neutral carbon tax, compared to the excruciatingly slow reductions that would result from the endlessly tendentious process of implementing a cap-and-trade scheme.

CTC intends to play a central role in the ongoing debate. To do so, we need your generous financial support. As you make your end-of-year contributions, please think of the Carbon Tax Center and click our Donate Now button or click here for instructions on making a contribution.

Thanks and Happy New Year!

Daniel Rosenblum
Charles Komanoff
Co-Directors

Photo: Peter Bowers / Flickr

Are cracks appearing in the United States Climate Action Partnership?

How long can USCAP keep up the appearance of agreement on the need for cap-and-trade when there are disagreements within the USCAP membership regarding such fundamental issues as whether a carbon tax is preferable to cap-and-trade and whether allowances should be auctioned or given away as windfalls based upon past pollution?

A December 16 article in the Miami Herald, Cleaning Up the Climate, suggests that tensions within USCAP are beginning to be difficult to ignore. The article noted that Lewis Hay, chairman and chief executive officer of FPL Group (Florida Power & Light), is a supporter of what he euphemistically calls a carbon fee. According to the article:

At one energy conference, Jim Rogers, Duke Energy’s chief executive, noted that Hay ”is saying fee but he means tax.” Hay responded that if his colleagues wanted to fight, "I have a Jerry Springer bouncer backstage.”

Again according to the article, Hay “erupted with an uncharacteristically irate outburst” when a Senate subcommittee approved the Lieberman-Warner legislation that includes provisions creating a cap-and-trade program that gives away some of the allowances to utilities.

Hay believes that giveaways would favor the polluters. Better for the government to auction off the credits, so each utility need buy only what it needs. Hay issued a statement saying the bill "would reward the country’s biggest emitters of carbon dioxide with billions of dollars of free allowances that they don’t need. . . . That’s like giving a bigger rebate to those of us who dump the most trash on our sidewalks.”

Rogers at Duke Energy maintains that the big coal plants need a lot of free allowances to start off, or their customers might be unduly burdened by dramatically higher electric bills.

Meanwhile, the Natural Resources Defense Council urges senators to "reduce the total amount of emissions allowances polluters are given for ‘free.’" NRDC is apparently not arguing that all allowances should be auctioned, but at least it wants to limit the windfalls to industry.

Tensions will inevitably increase as USCAP begins to move past its broad statement of principle and recommendations. In fact, in an October 23 letter from USCAP to Senators Lieberman and Warner, USCAP explicitly noted that it does not yet have a position on a number of fundamental issues:

The Act includes much more detailed provisions than contained in the Call for Action. USCAP members are continuing to discuss the issues raised by a number of these provisions, such as:

• Scope of coverage and complementary policies and measures.
• Sector-specific emission reduction timelines and targets.
• Allocation of allowances.
• Cost containment measures.
• Credit for early action.
• Domestic offsets.
• International offsets.
• Relationship of state and federal GHG programs.
• Implementation of the GHG registry.
• Addressing disproportionate economic impacts.

It’s going to be interesting watching USCAP attempt to find common ground on issues such as the allocation of allowances. Will it support the windfalls in the current draft of Lieberman-Warner (see Friends of the Earth analysis)? How will it address “disproportionate economic impacts”? Will USCAP recommend auctioning all allowances and returning all of the revenues to those who incur the costs of cap-and-trade (similar in some ways to a revenue-neutral carbon tax)? Will it recommend an increase in the already huge windfalls to polluters included in Lieberman-Warner? Or, will it be unable to reach a consensus? Stay tuned.

Photo: Terry Bain / Flickr

Google Inc. has a new project, Renewable Energy Cheaper Than Coal. Google is preparing to bet megabucks, mega-engineers and its cutting-edge reputation on its ability to propel solar thermal power, wind turbines and other renewable electricity up the innovation curve and under the cost of coal-fired power, Reuters reported Tuesday.

"Our goal is to produce one gigawatt [1,000 megawatts] of renewable energy capacity that is cheaper than coal. We are optimistic this can be done in years, not decades," said Larry Page, Google’s co-founder and president of products, according to Reuters.

To which we at the Carbon Tax Center say: Good luck, and don’t forget to hire the lobbyists. You’re going to need them to help win a carbon tax, ’cause without the tax, your goal of renewable energy cheaper than coal is likely to remain out of reach.

Don’t look to "market forces" to jack up the cost of coal-fired power. Unlike the 1970s, when the price of coal marched in lockstep with skyrocketing oil, coal prices are stuck in a proverbial peat bog. The national average coal price so far this year, $1.77 per million btu, is barely higher in nominal terms (and 40% less in real terms) than the 1982-1985 plateau of $1.65. The resource is abundant, mining technology is technically mature (if socially and ecologically devastating), and there’s barely a mine workers union to speak of. The power plants themselves are no harder to build, even with SOx and NOx scrubbers, than my kids’ Harry Potter lego’s, they just take a few years longer.

Coal-fired power isn’t about to get much more expensive by itself. Are renewables going to get much cheaper? Arguably not — at least not enough to win Google’s bet.

What about electricity from wind, my personal favorite energy-supply source and one for which I’ve done my share of advocacy? Wind power has gotten fabulously cheaper over the past two dozen years, as this DOE cost curve attests. But the rate of decline has slowed. Past advances — taller towers to capture higher wind speeds, larger blades to sweep larger areas, gearing to grab every available erg — appear pretty much tapped out. Further declines in wind costs will be incremental, not quantum. And to compete toe-to-toe with coal as baseload power, wind will need a support system of storage and transmission that will only add to its per-kWh cost.

Photovoltaics have more cost-cutting ahead but are starting from a much higher cost plane. I’m less up to speed on solar-thermal, but I suspect it sits somewhere between wind and PV — cheaper than PV now but with less scope for innovation. The bottom line, then, as I see it, is that coal will continue to undercut renewables in cost for the foreseeable future.

Unless a price is put on coal’s head.

An average kilowatt-hour from a coal-fired power plant sends 2 pounds of CO2 into the atmosphere. A megawatt-hour (1,000 kWh) puts up a ton. Charge $10 a ton of CO2 (or $37 a ton of carbon — precisely what we at the Carbon Tax Center recommend as the yearly increase in a phased-in tax) and you lift the price per coal-fired kilowatt-hour by one cent. If the gap between wind power (sans the federal Production Tax Credit) and coal power is conservatively put at 4 cents/kWh, then $40/ton of CO2 ought to give Google its Holy Grail.

There’s already a couple of carbon tax bills rattling around the House Ways & Means Committee. The Larson bill (that’s John B. Larson of Connecticut, a member of the Democratic leadership) calls for $15/ton of CO2 in starting in 2008, with the level increasing by 10% annually along with an additional inflation-offsetting adjustment. That could bring wind halfway to parity with coal in just a few years.

Hiring genius engineers and pouring Google’s coffers into renewables are terrific moves. But nothing beats getting the prices right. Earth to Google: start pulling for a carbon tax.