There is a question what carbon policy is most suited to the U.S. The question boils down to the best way to force GHG emitters to spend enough money on reduction of CO2 and other GHG. Several policies have been discussed or tried around the world:
Cap and Trade
Cap and trade is a popular yet problematic solution. Firstly, it hasn’t produced the expected significant change in places it has been tried (although it is too early to measure the effect). Second, it is simply a tax on the American people. Third, the process will be extremely political and given our system of government will be even less effective than Europe. Fourth, it may divert resources from where they can be more efficiently used to solve the problem. It may create a new bureaucracy that will misallocate the nation’s resources from solving the problem to workarounds (it did in Europe). It stands against the principle of using our energy policy as an economic competitive advantage. There is a real problem of assigning the true cost of carbon.
Carbon Tax
A tax that will put pressure on producers of carbon to move away from carbon. The tax should be on the source, based on its strategic value and not based just on net carbon output. For example, petroleum might have the highest initial tax while natural gas a lower. Bio-fuels may have no tax, although burning them produces lower carbon emissions. The disadvantage: it can all be rolled back on the consumer. There is no customer choice when it comes to electricity. Gasoline tax can slow the economy with no proven benefit.
Regulatory Enforcement
The main carbon emitters are power plants, certain industries (like cement) and transportation. Solutions to the problems associated with the transportation sector will cause dramatic reduction in carbon emissions.
We suggest concentrating on the utilities. It is easier to regulate already regulated industries and it will probably produce the most focused results. We need to create a realistic carbon management schedule for the utilities sector (that will be also tied to energy conservation and efficiency). Focus on the main sources via regulatory means. Do not directly tax the American people and do not create a new inefficient bureaucracy. It will differentiate us from other countries and will eventually become a competitive advantage.
Cap and trade has been tried in two places so far:
(1) The SO2 trading program to address acid rain in the United States, which was an undisputed success: the cap-and-trade system decreased SO2 emissions faster and cheaper (a tenth of the projected costs!) than expected.
(2) The European Union’s Emissions Trading Scheme, which has been, if anything, a qualified success. First, a preliminary analysis suggests that EU ETS decreased emissions by 3% in 2008, relative to 2007. (Actual emissions were 5% lower. The difference of 2% is explained by the economic crisis in the second half of 2008. Source: New Carbon Finance (16 February 2009): “Emissions from EU ETS down 3% in 2008”.)
Second, and perhaps more importantly, Europe forges ahead of the United States in clean energy innovation: the largest solar and wind plants and manufacturers can all be found in Europe. The continent is also pulling ahead in clean tech patents. (See, for example: Dechezleprêtre et al. (CERNA 2009): “Invention and Transfer of Climate Change Mitigation Technologies on a Global Scale: A Study Drawing on Patent Data”.)
These are significant achievements.
Clearly, EU ETS also provides valuable lessons for a U.S. cap-and-trade system:
(1) Long-term policy certainty is crucial: A key success factor for cap-and-trade is a long-term planning horizon. This creates certainty, allowing companies to make wise investments for the future. The EU ETS suffered some glitches because of the short-term nature of its trial phase. Proposed U.S. legislation already takes this into account and aims to establish a system for the long-term.
(2) Set the cap based on sound science and hard data: Each of the 25-odd countries in the trading system was allowed to set its own cap—often based on projections of “business as usual” that were provided by the regulated firms. Not surprisingly, the overall cap in the trial phase turned out to be overly generous. Federal legislation in the United States will avoid the problem of multiple caps. To ensure that we achieve the reductions we need, the cap must be based on the underlying climate science.
(3) Banking and offsets decrease costs: Allowing everyone to “bank” unused allowances for future use is a crucial tool to help manage costs. Although the EU ETS allowed banking, it did so only within each phase. To be truly effective, banking should apply over a much longer time horizon. Offsets from verified emissions reductions on farms and forests are another crucial tool to keep costs down and get other countries on board.
It is not. If anything, cap-and-trade is smarter than a tax.
Most significantly, the US and the European Union cannot solve this problem alone. At the very least, the largest emerging economy emitters need to limit their pollution as well. A carbon market can make these commitments in the economic self-interest of all parties involved; a tax cannot.
