By William S. Becker
Economists say it’s the most important single thing we can do to lower America’s emissions of carbon dioxide (CO2), the principal global-warming gas. Conservatives are said to like it because it engages market forces rather than federal regulations. But although climate change is finally getting attention in Congress, it is unclear whether lawmakers will decide any time soon whether to add a carbon fee to the price of fossil fuels.
There may be back-room negotiations underway to create a bill that a majority in Congress can support. Or maybe not. Just in case, this blog offers a few suggestions for negotiators to consider. Let’s start with a brief description of what we know is on the visible table so far.
Several proposals to create a carbon fee have been put forward in the last couple of years. Two bills are pending in the current Congress. One is championed by Sen. Sheldon Whitehouse of Rhode Island; the second is sponsored by Rep. Ted Deutch, a Florida Democrat.
The Deutch bill has the advantage of three Republican cosponsors. Nevertheless, the oddsmakers give it only a 2% chance of passage. The Whitehouse bill is given a 5% chance of passage.
The proposal backed by the largest group of heavy hitters has not been introduced yet in Congress. It is the Baker/Shultz plan, named after two of its principal sponsors, Republican luminary emeriti James Baker III and George Shultz. Fortune magazine has called it “the most ambitious climate plan in history”. (Since then the title has been seized by Washington State Gov. Jay Inslee, who is running for president and has issued a comprehensive climate-action platform.)
The Baker/Shultz proposal is a product of the Climate Leadership Council, made up of industry and environmental groups. Among its backers are big oil companies — BP, ExxonMobil, Shell and Total — and several other prominent corporations. More on that shortly.
Columbia University’s Center on Global Energy Policy has produced a good analysis of the similarities of and differences between these plans, so go there if you want the details. Here are those suggestions for Congress.
First, call it a fee. Since elected leaders tremble under their desks when they hear “tax”, I suggest we call it a fee, as in “user fee”. This term is more palatable and also more accurate. Like the rest of the world, we are using the atmosphere as a dump for CO2 pollution from factories, tailpipes and power plants. A carbon fee would not be unlike the tipping fee at a garbage dump.
Second, be aggressive. If the fee is too low, it won’t be worth the trouble of creating one. If the United States is to do its proper part in the international effort to escape catastrophic global warming, the tax must be as aggressive as the health of the economy and the support of the American people permit.
Third, we still need an action plan. No one that I know is under the illusion that a carbon fee alone can do an adequate job of reducing CO2 pollution. The fee must be part of a more comprehensive package that includes things like research on critical technologies such as direct-air carbon capture; energy efficiency and renewable energy incentives; electric vehicle infrastructure investments; “healthy sink” initiatives to increase the absorption of carbon by soils, wetlands, grasslands and forests; assistance for community solar; and so on. The fee’s role should be to help markets align with significant reductions in CO2 pollution.
Fourth, Congress should focus on the long game. The first major goal should be a net-zero carbon economy by 2050, meaning that we and ecosystems remove at least as much CO2 from the atmosphere as we are putting in. The second major goal should be net-negative carbon as soon as possible after mid-century. Net-negative means taking more CO2 out of the atmosphere than we put in. That’s necessary because we have already exceeded atmospheric concentrations of carbon that scientists consider safe.
Fifth, cushion low-income families from the impact of higher energy prices. Low-income households already spend a higher portion of their money on energy than any other income class. There are several options ranging from additional funds in existing public assistance programs to energy vouchers. However, the first choice should be programs that produce permanent energy savings for low-income households, like those from the U.S. Department of Energy’s Weatherization Assistance Program.
Sixth, help disrupted workers and communities make the transition. The government has offered this kind of help several times in the past – for example, compensating communities disrupted by the decommissioning of nuclear power plants. So, there is precedent and experience to draw upon.
Seventh, repeal fossil fuel tax subsidies. Pushing Congress to do this over the years has been like spitting in the wind. The urgency of confronting climate change should finally put the wind at our backs. Subsidies for fossil fuels have been part of the tax code and other federal policies for more than a century. If Congress does not do some carbon-cleaning of the code now, taxpayers probably will have to subsidize these fuels until global warming pushes us off the planet.
Estimates vary on how much the captured revenues would be. It depends on how “subsidies” are defined. Also, it is difficult to find all of them because many have burrowed deep into the tax code. A conservative assessment puts them in the range of $25 billion annually. However, this does not include the social and environmental costs of oil, gas and coal. In 2015, the International Monetary Fund (IMF) calculated that these indirect subsidies amounted to nearly $700 billion annually in the United States, or $2,200 for every man, woman and child in the country. What this means is that there would be substantial social and environmental benefits from a carbon fee beyond the availability of additional revenues to help us build a net-zero carbon economy.
