Tax on Car­bon Emis­sions Gains Sup­port

In­dus­try and Ex­perts Pro­mote It as Al­ter­na­tive to Help Curb Green­house Gases

The Washington Post Sunday - - National News - By Juliet Eilperin and Steven Mufson

As law­mak­ers on Capi­tol Hill push for a ca­pand-trade sys­tem to rein in the na­tion’s green­house gas emis­sions, an un­likely al­ter­na­tive has emerged from an ide­o­log­i­cally di­verse group of economists and in­dus­try lead­ers: a car­bon tax.

Most leg­is­la­tors view ad­vo­cat­ing any tax in­crease as tan­ta­mount to po­lit­i­cal sui­cide. But a coali­tion of aca­demics and pol­luters now ar­gues that a sim­ple tax on each ton of emis­sions would of­fer a more ef­fi­cient and less bu­reau­cratic way of curb­ing car­bon diox­ide buildup, which sci­en­tists have linked to cli­mate change.

“We want to do the least dam­age to the growth of GDP,” said Michael Canes, a private con­sul­tant and for­mer chief econ­o­mist for the Amer­i­can Pe­tro­leum In­sti­tute, who led a Capi­tol Hill brief­ing on the sub­ject in late Fe­bru­ary spon­sored by the con­ser­va­tive Ge­orge C. Mar­shall In­sti­tute. Be­tween a cap sys­tem and a car­bon tax, “a car­bon tax will be the much more cost-ef­fec­tive way to go,” he said, though he added that there are other ways to re­duce emis­sions.

Robert J. Shapiro, a private con­sul­tant who was a Com­merce De­part­ment of­fi­cial in the Clin­ton ad­min­is­tra­tion, agrees. A cap-and-trade sys­tem — in­volv­ing plant-by plant-mea­sure­ments — would be dif­fi­cult to ad­min­is­ter, he said, and would pro­vide “in­cen­tives for cheat­ing and eva­sion.” And the rev­enue from a car­bon tax could be used to re­duce the deficit or fi­nance off­set­ting cuts in pay­roll taxes or the al­ter­na­tive min­i­mum tax.

A car­bon tax of­fers cer­tainty about the price of pol­lut­ing, which ap­peals to many economists and busi­nesses. William A. Pizer, a se­nior fel­low at the cen­trist think tank Re­sources for the Fu­ture and a for­mer se­nior econ­o­mist for Pres­i­dent Bush’s Coun­cil of Eco­nomic Ad­vis­ers, es­ti­mates that the ben­e­fit-to-cost ra­tio of a tax-based sys­tem would be five times that of a cap-and-trade sys­tem.

“You’re go­ing to pay one way or an­other, whether it’s a tax or a per­mit pro­gram,” Pizer said, adding that while a cap would pro­vide more cer­tainty on how much emis­sions would be cut, “the con­se­quences of be­ing un­cer­tain about emis­sions over any short pe­riod of time just aren’t that se­ri­ous.”

Un­der a cap-and-trade sys­tem, the gov­ern­ment would set an over­all limit on emis­sions and al­lo­cate per­mits to emit­ters. If one plant re­duces its emis­sions more quickly than an­other, it can sell its cred­its to the other emit­ter. A car­bon tax would sim­ply in­crease the cost of emit­ting each ton of car­bon, which could then be passed on to con­sumers.

While Democrats have vowed to push through some sort of car­bon diox­ide con­trol in this Congress, Bush has con­sis­tently op­posed manda­tory lim­its, so it re­mains un­clear whether the United States will adopt any sys­tem be­fore the next elec­tion.

More­over, the fact that many economists back the tax approach is no guar­an­tee that it will pre­vail over the five cap-and-trade plans al­ready pro­posed in the Se­nate.

The com­plex­ity of the cap-and-trade sys­tem is part of its virtue for some politi­cians, since it may mask the sys­tem’s im­pact on prices. Such a sys­tem also ap­peals to con­ser­va­tive law­mak­ers who like the idea of let­ting the mar­ket de­ter­mine the price of car­bon, while keep­ing rev­enue out of the hands of gov­ern­ment. Some economists say it would chan­nel cap­i­tal to the most eco­nom­i­cally worth­while projects first.

En­vi­ron­men­tal­ists are split on a car­bon tax. Fred Krupp, pres­i­dent of En­vi­ron­men­tal De­fense, which is hand­ing out base­ball caps em­bla­zoned with the slo­gan “Just Cap It” on Capi­tol Hill, called such a tax “an in­ter­est­ing dis­trac­tion.”

“It doesn’t give us the guar­an­tee the emis­sions will go down,” he said.

But Carl Pope, ex­ec­u­tive di­rec­tor of the Sierra Club, said: “It will be more ef­fec­tive if peo­ple know that in year ‘X’ they will pay this much. Com­pa­nies are highly mo­ti­vated by costs.” More­over, he wor­ries that ra­tioning car­bon al­lowances based on his­tor­i­cal emis­sions would re­ward com­pa­nies that spew out the most green­house gases now and did the least to limit them in the past.

