Charles Kleekamp and Barbara Hill

A carbon tax, not a cap and trade

By Charles Kleekamp and Barbara Hill
October 18, 2009

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THE WAXMAN-MARKEY bill on climate change that recently passed the House is a train wreck waiting to happen. Intended to reduce global warming and achieve energy independence, it is totally inadequate in its reliance on a flawed cap and trade system, and the recently released Senate version called the Kerry-Boxer bill follows the same track. Like the House bill, the Senate version represents the further transfer of wealth from taxpayers to the nuclear and fossil-fuel industries - a result of their immense power and influence.

Both bills impose a legal limit or “cap’’ on greenhouse gasses emitted each year. The trading part is based on issuing emission allowances, or permits, to various industries for each ton of greenhouse gas they emit. However, the fatal flaw in Waxman-Markey is the misguided government giveaway, for free, of 85 percent of all allowances, particularly to coal-related industries. For example, the most egregious source of carbon dioxide emissions is coal-fired electrical generating plants, which account for one-third of all such emissions. To mollify the powerful coal lobby and coal state representatives, this government giveaway provides little or no incentive to phase out old coal-fired plants anytime soon, and may diabolically increase their profits.

A lesson is to be learned from the 2005 European Union Emissions Trading Scheme that likewise gave away 95 percent of its emission allowances. The result was that EU electric utilities earned windfall profits while continuing to pass on higher energy costs to industrial and residential consumers. The EU told the US Government Accountability Office that “it could not be certain [the trading scheme] resulted in any reduction of emissions.’’

To successfully confront the climate change crisis and the nation’s addiction to fossil fuels, we at Clean Power Now endorse a straightforward carbon tax instead of the cap and trade schemes. To neutralize the impact on consumers, revenue from the carbon tax would be used to reduce payroll taxes, increase Social Security benefits, and fund renewable energy efforts that create new jobs and new industries particularly in the wind and solar sectors. This would amount to a tax shift with enormous societal benefits.

Others are supporting this as well. Elaine Kamarck, chairwoman of the US Climate Task Force and a former adviser to Al Gore, recently said in Politico, “Congress can go back to Al Gore’s original idea about how to deal with climate change: Raise taxes on carbon, and cut taxes on work. A carbon tax shift is one of those rare ideas that can take a political liability and turn it into a political asset; it allows Congress to vote for a tax cut and a tax increase while putting into place the financial incentives we need to transition to a noncarbon future.’’

A carbon tax is aimed at taxing the upstream source of carbon where it is produced, like coal mines, oil and natural gas wells, as well as shipping terminals and pipelines for imported fuel. Each pound of carbon embedded in the fuel would be taxed based on the fact that every pound of carbon consumed as fuel results in the emission of 3.6 pounds of carbon dioxide. Starting at a tax rate of $15 per ton of emitted carbon dioxide and progressively increasing until the goal of 80 percent reduction is achieved by 2050 is a good place to start.

The senators and representatives who are charged with leading the nation’s energy policy should remember that politics is first the art of the possible and secondly the art of compromise. That means that starting from an already compromised position leads only to deeper compromises.

Chuck Kleekamp is the president and Barbara Hill the executive director of Hyannis-based Clean Power Now.

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