Carbon tax advocates say Congress should slap a price penalty on fossil fuels to make consumers bear the “social cost of carbon” (SCC) — the damage carbon dioxide (CO2) emissions allegedly inflict on public health and welfare via their presumed impacts on global climate.

What is the SCC? Depends on who you ask. Climate “hot heads” like Al Gore think the SCC is huge. “Lukewarmers” like Patrick Michaels think the SCC is less than the cost of the tax or regulatory burden required to make deep cuts in CO2 emissions. “Flatliners” like Craig Idso think the SCC is negative (i.e. CO2′s net impact is beneficial), because a moderately warmer climate is healthful and CO2 emissions nourish the biosphere.

In February 2010, the EPA and 11 other agencies issued a Technical Support Document (TSD) on the SCC. The TSD’s purpose is to enable federal agencies to incorporate the “social benefit” of CO2 emission reductions into cost-benefit estimates of regulatory actions.

The TSD recommends that agencies, in their regulatory impact analyses, use four SCC estimates, ranging from $5 per ton to $65 per ton in 2010:

For 2010, these estimates are $5, $21, $35, and $65 (in 2007 dollars). The first three estimates are based on the average SCC across models and socio-economic and emissions scenarios at the 5, 3, and 2.5 percent discount rates, respectively. The fourth value is included to represent the higher-than-expected impacts from temperature change further out in the tails of the SCC distribution.

Here’s where it gets interesting. Both the federal and state governments levy taxes on motor fuel. Motor fuel taxes are not called carbon taxes but their economic effect is the same – impose a price penalty on consumption. Moreover, via simple arithmetic any carbon tax can be converted into an equivalent gasoline tax and vice versa.

The point? Americans in every state except Alaska already pay a combined federal and state gasoline tax that is higher than a carbon tax set at $5, $21, or $35 per ton. Americans in five states pay a combined gasoline tax that is higher than a $65 per ton carbon tax. Americans in several other states pay a combined gasoline tax that is nearly as high as a $65 per ton carbon tax.   

Carbon taxes are assessed per metric ton of CO2 emitted. Carbon taxes convert into gas taxes as follows. One gallon of gasoline when combusted yields 8.91 kilograms of CO2. One metric ton = 1,000 kilograms. Therefore, the quantity of CO2 emitted by a gallon of gasoline is 0.891% of a metric ton. If a carbon tax is set at $5, $21, or $35 per metric ton, then the carbon tax for gasoline, reflecting the estimated SCC, is about 4¢, 19¢, or 31¢ per gallon, respectively.

At 18.4¢ per gallon, the federal gasoline tax alone exceeds the TSD’s $5 per ton (4¢ per gallon) SSC estimate and nearly equals the $21 per ton (19¢ per gallon) SCC estimate. The U.S. average combined state and federal gasoline tax is 48.9¢ per gallon, 57% higher than a fuel tax (31¢ per gallon) based on the $35 per ton SCC estimate. See the chart below.

Source: American Petroleum Institute

A carbon tax set at $65 per ton translates into a 58¢ per gallon gasoline tax. Motorists in five states pay more: California (67.7¢ per gallon), New York (67.7¢ per gallon), Hawaii (66.7¢ per gallon), Connecticut (63.4¢ per gallon ), and Illinois (62.8¢ per gallon). Americans in several other states (the other red states in the map) pay a combined gasoline tax that is nearly as high.

Motor vehicles, of course, are not the only source of CO2 emissions in the U.S. economy. The transport sector as a whole accounts for about 29% of total U.S. greenhouse gas emissions. Nonetheless, as motor fuel consumers, almost all Americans already pay a de facto carbon tax exceeding three out of four U.S. Government estimates of the social cost of carbon, and tens of millions of Americans pay an effectual carbon tax exceeding the government’s high-end social cost of carbon estimate.