If fossil energy subsidies were once in the national interest, they are not now. Besides, the sector is hardly in its infancy and in need of bottle-feeding. And from the standpoint of sane public policy, it would be ridiculous if we tried to eliminate carbon emissions on one hand while encouraging the production of carbon-based fuels on the other.
Eighth, make it a “footprint fee”. The proposals on the table miss a large part of the CO2 pollution these fuels cause. In addition to how much CO2 the combustion of oil, gas and coal causes, the fee be charged on the entire carbon footprint of each fuel – in other words, all of the carbon emissions as the fuel is produced, processed, transported as well as combusted. Life-cycle emissions vary for different types of oil, gas or coal, so the fee would also vary according to the unique footprint of each fuel type.
Ninth, revenues to States. To avoid worries about big government and because different states have different requirements and opportunities for zero-carbon energy, a portion of the fee’s revenues should be allocated to each state energy office based on the statutory formula that DOE uses for its State Energy Program (SEP). In addition to help for low-income families and displaced workers, eligible activities could include things such as revolving loans for energy efficiency and renewable energy improvements; loan loss reserves to back up other types of financing; expanding and extending renewable energy tax incentives; research into critical new technologies such as direct-air carbon capture; the expansion of infrastructure for electric vehicles; and assistance for community solar projects.
Congress would have to run the numbers on whether revenues would be sufficient to provide these block grants to states while also sending rebates to each American citizen. While rebating all of the fees to the people seems on its face to be the safest option politically, with good leadership the American people could understand the society-wide value of investing in zero-net carbon. In the fall of 2017, pollsters from Yale asked respondents to choose from a list of 10 options for using the revenues. The top three choices were investments in clean energy, funds to retool energy infrastructure, and helping displaced workers in the coal industry. Sending money back to households ranked near the bottom.
Tenth, suspend but keep EPA’s regulatory authority. Conservatives hope a carbon fee would make federal regulation of greenhouse gases unnecessary. The current proposals would handle EPA regulation in different ways. One would revoke the agency’s authority to regulate these gases; another would suspend that authority but re-engage it if the fee does not result in adequate emission reductions.
The scheme that makes most sense would be to have EPA regulate greenhouse gases that are not covered by the fee and to require the agency to establish milestones with specific emission-reduction targets between now and 2050. The rest of EPA regulatory authority for greenhouse gases would be suspended but reengaged if the milestones were not achieved.
Eleventh, no “get out of jail free” card. The Baker-Shultz plan probably attracted support from oil companies (and $1 million in funding from one of them) because it would exempt them from lawsuits by states and cities that are seeking compensation for damages from climate change.
ExxonMobil, for one, allegedly knew from its own research many years ago that its products would change the climate. Instead of making that finding public and jumping into the fight to mitigate pollution, the company allegedly spent millions of dollars to spread misinformation. Several cities and states want to hold Exxon for that.
Exxon’s alleged deception should not be forgiven. Shielding the company from litigation would violate the polluter-pays principle. It would be another example of the very rich being treated differently from the very poor, who will suffer most from climate impacts. The harm the company caused by contributing to the delay in U.S. climate action will persist for generations to come.
Twelfth, accommodate early leaders. While Congress considered and eventually abandoned carbon trading, nine Northeastern and Mid-Atlantic states created their own program, the Regional Greenhouse Gas Initiative. California launched its own cap-and-trade program in 2013. Both trading regimes appear to be working. An economy-wide carbon fee should not interfere. As the National Research Council advises, “Care should be taken to avoid punishing states that have taken early action to limit emissions and to ensure that states and localities have sufficient resources to implement and enforce mandated national programs.”
Thirteenth, provide income-adjusted rebates. If rebates are used as many proponents of a carbon fee support, then they should be less for upper-income people than for middle- and lower-class individuals. It would make the rebates less regressive.
Last July when Republicans controlled the House of Representatives, they passed a resolution claiming that “a carbon tax would be detrimental to American families and businesses”. Now, more Republicans reportedly acknowledge that families and businesses will suffer far greater detrimental impact if climate change is not addressed.
If a reasonable chance to pass a carbon fee develops during the current session, Congress should go for it. If it doesn’t pass, it should be reintroduced in 2021. If all goes well, the 2020 election will not produce leaders who want to keep suppressing the federal government’s responsibility to address global climate change.