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Increasing Interest in Carbon Tax Could Improve Outlook for Renewable Energy

Increasing Interest in Carbon Tax Could Improve Outlook for Renewable Energy

Exxon Mobil Corp. is part of a growing coalition backing a carbon tax as an alternative to costly regulation, giving newfound prominence to an idea once anathema in Washington.

Conservative economists and fossil-fuel lobbyists united in 2009 to fend off climate-change legislation that would have established a cap-and-trade mechanism. They are now locked in a backroom debate over a tax on carbon-dioxide emissions that could raise an estimated $100 billion in its first year.

A carbon tax would force electricity producers, refiners and manufacturers to pay a fee for the greenhouse gases they emit. It is gaining interest as lawmakers and President Barack Obama pledge to simplify the corporate tax code and try to raise revenue to narrow the deficit. The devastation from superstorm Sandy following the wildfires and drought of this summer have also increased concern about global warming.

“It does fit with the Republican idea of cleaning up the tax code, and to have a clean instrument for addressing this problem,” John Reilly, co-director of the Massachusetts Institute of Technology’s Joint Program on the Science and Policy of Global Change, said in an interview. Given this year’s weather disasters, “it’s hard to stand up and say global warming is a hoax,” he said.

Gilbert E. Metcalf, deputy assistant treasury secretary for environment and energy, said this week that the administration wasn’t planning to propose a carbon tax though it could be “part of the mix” of a tax overhaul, according to The Hill newspaper. Asked about it yesterday, Obama said he doubted there was enough political agreement for the tax, though he warned against delay in combating global warming.

Storm Costs

“It’s important because, you know, one of the things that we don’t always factor in are the costs involved in these natural disasters,” Obama said at a White House press conference. “We just put them off as something that’s unconnected to our behavior.”

The Washington-based American Enterprise Institute (AEI), which says it advocates libertarian and conservative values, held a full-day discussion Nov. 13 to examine how best to implement a carbon tax, which its economists say could enable a cut in corporate taxes and head off regulation by the Environmental Protection Agency. The same day, an opponent of the idea, the Competitive Enterprise Institute (CEI), filed a lawsuit against the Treasury Department, seeking private e-mails it said would show the administration is secretly pushing for a carbon tax.

“They need new sources of revenues, and this is a beautiful one,” Chris Horner, a senior fellow at the Washington-based CEI, said in an interview. “This thing is gaining steam.”

Environmentalist Support

Environmentalists such as the Environmental Defense Fund and former Vice President Al Gore want to tax greenhouse-gas emissions, saying it’s the best way to curb the use of fossil fuels such as coal and oil, and boost energy efficiency and cleaner energy sources, such as wind power. The idea also has had support among economists who have worked for Republican administrations, including Kevin Hassett, who is also at AEI, and Gregory Mankiw, an economist at Harvard University.

Exxon, which opposed legislation in 2009 that would have capped carbon emissions and allowed an auction to trade them, said at the time that a carbon tax would be easier to implement and more predictable.

Exxon’s Contributions

“Combined with further advances in energy efficiency and new technologies spurred by market innovation, a well-designed carbon tax could play a significant role in addressing the challenge of rising emissions,” Kimberly Brasington, a spokeswoman for the company, said in an e-mail. “A carbon tax should be made revenue neutral via tax offsets in other areas,” she added.

Exxon’s political action committee gave nearly $1.2 million to political candidates in the past two years, 93 percent of it to Republicans, according to the Center for Responsive Politics.

Exxon is the biggest U.S. natural-gas producer. A carbon tax could boost demand for natural gas in U.S. power plants, as gas emits half the carbon dioxide as coal when burned to make electricity.

“The source hit hardest is coal,” David Kreutzer, a research fellow in energy economics at the Heritage Foundation in Washington who opposes the tax, said in an interview. “The biggest substitution for coal is going to be natural gas.”

Taxing greenhouse-gas emissions would help finance an overhaul of the convoluted corporate tax code and is a better way to address global warming than regulations from the EPA, according to Aparna Mathur, an economist at AEI.

Carbon Conference

Exxon, the world’s largest energy company by market value, gave AEI $295,000 last year. Exxon played no part in Mathur’s research or the meeting, she said.

Some of Mathur’s fellow scholars at the Washington think tank say imposing a new tax is a mistake, and conservatives are getting duped into thinking it would be imposed in place of — not in addition to — other taxes and regulations.

“Conservatives are utterly naive to believe that they will get trade-offs in response to a carbon tax,” Kenneth Green, a resident scholar at AEI, said in an interview. “We’ve had some robust discussions over the lunch table about our differences.”

Tax Receipts

Carbon-dioxide emissions since the Industrial Revolution have led to a warming of the Earth’s temperature, which threatens to cause extreme weather, drought and coastal flooding, according to the U.S. Global Change Research Program. Taxing a ton of carbon dioxide at $20 would raise more than $100 billion in the first year, according to research Mathur presented this week.

Mathur said she does not advocate a carbon tax in the abstract. She said it’s better than EPA regulation and is studying how it could be best implemented.

The National Journal reported that Grover Norquist, president of Americans for Tax Reform, said he would support a carbon tax that does just what Exxon said is necessary, offsetting the revenue gains with other tax cuts. The next day, Norquist issued a statement clarifying his remark, saying that the new tax would “inevitably lead to higher taxes.”

“In the real world, it’s not conceivable” that revenue from a carbon tax would be matched by cuts in other taxes, Norquist said in an interview. It would mean “higher taxes in the short and long run.”

Other opponents of cap-and-trade remain skeptical of a carbon tax.

Plan Opponents

The National Mining Association, which represents coal producers such as Peabody Energy Corp., opposes “it unequivocally as it would damage growth,” Luke Popovich, a spokesman, said in an e-mail. It is a regressive tax that would “fall especially hard on those least able to afford it.”

And environmentalists are also skeptical of the trade-offs necessary to get Congress to approve any legislation. Obama’s regulatory efforts are bearing fruit, and that shouldn’t be discarded, they say.

“You hear a lot of talk about a carbon tax,” Ann Weeks, senior counsel of the Clean Air Task Force in Boston, said in an interview. “But EPA has made so much progress on the regulatory front,” she said. “I hope they don’t drop it for that promise of something else.”

Copyright 2012 Bloomberg.

Lead image: Air Pollution from Electricity via Shutterstock

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