Dan Becker, di­rec­tor of the Sierra Club’s pro­gram on global warm­ing, said the na­tion may need to adopt a car­bon tax in sev­eral years but “we’re not there yet.”

Some in­dus­tries that have his­tor­i­cally op­posed car­bon lim­its em­brace the idea of a tax be­cause their sec­tors would not be sin­gled out for reg­u­la­tion. “A poorly con­structed cap-and-trade sys­tem can be as puni­tive as a re­gres­sive tax,” said Scott Se­gal, an elec­tric util­i­ties lob­by­ist.

Red Ca­vaney, pres­i­dent of the Amer­i­can Pe­tro­leum In­sti­tute, told a Na­tional Press Club au­di­ence in Fe­bru­ary that his in­dus­try prefers that law­mak­ers ex­plore a range of pol­icy op­tions be­fore im­pos­ing a cap.

“A cap-and-trade sys­tem isn’t nec­es­sar­ily the be-all and end-all,” he said. “A car­bon tax, ev­ery­thing, should be on the ta­ble from the be­gin­ning.”

Few law­mak­ers, Demo­crat or Repub­li­can, have the stom­ach for a car­bon tax, how­ever. Some are still smart­ing from a vote in the early 1990s when Pres­i­dent Bill Clin­ton per­suaded the House to adopt a BTU tax — a tax on the heat con­tent of fu­els — only to aban­don the ef­fort in the Se­nate.

Democrats such as House Nat­u­ral Re­sources Com­mit­tee Chair­man Nick J. Ra­hall II (W.Va.) say they have no de­sire to re­visit the is­sue. “I’m not an ad­vo­cate of a car­bon tax,” Ra­hall said. “That’s go­ing to be passed on; the con­sumer would end up pay­ing for that.”

Some an­a­lysts said for­mer vice pres­i­dent Al Gore’s en­dorse­ment of both al­ter­na­tives in testi- mony be­fore Congress last week was so po­lit­i­cally un­palat­able that it was a sign that he is not se­ri­ously think­ing of run­ning for pres­i­dent.

Only one House Demo­crat, Rep. Pete Stark (Calif.), has drafted a car­bon tax pro­posal. Stark, who first pro­posed such a tax 16 years ago as a way to ease the na­tion’s en­ergy crunch, plans to in­tro­duce a bill in April that would levy a tax of $25 per ton of car­bon re­leased for five years.

“It’s more ef­fi­cient, more eq­ui­table, and it’s less sub­ject to gam­ing, I might add,” Stark said, es­ti­mat­ing that it would raise the cost of gaso­line by 10 cents a gal­lon.

As Congress de­bates how to reg­u­late green­house gases, how­ever, sev­eral Euro­pean of­fi­cials have said it would be a mis­take to choose any­thing but a mar­ket-based trad­ing sys­tem that could be linked to the emerg­ing car­bon mar­ket in Europe.

“Po­lit­i­cal lead­ers in the United States need to make a de­ci­sion, and make it quickly, whether they want to be left be­hind in a mar­ket that is go­ing to evolve, or whether they want to get in­volved quickly,” said Stephen Byers, a mem­ber of Bri­tain’s Par­lia­ment who helped es­tab­lish the Euro­pean Union’s trad­ing sys­tem. “Wall Street could be­come the world cen­ter of car­bon trad­ing.”

And Stavros Di­mas, the E.U. en­vi­ron­ment com­mis­sioner, speak­ing at a re­cent lunch hosted by the D.C.-based Euro­pean In­sti­tute, called it ironic that the United States would ques­tion the cap-and-trade sys­tem, be­cause U.S. ne­go­tia­tors es­sen­tially forced Europe to agree to such a sys­tem in the Ky­oto Pro­to­col ne­go­ti­a­tions in 1997.

“There was sus­pi­cion about mar­ket-based in­stru­ments,” Di­mas said. “In a way you did us a fa­vor, be­cause now we also are familiar with th­ese mar­ket-based ac­tiv­i­ties. It’s func­tion­ing very well, ac­tu­ally.”

“If we would go to­gether into a world tax regime, that would be prefer­able,” Jos Del­beke, the top E.U. of­fi­cial on cli­mate change, said af­ter a Se­nate En­ergy and Nat­u­ral Re­sources Com­mit­tee hear­ing Mon­day. “But prac­ti­cally speak­ing, it is not a likely way to go. Emis­sions trad­ing is a very solid sec­ond best.”


Stavros Di­mas, the Euro­pean Union’s en­vi­ron­ment com­mis­sioner, said an emis­sions cap-and-trade sys­tem is “func­tion­ing very well” in Europe. Five such plans have been pro­posed in the U.S. Se­nate.

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