Second, smart market design – including provisions for banking and borrowing of allowances – would dampen feared price volatility, and well-known market instruments can iron out the rest.
Third, the most important missing link in turning climate change from a problem into an unprecedented market opportunity is innovation. A cap taxes entrepreneurs to look for breakthrough technologies at any price. A tax caps innovation.
Lastly, almost all new scientific evidence over the past two years has shown that the climate problem is worse than previously feared. We do not have time to experiment with tax rates to achieve the desired results.
If you want to limit emissions, do exactly that: cap them.
See http://www.thebulletin.org/web-edition/roundtables/carbon-tax-vs-cap-and-trade for a spirited debate on some of these issues, or http://blogs.ft.com/economistsforum/2009/03/obama’s-chance-to-lead-the-green-recovery/#comment-244565 on why a cap beats a tax in light of recent economic developments.
Danish Bjorn Lomborg is the author of a famous book – “Cool it – The Skeptical Environmentalist’s Guide To Global Warming”. It offers a different direction than the one described below. Below is a link for one of his latest opinion oped. http://online.wsj.com/article/SB124286145192740987.html
Why Cap and Trade over Environmental Tax Restructuring?
Cap and Trade is a legitimate market means to reduce carbon emissions. However, for many reasons it is not as good as a simple tax. I am not proposing adding taxes on the American people, but rather shifting taxes from income taxes to consumption taxes. The government taxes to collect revenue and to provide incentives and disincentives. However, we tax income and subsidize consumption, in effect subsidizing waste. This should be reversed. I am not saying anything new; enough has been written about Environmental Tax Restructuring (See Lester Brown’s work for instance). Cap and Trade, if correctly executed, will have the same economic effect as a carbon tax. However, it will also create a new financial industry at great cost, with opportunities for corruption and manipulation. A carbon tax would be simpler, and could be sold to people if it were introduced in conjunction with a decrease of income tax. Tax Restructuring has the additional advantage of being broad, and applicable to other environmental effects such as water use. We recognize that water use is very important, and depends on where it is being used. Will we ultimately propose a water cap and trade in the Southwest? How about a fertilizer (spillover into the Gulf of Mexico) cap and trade? Under Tax Restructuring, a resource, and/or industrial process can be assigned an environmental impact number, and taxed accordingly. Income taxes can be reduced. I sincerely do not understand why our administration is instead pursuing a cap and trade.
Enter your comment here The discussion of the relative merits of cap-and-trade vs. carbon taxes is interesting, but this and the House Bill are just first steps in getting the country to focus on reducing greenhouse gas emissions and achieving energy goals. The next set of issues that must be addressed are how does the U.S. develop the infrastructure solutions to best meet clean-energy economy objectives.
Here are some examples of key questions that should be examined: 1) How does the country develop a new national smart, electric power network to most effectively deliver power generated by renewable sources (wind, solar, geothermal, etc.) and manage supply and demand?
2) How will new multi-fuel service stations be established across the country to supply alternative-fuel vehicles?
3) Can an advanced national telecommunications infrastructure be created to substitute for unnecessary transportation?
4) What role should the federal government play in investing with the private sector to build the new national energy, transportation, and telecommunications infrastructures?
See the article “Creating An American Infrastructure Investment Strategy” under the Resources/Policy Principles section for further discussion of this.
Carbon credits are contained in the The American Clean Energy and Security Act (Waxman-Markey Bill). The credits do not directly aid renewable fuel producers — but the bill is expected to place a premium on the price of renewable electricity through the national renewable energy standard (RES).
The subtleties are complex. Ironically, the Waxman-Markey Bill (HR 2454) may actually eliminate carbon offset incentives for projects that capture or avoid landfill methane emissions by making the reductions mandatory. The current bill would allow EPA to establish GHG regulations for landfills in the form of “performance standards.” These mandatory performance standards might ban certain organic wastes from landfills, or might require all landfills to implement enhanced gas collection and control systems to reduce methane emissions. Either way, these “performance standards” would effectively eliminate the opportunity for carbon offset credits for methane avoidance projects (because they would not pass the fundamental test of “regulatory additionality,” i.e., anywhere methane capture or avoidance is required by law or regulation, there can no offset incentive in addition.