Carbon tax proponents might say the foregoing analysis is not relevant because the purpose of gas taxes is to pay for roads while the purpose carbon taxes is to limit environmental impacts. This criticism is itself irrelevant. Whether the tax on motor fuel is called a carbon tax or a gasoline tax, it has the same effects on consumer behavior and business investment. What the revenues are used for — roads & bridges, green tech R&D, health care, deficit reduction — is a separate issue.

So the next time a warmista says we should pay a carbon tax, cheerfully reply, “Been there, done that, each time I fill up at the pump.”

The United States imports almost half of its oil (49%), and about 25% of our imports come from one country — our friendly neighbor to the North, Canada. Today, Canada supplies more oil to the USA than all Persian Gulf countries combined.

With an estimated 175 billion barrels of technically recoverable oil, Canada has the world’s third largest oil reserves. About 170 billion of those barrels, or 97%, are located in geologic formations called oil sands — a mixture sand, water, clay, and bitumen, a sticky tar-like form of petroleum.

Unlike “conventional” oil, bitumen is too viscous to be pumped without being heated or diluted.

Last Wednesday and Thursday, courtesy of the good folks at American Petroleum Institute (API), I and other bloggers toured two large Canadian oil sands projects near Fort McMurray, Alberta.

The Surmont Project, operated by ConocoPhillips, uses a technology called steam assisted gravity drainage (SAGD) to melt the bitumen so that it can be pumped back to the surface. At each well site, two parallel pipes descend to about 1,000 feet below the surface and then extend horizontally for several thousand feet. Heated steam in the upper pipe melts the bitumen, which then flows back up to the surface through the lower pipe. Natural gas may also be injected in the upper pipe to further reduce the viscosity of the bitumen. Along with the melted bitumen, the lower pipe brings hot water and natural gas back up to the surface for capture and reuse in a closed cycle.

This process is relatively new but within a few years it is expected to dominate Canadian oil production, because about 80% of Canada’s oil sands are too deep to be mined. The Surmont Project, which started production in 2007, currently produces about 23,000 barrels per day (bpd). It is expected to be producing 136,000 bpd by 2015.

The Millennium site, operated by Suncor Energy, relies mainly on mining to access the bitumen. The oil sands here are at a relatively shallow layer — about 350 feet below the surface. Millennium started production in 1967, making it the world’s first commercially-successful oil sands venture and the longest-running oil sands project in Canada.

Millennium’s scale is truly breathtaking. Suncor’s leases (which also include SAGD drilling sites) cover more than 1,800 square kilometers. A fleet of giant trucks with shovels that remove 100 tons of earth at a bite operate day and night. Some trucks remove the “overburden” — a surface layer composed of muskeg (a peat-like substance), clay, and rock, while others dig up the oil sands beneath. The largest of these trucks, which are built by Caterpillar, haul loads up to 400 tons. Each day, the trucks haul about 2,000 loads of overburden and 1,600 loads of oil sands.

The next photo is me pretending to be the master of all I survey. The distant object to the left of my outstretched hand is a monster truck.

After being mined, the oil sands are sent to massive facilities that use water and steam to extract the bitumen from sand and other minerals, separate the bitumen from water, and chemically treat the bitumen until it has the consistency required for transport as crude oil through pipelines.

My reaction to the Millennium project was one of awe. I could not but marvel at the immense scale of market-driven coordination that has turned an otherwise worthless material – sticky, smelly, black sand – into a valuable resource empowering literally millions of ordinary people to enjoy a degree of mobility unknown to the kings and potentates of old.

Some of course may only see — and decry — the industrial footprint, the “scars upon the land,” as the John Denver song put it. What they may not know is that Suncor also engages in land reclamation on a gigantic scale.

The overburden is not only removed, it is also saved, so that it can used to restore landscapes and create habitat after mining operations are completed. In addition, Suncor has developed a process (Tailings Reduction Operation, or TRO) for accelerating the extraction of suspended particles called “mature fine tailings” (MFT) from its tailing ponds (small lakes where water, sand, and clay are sent after separation from the bitumen). After drying, the MFT hardens and is used as landscaping material.

Suncor’s first tailings pond operated for 40 years from 1967 through December 2006. This 220-hectare area today is a contoured medowland with more than 600,000 planted trees and shrubs. Called the Wapisiw Lookout Reclamation, the area’s rock piles provide habitat for small animals, its tree poles provide habitat for raptors, and its wetland provides habitat for aquatic waterfowl. The picture below shows three raptor poles. While our tour group was there, we spotted a black bear cub moving among the hillocks a few hundred yards away.

Canada already ships almost 2 million barrels of oil a day to the USA, but the existing pipeline infrastructure must be expanded not only to handle the larger volumes that Canada will produce in the future but also to transport Canadian oil to U.S. Midwest and Gulf Coast refineries, where it can be turned into gasoline, jet fuel, and other finished petroleum products.

In March 2008, the U.S. State Department granted TransCanada Keystone Pipeline a permit authorizing the company to construct pipeline facilities from Alberta to refineries in Illinois and Oklahoma.

Then in June 2008, Keystone proposed to build an extension, called the Keystone XL Pipeline, to move Canadian oil to refineries in Port Arthur and Houston, Texas. Initially, Keystone XL would be able to deliver 700,000 bpd of heavy crude to U.S. refineries.

From 2010 to 2035, this “shovel ready” project could create 85,000 U.S. jobs, provide $71 billion in U.S. employee compensation, and boost cumulative U.S. GDP by $149 billion, according to the Canadian Energy Research Institute.

Predictably, green pressure groups and their allies on Capitol Hill have mounted a campaign to block the Keystone project, alleging that the pipeline will expose neighboring communities, aquifers, and wetlands to oil spill risk and increase America’s “dependence” on “dirty” energy. Let’s briefly consider these accusations.

The State Department’s massive April 2010 Environmental Impact Statement (EIS) notes that the pipeline “would be designed, constructed, and maintained in a manner that meets or exceeds industry standards and regulatory requirements” (ES 6.13.3). Although some leaks and small spills are bound to occur, “There would be a very limited potential for an operational pipeline spill of sufficient magnitude to significantly affect natural resources and human uses of the environment” (ES 6.13.2). If zero risk of even minor spills is the only acceptable standard, then no petroleum should ever be shipped anywhere. That may be what green groups ultimately have in mind. Such a standard, however, would condemn mankind to Medieval squalor, not enhance public health and welfare.

By “dirty,” Keystone XL opponents refer to the fact that the process of transforming oil sands into petroleum emits more carbon dioxide (CO2) than conventional petroleum extraction. However, whatever Canadian oil does not get shipped to the United States will eventually go elsewhere — mainly to China and other Asian countries, which are investing billions of dollars in Canadian oil sands projects. Just last month, for example, the Chinese company CNOOC agreed to buy Canadian oil sands producer OPTI for $2.1 billion. On a life-cycle basis, shipping oil to China is more carbon-intensive than shipping oil to the USA, because it must be transported on mammoth CO2-emitting tankers.

As for the Keystone XL Pipeline itself, yes it will deliver more Canadian oil to U.S. refineries, but this will mostly offset declining oil shipments from Mexico and Venezuela. Thus, “the incremental impact of the Project on GHG [greenhouse gas] emissions would be minor,” concludes State’s EIS (ES 6.14.2). Again, if no incremental CO2 emissions is the only acceptable standard, then we should welcome high unemployment rates, because there’s nothing quite like a deep recession for cutting CO2 emissions.

The long and the short of it is that building the infrastructure to deliver oil from friendly, democratic, politically-stable, environmentally-fastidious Canada is in the U.S. national interest, as the State Department concluded in March 2008. The review process has dragged on, with State in March 2011 issuing a Supplemental EIS that affirms the findings of the earlier document. In May, the House Energy and Commerce Committee held a hearing on legislation to expedite a presidential decision on Keystone XL, and in July the House passed H.R. 1938, the North American-Made Energy Security Act, by 279-147. The bill would require the President to issue a final order granting or denying a permit to construct Keystone XL by no later than November 1, 2011.