I would like to bring to your attention the following letter ( http://ourenergypolicy.org/docs/10/SEEC_letter_to_Speaker_Pelosi_Leader_Hoyer_3.25.10.pdf ) that the members of the House of Representatives Sustainable Energy & Environment Coalition (SEEC) sent Thursday to House Speaker Pelosi and Majority Leader Hoyer (President Obama, Senate Leader Reid are CC’d) pertaining to comprehensive energy legislation and the need for a policy to reduce greenhouse emissions to spur private investment in domestic clean energy technologies.
SEEC helped to pass the American Clean Energy and Security Act out of the House in June 2009, and its members are eager to work with Members of the Senate and President Obama to enact into law effective, comprehensive energy legislation that will drive American innovation and manufacturing of clean energy technologies, reduce the emissions responsible for global climate change, and move the U.S. towards energy independence.
Senator Murkowski’s resolution, S.J. Res. 26, which would deny U.S. EPA’s authority to regulate greenhouse gases under the Clean Air Act, is expected to see a vote on 6/10/2010.
What implications might this resolution’s passage have for U.S. energy policy?
http://ourenergypolicy.org/docs/5/Murkowski_Clean_Air_Act_Resolution_1_.pdf
I am not overly concerned about Senator Murkowski’s resolution provided that the discussion of the Senate’s draft bill on climate change/energy (Kerry/ Lieberman/ Boxer/ Graham?) is taken up for serious consideration this calendar year. If however, the intent is to first disarm EPA and then block serious climate change/energy legislation I would be opposed to such tactics.
Stepping back from all this political maneuvering it is unfortunate that it detracts from discussing the more important issue of greatly reducing our oil dependence. Further, I wonder how the whole energy/climate debate in Congress would evolve if it were well known that climate legislation, even if completely supported by both Democrats and Republicans, is headed for defeat in the real world. As shown in Section 5 of the attached draft report – http://ourenergypolicy.org/docs/4/Analysis_of_NAS_AEF.pdf – burning petroleum at the rate projected by the National Academy of Sciences or by EPA’s analysis of the Waxman/Markey House bill, would cause GHG limits to be exceeded by 2030 EVEN IF YOU ALSO SHUT DOWN EVERY COAL PLANT IN THE COUNTRY AND STOPPED ALL USE OF NATURAL GAS. If just 20% of today’s use of coal and natural gas were permitted, then the time to defeat proposed GHG limits would occur five years sooner: in 2025. How many people in Congress realize that burning petroleum in the US produces more GHG than coal? (See Figure 1 in the attachment). Another consequence of the release of GHG from petroleum is that it renders the whole debate of “cap and trade” versus a carbon tax as rather inconsequential. Neither policy is very useful if we are overcome by GHG from burning petroleum.
My earlier review of S.1733 indicated that it did virtually nothing to deal with national security, in spite of fancy words describing this proposed legislation. (See Section 4 of the attachment). Please send me the latest Senate version and I’ll look through that as well to see if things have changed.
Lastly, even if the EPA were disarmed in terms of regulating the release of GHG, much climate change progress could still be made on reducing our national GHG release amounts/year by cutting back on petroleum use. If such an approach were used, i.e., primarily focus on conservation and reduced petroleum use, then this would achieve all the goals of climate legislation for many years. By the time we had to go beyond conservation and reducing petroleum use, the whole scientific debate on GHG effects would long be over and we would likely be trying to deal with shortfalls of oil production in the world market.
In a nutshell, Senator Murkowski’s actions are not important compared to not focusing on petroleum consumption.
Best, Herschel
Highlights from a Yale/George Mason survey of public opinion on climate and energy policy, from http://environment.yale.edu/climate/news/PolicySupportMay2011/
Priority
–71 percent of Americans say global warming should be a very high (13%), high (27%), or medium (31%) priority for the president and Congress, including 88 percent of Democrats, 66 percent of Independents, and 50 percent of Republicans.
–91 percent of Americans say developing sources of clean energy should be a very high (32%), high (35%), or medium (24%) priority for the president and Congress, including 97 percent of Democrats, 89 percent of Independents, and 85 percent of Republicans.
Action
–Majorities of Americans want more action to address global warming from corporations (65%), citizens themselves (63%), the U.S. Congress (57%), President Obama (54%), as well as their own state and local officials.
–Despite ongoing concerns about the economy, 67 percent of Americans say the U.S. should undertake a large (29%) or medium-scale effort (38%) to reduce global warming, even if it has large or moderate economic costs.
–82 percent of Americans (including 94% of Democrats, 74% of Independents, and 76% of Republicans) say that protecting the environment either improves economic growth and provides new jobs (56%), or has no effect (26%). Only 18 percent say environmental protection reduces economic growth and costs jobs.
–Large majorities (including Democrats, Independents, and Republicans) say it is important for their own community to take steps to protect the following from global warming: public health (81%), the water supply (80%), agriculture (79%), wildlife (77%), and forests (76%).
Policy Support
–84 percent of Americans support funding more research into renewable energy sources, including 90 percent of Democrats, 81 percent of Independents, and 81 percent of Republicans.
–68 percent of Americans support requiring electric utilities to produce at least 20% of their electricity from renewable energy sources, even if it costs the average household an extra $100 a year, including 82 percent of Democrats, 64 percent of Independents, and 58 percent of Republicans.
–66 percent support expanding offshore drilling for oil and natural gas, up 4 points since June of 2010.
–47 percent support building more nuclear power plants, down 6 points since June of 2010. Only 33 percent support building a nuclear power plant in their own local area.
–Majorities support local policies, including installing bike lanes on city streets (77%), more public transportation (80%), requiring all new homes to be more energy efficient (71%), and changing zoning to promote mixed development (57%), decrease sprawl (56%), and more energy efficient apartments instead of single family homes (52%).
The report includes both overall results and breakdowns of public support by political party.
Public Support for Climate & Energy Policies in May 2011 reports results from a national survey fielded from April 23 to May 12, 2011 with 1,010 adults, using the online research panel of Knowledge Networks. The report includes measures of public support for national and local climate change and energy policies, desire for action by corporate and government leaders, and perceived importance of protecting public health and local communities from global warming, and how these have changed since June 2010, January 2010, and November 2008.
Leiserowitz, A., Maibach, E., Roser-Renouf, C. & Smith, N. (2011) Climate change in the American Mind: Public support for climate & energy policies in May 2011. Yale University and George Mason University. New Haven, CT: Yale Project on Climate Change Communication.
http://environment.yale.edu/climate/files/PolicySupportMay2011.pdf
we definitely have a problem and on top of that we are running out of oil. We will be hit with catastrophic weather as we run out of resources. The solution is to move toward renewable energy in a big way as a National and International catastrophe. The solution is to integrate electric drive technologies with energy management of solar and wind. The energy from solar and wind can stored in transportation energy batteries paid for by the transportation users if we have the proper intelligence in the grid.
I have been working on the issue of Using the PHEV as the load leveler for the existing grid and renewable energy sources for the last 30 years or more. I will be happy t o discuss this further if you wish.
Prof. Andy Frank
I’d love to see the survey methodology and definition of “priority”, particularly as stacked up against other priorities, because most surveys of which I’m aware indicate that the American public is less interested in global warming than in economic recovery.
Can someone provide an explanation for the results of question 181 — How much do you support or oppose increasing taxes on gasoline by 25 cents per gallon and returning the revenues to taxpayers by reducing the federal income tax? – as broken down by party affiliation?
Democrats are much more favorable on this idea than are Republicans (43% vs 23% support). I’d think Democrats would see this as a regressive tax (which traditionally they have opposed), and Republicans would see this a transactional tax that would allow market transformation and the possibility of prosperity rather than the absolute drag on economic growth of an income tax. Shouldn’t the results be reversed?
The results do not seem very credible. Survey research from Pew and other organizations show the general public gives far lower priority to “climate protection” than to many other concerns, especially jobs and the economy. For instance, while a few years old, this survey by the Nathan Cummings Foundation was much better designed and yielded more realistic results:
http://www.nathancummings.net/news/NathanCummingsFoundationGlobalWarmingSurvey.pdf
The latter indicated that only a very small share of the public was willing to pay even a modest price on their utility bills, etc. for climate protection measures. That was before energy prices soared in the next year (to levels experienced again recently) and the economy subsequently crashed, leading to high levels of unemployment and underemployment that persist.