Global demand for oil is growing and America will continue to import oil over the next 25 years even if biofuels and electric vehicles achieve unexpected breakthroughs. As Mark Milke of the Fraser Institute explains in a new report, what this means is that blocking Keystone XL and restricting U.S. access to Canadian oil would not move the world closer to some imaginary environmental utopia. The effect, rather, would be to increase U.S. imports from unsavory regimes where corruption is the norm, environmental safeguards are weak, autocrats brutally suppress dissent, and women are denied economic opportunity and equal protection of the laws.

Alas, I suspect this is actually one of the main reasons green groups oppose Keystone XL. They would like us to believe (a) that oil is a rapidly dwindling resource from which we will soon have to decouple our economy anyway, and (b) that using oil = sending $$ to OPEC. The vast potential of Canada’s oil sands and Canada’s emergence as the leading source of U.S. petroleum imports fractures both pillars of their gloomy, scaremongering narrative.

A new study by Quest Offshore, prepared for the American Petroleum Institute (API) and the National Ocean Industries Association (NOIA), finds that a return to the pre-moratorium permitting rate for offshore drilling in the Gulf of Mexico would create 430,000 jobs by 2013.

In the wake of the April 2010 BP Macondo offshore oil rig blowout disaster, the Department of Interior (DOI) imposed a six-month moratorium on permits for new deepwater oil and gas drilling in the Gulf of Mexico. Although the moratorium officially targeted only deep water rigs, permitting for shallow water (less than 500 feet deep) drilling projects also slowed down. After the moratorium expired in November, an informal regime of bureaucratic foot-dragging, nickednamed the “permitorium,” delayed new projects through February 2011 or later. 

The Quest Offshore study, United States Gulf of Mexico Oil and Natural Gas Industry Economic Impact Analysis, estimates the job, GDP, and tax revenue gains of a full return to pre-Macondo permitting rates, taking into account “capital investment and purchases of intermediate goods undertaken by the oil and natural gas industry,” ”linkages to supplying industries,” and estimated “job creation and contribution to GDP associated with oil and natural gas development.” A unique feature of the study is its use of capital investment and spending data drawn from a “proprietary database of suppliers of capital equipment and intermediate goods to the Gulf of Mexico oil and natural gas operations.”

Some key findings:

• Volatile energy prices, the recession, the deepwater drilling moratorium, and the permitorium reduced total oil and gas-related spending in the Gulf by 15% — from $28.5 billion to $24.2 billion — over the 2008 to 2010 time period.
• Largely due to the moratorium, total spending declined 10% and capital spending declined 33% from 2009 to 2010.
• If permitting returns to the pre-Macondo rate, total oil and gas domestic spending in the Gulf is projected to increase from $24.2 billion in 2010 to $41.4 billion in 2013, a 71% increase. Capital expenditures are projected to reach $15.7 billion in 2013, a 141% increase from 2010 levels.
• The GDP contribution of Gulf offshore oil and gas expenditures declined by 15% from 2008 to 2010. If permitting returns to the pre-Macondo rate, the Gulf offshore oil and gas GDP contribution would increase from $26.1 billion in 2010 to $44.5 billion in 2013, a 70% increase.
• In 2010, the Gulf offshore oil and gas industry supported more than 60,000 direct jobs plus 180,000 indirect (equipment and service provider) and induced jobs.  Total employment in 2010 — 242,000 jobs — was 15% lower than in 2009, which was 7% lower than in 2008.
• If Gulf offshore permitting returns to the pre-Macondo rate, employment is projected to increase to 310,000 jobs in 2011, 350,000 jobs in 2012, and 430,000 jobs in 2013 — a 77% increase over the 2010 level.

Two charts from the study in particular convey the big picture: