This week National Journal’s Energy Experts Blog poses the question: “What’s holding back energy & climate policy.” So far 14 wonks have posted comments including yours truly. What I propose to do here is ‘revise and extend my remarks’ to provide a clearer, more complete explanation of Capitol Hill’s energy lethargy.

To summarize my conclusions in advance, there is no momentum building for the kind of comprehensive energy legislation Congress enacted in 2005 and 2007, or the major energy bills the House passed in 2011, because:

• We are not in a presidential election year so Republicans have less to gain from passing pro-energy legislation just to frame issues and clarify policy differences for the electorate;
• Divided government makes it virtually impossible either for congressional Republicans to halt and reverse the Obama administration’s regulatory war on fossil fuels or for Hill Democrats to pass cap-and-trade, carbon taxes, or a national clean energy standard;
• Democrats paid a political price for cap-and-trade and won’t champion carbon taxes without Republicans agreeing to commit political suicide by granting them bipartisan cover;
• The national security and climate change rationales for anti-fossil fuel policies were always weak but have become increasingly implausible thanks to North America’s resurgence as an oil and gas producing province, Climategate, and developments in climate science;
• Multiple policy failures in Europe and the U.S. have eroded public and policymaker support for ’green’ energy schemes;
• It has become increasingly evident that the Kyoto crusade was a foredoomed attempt to put policy carts before technology horses; and,
• The EPA is ’enacting’ climate policy via administrative fiat, so environmental campaigners no longer need legislation to advance their agenda.

Divided Government, Messaging Bills, Cap-and-Trade Casualties

Divided government can produce gridlock, yet the latter need not induce legislative torpor. In the 112th Congress, the House passed several energy- or climate-related bills drafted by the Energy and Commerce Committee. Those include the Energy Tax Prevention Act (H.R. 910), Farm Dust Regulation Prevention Act (H.R. 1633), North American-Made Energy Security Act (H.R. 1938), Jobs and Energy Permitting Act (H.R. 2250), Coal Residuals Reuse and Management Act (H.R. 2273), Transparency in Regulatory Analysis of Impacts on the Nation Act (H.R. 2401), Cement Sector Regulatory Relief Act (H.R. 2681), Pipeline Infrastructure and Community Protection Act (H.R. 2937), Resolving Environmental and Grid Reliability Conflicts Act (H.R. 4273), Domestic Energy and Jobs Act (H.R. 4480), American Manufacturing Competitiveness Act (H.R. 5865), Hydropower Regulatory Efficiency Act (H.R. 5892), and No More Solyndras Act (H.R. 6213). All died in the Senate.

This flurry of legislative activity can in part be explained by the political dynamics of the 2012 presidential election cycle. By holding hearings on and passing those bills, Republicans sought to frame the issues and clarify policy differences for the electorate. A central objective was to focus public attention on which party supports and which opposes creating jobs through domestic energy production. House Republicans may launch another ambitious energy offensive as we get closer to the 2014 mid-term elections and/or the 2016 presidential contest, but not likely before then.

Why though is there is no momentum on the other side of the aisle for the “comprehensive energy and climate legislation” once proudly championed by the Obama administration and environmental activists?

Starting with the most obvious reasons, 29 Democrats who voted for the Waxman-Markey cap-and-trade bill in June 2009 got pink slips from their constituents in November 2010. Key to defeating Waxman-Markey was its exposure as a stealth energy tax (“cap-n-tax”). This prompted a search for “other ways to skin the cat,” as President Obama put it, but finding other ways to fool the public was not easy.

With few options to pick from, some climate activists now advocate carbon taxes. But why should the public support an open, unvarnished energy tax when what doomed cap-and-trade was its outing as a sneaky energy tax? Cap-and-trade was in part an attempt to avoid a repeat of the political losses Democrats sustained in 1994 because of Al Gore’s Btu energy tax legislation in 1993. Most Democrats in Congress are reluctant to tax carbon unless the GOP gives them bipartisan cover, but most Republicans realize that if they cave on carbon taxes, they will demoralize and divide their base.

Even aside from partisan calculations, few members of Congress want to take responsibility for raising energy prices during a period of high unemployment and anemic economic growth.

Obsolescent Worldviews

Probing a bit deeper, we find that once-fashionable alarms about climate change and foreign oil dependence no longer have the intellectual cachet they did a few years ago. The period from 2005 through 2007 was not only a high watermark of U.S. oil import dependence, it was also a time when Al Gore’s An Inconvenient Truth, the Bali Road Map, and the IPCC’s Fourth Assessment Report (AR4) set the terms of national debate on climate change. A lot has happened since then.

Washington’s angst about oil embargoes, supply disruptions, and the link between Mideast oil and terror was always overblown, as Cato Institute scholars Jerry Taylor and Peter Van Doren explain:

• Because oil is a globally-traded commodity, the U.S. can circumvent any likely embargo by purchasing oil via third parties. Indeed, U.S. oil imports actually increased after the 1973 Arab oil embargo – from 3.2 million barrels per day in 1973 to 3.5 mbd in 1974.
• Petro-states have more to lose from catastrophic disruptions than do their customers, which is why there hasn’t been one since the Iranian Revolution.
• There is no correlation between OPEC profits and cross-border incidents of Islamic terror. The likely explanation is that terrorist attacks are low-budget operations (the 911 plotters spent less than half a million dollars) and therefore are not much affected by changes in oil prices or petro-state revenues.

In recent years, the national security rationale for regulating America ‘beyond petroleum’ has become increasingly implausible, as advances in unconventional oil and gas production transform North America into a major producing region. Imports as a share of U.S. petroleum consumption declined from 60% in 2005 to 45% in 2011. More than half of those imports came from the Western hemisphere, and Canada’s share was more than double that of Saudi Arabia. In both 2011 and 2012, petroleum products were the top U.S. exports. Some experts now view hydraulic fracturing and directional drilling as a source of U.S. geopolitical influence, arguing for example that the ‘shale revolution’ undermines Russia’s leverage over Europe.

A March 2012 Citi report concluded: “With no signs of this growth trend ending over the next decade, the growing continental surplus of hydrocarbons points to North America effectively becoming the new Middle East by the next decade; a growing hydrocarbon net exporting center.” Analyses by Citi, Wood McKenzie, and IHS Global Insight support the assessment of Manhattan Institute scholar Mark Mills that “unleashing the North American energy colossus” could create millions of new jobs by 2020 and provide hundreds of billions in cumulative new federal, state, and local tax revenues.

In short, a bright future for hydrocarbon energy now competes in the public mind with yesteryear’s gloomy forecasts of increasing oil depletion and dependency.

As for climate alarm, the Climategate emails exposed some of the world’s most prestigious climatologists as schemers using the pretense of scientific objectivity for political purposes. This blow to their credibility also tarnished the UN-sponsored climate treaty negotiations.

Also deflating the push for coercive energy transformation is the lack of any net global warming over the past 16 years. There are competing explanations, but a plausible hypothesis, based on recent studies ably summarized by Cato Institute climatologist Chip Knappenberger, is that Earth’s climate is less sensitive to greenhouse forcing than “consensus” science had assumed. What cannot be denied is that there is a disconnect between the IPCC’s best estimate of projected warming and observations over the past decade.

In addition, numerous studies (summarized here and here) undercut the credibility of scary climate change impact forecasts. A few examples:

• King et al. (2012): The rate of Antarctic ice loss is not accelerating and translates to less than one inch of sea-level rise per century.
• Weinkle et al. (2012): There is no trend in the strength or frequency of land-falling hurricanes in the world’s five main hurricane basins during the past 50-70 years.
• Chenoweth and Divine (2012): There is no trend in the strength or frequency of tropical cyclones in the main Atlantic hurricane development corridor over the past 370 years.
• Bouwer (2011): There is no trend in hurricane-related damages since 1900 once economic loss data are adjusted for changes in population, wealth, and the consumer price index.
• NOAA: There is no trend since 1950 in the frequency of strong (F3-F5) U.S. tornadoes.
• National Climate Data Center: There is no trend since 1900 in U.S. soil moisture as measured by the Palmer Drought Severity Index.
• Hirsch and Ryberg (2011): There is no trend in U.S. flood magnitudes over the past 85 years.
• Davis et al. (2003): As U.S. urban air temperatures have increased, heat-related mortality has declined.
• Goklany (2010): Global deaths and death rates related to extreme weather have declined by 93% and 98%, respectively, since the 1920s.
• Range et al. (2012): There is no evidence of carbon dioxide-related mortalities of juvenile or adult mussels “even under conditions that far exceed the worst-case scenarios for future ocean acidification.”

Skeptical blogs continually disseminate such findings to policymakers and the public.

During last year’s summer drought, NASA scientist James Hansen made a big splash with a study in Proceedings of the National Academy of Sciences and a Washington Post op-ed arguing that global warming was the cause of the four biggest hot spells of the past 10 years. However, as noted in skeptical blogs, meteorological analyses of the European heat wave of 2003, the Russian heat wave of 2010, the Texas-Oklahoma drought of 2011, and the Midwest drought of 2012 attribute those events principally to natural variability.

Policy Failures

Last week the European Parliament refused to stop the EU carbon market from crashing. This debacle, a setback to all who tout Europe as a model for U.S. climate and energy policy, was all but inevitable.

For months EU policymakers had been groping for the carbon price sweet spot. Were carbon prices too low or too high? The answer: both! Prices were criticized by environmental activists as too low to incentivize hoped-for technology innovation but criticized by industry as too high for Europe to stay competitive in the global marketplace. EU governments had to establish a “carbon compensation fund” to keep domestic manufacturers from off-shoring their operations. European manufacturers still would not support intervention to prop up falling carbon prices. So the EU Parliament decided to just let carbon prices crater, embracing in deed if not in speech the carbon policy advocated by G.W. Bush. Ha!

Fiscal realities have also forced EU governments to scale back green energy subsidies. USA Today reported last month: “European governments have now realized this growth – which saw consumers footing the bill for investors’ soaring profit margins – was out of control: The UK and Czech Republic have already cut their subsidies in half, while Italy imposed a cap on new renewable energy providers. Germany cut subsidies by up to 30% and announced a major overhaul of the program Thursday.” In this respect, too, Europe has become a model of what U.S. policymakers should avoid.

The Obama administration, predictably, has decided to double down on renewables. The President’s Budget proposes to make the controversial renewable energy production tax credit (PTC) “permanent.” That, however, is a tacit confession wind and solar will never stand on their own feet without subsidy, despite the wind industry telling us for years that it is on the verge of becoming competitive with coal and gas. With the nation $16.8 trillion in debt, the President’s $23 billion PTC initiative is likely D.O.A. in the House.

The growing list of Stimu-Losers also undermines congressional support for green venture socialism. Besides Solyndra, failed or troubled recipients of DOE loans or guarantees include Beacon Power, Evergreen Solar, Range Fuels, Amonix, A123 Systems, Nevada Geothermal Power, Abound Solar, and, recently in the news, Fisker Automotive. According to a Privco report, Fisker lost over $1.3 billion in private and taxpayer capital, spending $660,000 for each $103,000 electric vehicle it produced before firing three-quarters of its employees.

Lawmakers from both parties have even begun to reconsider and challenge the once popular Renewable Fuel Standard (RFS) program. This 15-year central plan increases consumers’ pain at the pump, expands aquatic dead zones, makes food less affordable to the world’s poorest people, plows up millions of acres of wildlife habitat, and puts at least as much carbon in the atmosphere as the gasoline it displaces. Although the RFS still has defenders in Congress, hardly anyone on the Hill today talks about beefing up the RFS with flex-fuel vehicle mandates or subsidized biofuel pipelines, blender pumps, and storage tanks.

Can’t Get There from Here

Green activists blame “oil-fueled, coal-powered” politicians for Congress’s ‘failure’ to address climate change. The real reason, however, is that nobody knows how to sustain a modern economy with wind turbines, solar panels, and biofuel.

The Breakthrough Institute developed this point in its Death of Cap-and-Trade blog posts. Because affordable energy is vital to prosperity and much of the world is energy poor, it would be economically ruinous and, thus, politically suicidal to make people abandon fossil fuels before cheaper alternative energies are available. That, however, is exactly what “comprehensive energy and climate legislation” aimed to do.

As the Breakthrough folks argue, if you’re worried about climate change, then your chief policy objective should be to make alternative energy cheaper than fossil energy. Instead, the green movement attempted to make fossil energy more costly than alternative energy, or to simply mandate the switch to alternative energy regardless of cost. Al Gore’s call in 2008 to “re-power America” with zero-carbon energy within 10 years epitomizes this folly. More “moderate” variants would only do less harm, less rapidly.

EPA Is Legislating Climate Policy

Lastly, energy is on the legislative back burner because the EPA is already enacting the green movement’s agenda via administrative action. Why risk voter ire over controversial climate legislation when it is easier to sit back and watch the EPA take the heat or implement regulations few people outside of Washington even know about?

This situation is likely to persist as long as divided government persists. Many Democrats are content to let the EPA run roughshod over the separation of powers and implement policies the people’s representatives would reject if introduced as legislation and put to a vote. Many Republicans fear to challenge the EPA, knowing how difficult it is to overcome a presidential veto and how easily efforts to reclaim Congress’s authority to determine climate policy can be villified as attacks on science and children’s health.

The wind energy production tax credit (PTC) expires at the stroke of midnight, Dec. 31, unless Congress votes to renew the tax break. A one-year extension would add an estimated $12.1 billion to deficit spending over 10 years. A six-year extension, advocated by the wind industry, could add $50 billion.

The fiscal cliff looms and the national debt already exceeds GDP, but if Congress cared more about the general interest of taxpayers than about the special interests of campaign contributors, the nation would not be sliding towards insolvency.

Whether Congress should renew the PTC or let it expire is the topic of this week’s National Journal Energy Experts Blog. Twenty wonks weigh in, including your humble servant. I heartily recommend the contributions by Sen. Lamar Alexander (R.-Tenn.), Craig Rucker, Phil Kerpin, Benjamin Zycher, Thomas Pyle, James Valvo, and David Banks.

My contribution addresses the environmental side of the debate, in particular the claim that recent extreme weather events demonstrate “just how badly our nation needs to take advantage of our vast wind energy potential,” as one contributor put it.

Below is a lightly edited version of my comment.

* * *

Of all the lame arguments used to sell Americans on the proposition that wind power, an industry propped up by Soviet-style production quota in 29 states and numerous other policy privileges, deserves another renewal of the 20-year-old production tax credit (PTC), the lamest is the claim that the PTC helps protect us from extreme weather.

PTC advocates talk as if Hurricane Sandy and the Midwest drought were obvious consequences of anthropogenic global warming, and that subsidizing wind energy is a cost-effective way to mitigate climate change.

They are wrong on both counts.

Neither economic analyses nor meteorological investigations validate the asserted link between recent extreme weather events and global warming. When weather-related damages are adjusted (“normalized”) to account for changes in population, per capita income, and the consumer price index, there is no long-term trend such as might indicate an increase in the frequency or severity of extreme weather related to global climate change.

A 2012 study in the journal Climate Change  examined 370 years of tropical cyclone data from the Lesser Antilles, the eastern Caribbean island chain bisecting the main development region for landfalling U.S. hurricanes. The study found no long-term trend in either the power or frequency of tropical cyclones from 1638 to 2009. It did however find a 50- to 70-year wave pattern associated with the Atlantic Multidecadal Oscillation, a mode of natural climate variability.

A recent study in the Journal of Climate similarly found no long-term trend in the strength or frequency of landfalling hurricanes in the world’s five main hurricane basins. The data extend back to 1944 for the North Atlantic, to 1950 for the northeastern Pacific, and to 1970 for the western North Pacific, northern Indian Ocean, and Southern Hemisphere. Among other inconvenient findings: “The U.S. is currently in the midst of the longest streak ever recorded without an intense [category 3-5] hurricane landfall.”

Sandy was not even a category 1 hurricane by the time it made landfall. New York has been hit with more powerful storms at least as far back as the 17^th century. For example, the New England Hurricane of 1938 was a category 3 that killed 600 people. Carbon dioxide (CO2) concentrations in 1938 were about 310 parts per million (ppm), well below the level (350 ppm) advocated by NASA scientist James Hansen, activist Bill McKibben, and Al Gore as the upper limit consistent with climate stability.

What made Sandy so destructive was the hurricane’s merging with a winter frontal storm to produce what MIT climatologist Kerry Emanuel calls a “hybrid” storm. The usual suspects, of course, were quick to suggest that any such ‘freak of nature’ must be man-made. That is speculation, not science. In Emanuel’s words:  “We don’t have very good theoretical or modeling guidance on how hybrid storms might be expected to change with climate. So this is a fancy way of saying my profession doesn’t know how hybrid storms will respond to climate [change]. I feel strongly about that. I think that anyone who says we do know that is not giving you a straight answer. We don’t know.”

As for the Midwest drought, if it were a symptom of global climate change, then there should be a long-term positive trend in the Palmer Drought Severity Index (PDSI). Instead, as Cato Institute scholars Patrick Michaels and Chip Knappenberger point out, the PDSI from 1895 through 2011 is slightly negative, i.e., the trend is towards a somewhat wetter climate.

But here’s the kicker. Even if one assumes fossil fuel emissions revved up Sandy and the Midwest drought, extending the PTC for another year – or even another six, as advocated by the American Wind Energy Association – would provide no protection from climate-related risk.

Using IPCC climate sensitivity assumptions, Knappenberger calculates that even if the U.S. eliminated all CO2 emissions tomorrow, the impact on global temperatures would be a reduction ”of approximately 0.08°C by the year 2050 and 0.17°C by the year 2100 — amounts that are, for all intents and purposes, negligible.”

The U.S. will continue to emit billions of tons of CO2 annually for decades whether Congress extends the PTC or not. Hence even under IPCC climate sensitivity assumptions, the PTC is climatologically irrelevant and can provide no meaningful protection from extreme weather events.

Extending the PTC for one year could increase the national debt by $12.1 billion. A six-year extension could add more than $50 billion to the debt. As global warming policy, the PTC is all taxpayer pain for no climate gain.

House Speaker John Boehner, Majority Leader Eric Cantor, and Majority Whip Kevin McCarthy have signed a No Climate Tax Pledge. Bad news for those pushing carbon taxes as part of a budget deal. 

Friends of affordable energy can ill-afford complacency, however. The Dumb Party has been known to snatch defeat from the jaws of victory, and carbon tax advocates are nothing if not tenacious. So when it comes to carbon taxes, I say kick ‘em while they’re down.

To that end, I excerpt below some insightful comments by several contributors to last week’s National Journal Energy Blog discussion, “Is Washington Ready for a Carbon Tax?”

David Kreutzer (Heritage Foundation) notes the chutzpah of those who, having failed to sell the public on the stealth energy tax called cap-and-trade, now expect the public to buy an open, avowed, unvarnished energy tax:

Once the electorate was made to realize that cap and trade bills (Lieberman-Warner, Waxman-Markey, etc.) were actually taxes on fossil energy, cap and trade became political poison. So it is surprising that an explicit tax on fossil energy is now being pushed in Washington.

Kreutzer then debunks the argument that conservatives should support a “revenue neutral” carbon tax that displaces EPA regulation of greenhouse gases:

The hope among carbon-tax proponents is that they can sugar coat the tax and make it palatable to conservatives, or at least to enough conservatives. This proposed confection has two ingredients. First, the carbon tax is to be a revenue-neutral swap for some even more harmful tax. Second, a carbon tax would obviate the need for regulation of carbon dioxide and for subsidies to low-carbon energy.

“Revenue neutral” is supposed to mean that each dollar raised will cut another tax by a dollar. But with neutrality there is no gravy to spread around to all the special interests—and we are talking about $100s of billions in gravy every year. So revenue neutrality will never happen. . . .

[As for a tax-for-regulation swap:] That logic may work in PowerPoint-filled rooms at think tanks, but not in the proverbial smoke-filled rooms in Congress. If this logic did carry over, then cap and trade also would have eliminated the need for carbon regulation. Instead of reducing regulations, the cap and trade bills added them. For instance, the Waxman-Markey bill went on for nearly 700 pages before it even got to cap and trade.

Just in case there might be some confusion as to whether the left is willing to trade off regulation for a carbon tax, Representative Waxman recently cleared things up: “A carbon tax or a price on carbon would be a strong incentive for the development of new technologies. But because it’s so complicated, I would not support preempting EPA. EPA can assure us that we can actually get the reductions we need.”

Susan Dudley (George Washington University Regulatory Studies Center) explains why key interest groups, regulatory agencies, and politicians would not support a carbon tax that preempts greenhouse gas regulation and cap-and-trade:

Agribusiness interests have been making billions from misguided mandates for renewable fuels, and would fight any attempt to replace them with a carbon tax. Wind and solar technologies, if they really work, would benefit from a carbon tax. But to the extent they can’t compete, they will likely have a strong preference for the direct subsidies they enjoy now.

The regulators who have been using climate concerns to seek greater authority to control the economy will see little to like in a simple carbon tax. And the market-mimicking virtues of a carbon tax will not be realized unless Congress is willing to reverse the Supreme Court’s decision to apply the Clean Air Act to GHGs, to repeal DOT’s automobile fuel economy standards and DOE’s appliance efficiency standards, and to clean out the morass of other regulations that purport to control our energy use. Opposition to a tax may be especially strong from state regulators, such as those in California, who have begun to sell GHG allowances and will oppose any policy that would convert those revenues into federal revenues.

The costs of any program aimed at reducing GHG emissions will cause prices of goods and services to rise, but for politicians, the advantage of the current regulation-subsidy patchwork or a cap-and-trade system is that these higher prices are not easily traced to climate policies, or to the politicians responsible for them. A transparent carbon tax, in addition to reducing emissions more cost-effectively than the alternatives, would allow Americans openly to weigh the tradeoffs between higher costs and environmental benefits.

The final nail in the carbon-tax coffin is that with it would come demands for exemptions, rebates, credits, and all manner of loopholes, in addition to a wish list of new spending. If the revenues are used as they should be – to offset other taxes and reduce the deficit – then legislators and the administration will not get to spend them on vocal constituencies and pet projects. What’s the fun in that? Politicians who habitually ask themselves “whose votes am I buying if I support this bill?” will not find a persuasive answer in a clean and simple carbon tax.

Jim Kerr (McGuirreWoods LLP) delves into the devilish details that would have to be worked out before the usual suspects could agree on carbon tax legislation:

While economists may see a carbon tax as simple to enact, that will certainly not be the case. A carbon tax raises precisely the same difficult and complicated issues as a cap-and-trade system. Because both approaches put a price on carbon, both will have substantial real world impacts that have to be addressed. What price level would a carbon tax start at? How much would it increase and how fast? Would some revenues be used to further carbon reduction and energy efficiency efforts, how much and how? How will electric power consumers be protected from rate shocks? How will low income consumers be protected from disproportionate impacts to their disposable incomes? How will carbon-intensive industries be protected from competition and job losses? How will offsets (identified as a key cost containment issue) be recognized?

The biggest political issues to be resolved will involve geographic inequities, where regions that are more heavily dependent on higher carbon fuels will have to pay more to decarbonize their economies, and also pay higher taxes until those efforts bear fruit. Those regions may also object to a uniform redistribution of carbon tax revenues (e.g., for deficit reduction) where they have paid in far more in carbon taxes than other regions.

In the Waxman-Markey debates, many of these issues were addressed by complicated agreements on allowance allocations, and other aspects of the program. In a carbon tax system, they could similarly be addressed though tax credits or rebates, as appropriate, but only after difficult debates, none of which have begun. Thus, although the types of issues in play, and the alternatives available, are similar as between a carbon tax and a carbon cap, that does not make the decisions on these issues any easier.

Paul Cicio (Industrial Energy Consumers of America) warns of the special peril carbon taxes pose to U.S. manufacturers:

Since 2000, we have lost some 5,000,000 jobs and shutdown about 54,000 manufacturing facilities. For perspective, in 2010 and 2011 we increased about 500,000 jobs – so you can appreciate how far we need to go to re-build the manufacturing sector. Because of our failure to compete, the trade deficit in 2011 finished at $445 billion. Policy makers need to understand that a carbon tax is inconsistent with the potential for a manufacturing renaissance.

Only now, because of low natural gas costs are we beginning to see billions in capital investment announcements that could usher in a tremendous period of economic growth, jobs and exports. A carbon tax would directly increase energy costs, reduce competitiveness and raise great uncertainties toward this new investment.

A $15 per ton carbon tax would increase manufacturing costs by about $17 billion per year and a $50 per ton carbon tax by about $56 billion per year. These are significant increases in costs.

Charles Drevna (American Fuel & Petrochemical Manufacturers) argues that carbon taxes would still be regressive even if combined with feebates and cuts in other taxes:

A reduction in income tax rates won’t help 70 percent of households in the lowest income distribution or 36 percent in the second-lowest quintile. Income tax or payroll tax rebates are equally problematic since it would be of no value to those who don’t pay those specific taxes. Similarly, a payroll tax rebate would fail to reach 46 percent of households in the lowest income bracket. The CBO cautioned, “Not everyone – especially members of low-income households and retirees – pay payroll taxes or files an income tax return. But people would need to file a return to participate in a rebate program based on the income tax system.”

Households could of course file an income tax return just to receive the rebate, but we know from experience that millions won’t. For example, in 2008 as part of the Economic Stimulus Act, the Joint Committee on Taxation estimated a payout of $106.7 billion in stimulus funds, but only $94.1 billion was distributed. A lot of money was left on the table and the same will hold true should Congress pass a carbon tax. Defenders of a carbon tax expect the very same body that managed the country right into a record deficit to now manage what could be the largest federal rebate program ever enacted.

Bill O’Keefe (John Marshall Institute) views the carbon tax campaign as a triumph of hope over experience:

[Al Gore's proposal in 1993 for a BTU tax on energy] became a catalyst for a broad based coalition representing large and small businesses, transportation, manufacturing, agriculture, building trades, and even social service organizations that need gasoline and heating oil to care for the poor and homeless. The work of the coalition captured a lot of attention from the media. Its grassroots activities made clear to members of Congress that they should support the tax at their own peril. Since, as Samuel Johnson once observed, there is nothing like a hanging to concentrate the mind, Democrat support for the tax vanished. With outright defeat clear, the Administration sued for peace and the BTU became a relic of flawed policy.

BTU became a verb and members of Congress wanted to avoid being BTU-ed, but in 1994 voters enacted retribution and turned Congress over to republicans.

The economy is in worse shape today than it was in 1993, and it could easily slip back into recession. . . .A small carbon tax at the outset would be easy to increase in small increments. Then in time a small tax will become a big tax. Anyone who doubts this should study the VAT experience in Europe. Rates go up; never down. Even today as they face economic catastrophe, Spain and Greece are considering raising their VAT above 20 percent. . . .We can do better than create the son of a BTU!

Last week on National Journal’s Energy Experts Blog, 16 wonks addressed the question: ”Is Washington Ready for a Carbon Tax?” Your humble servant argued that Washington is not ready — unless Republicans are willing to commit political suicide. That’s no reason for complacency, because spendaholics have on occasion gulled the Dumb Party into providing bi-partisan cover for unpopular tax hikes. President G.H.W. Bush’s disastrous repudiation of his ‘read-my-lips, no-new-taxes’ campaign pledge is the best known example.

To help avoid such debacles in the future, I will recap the main points of my National Journal blog commentary. Later this week, I’ll excerpt insightful comments by other contributors.

Nearly all Republicans in Congress have signed the Taxpayer Protection Pledge, a promise not to increase the net tax burden on their constituents. Although a “revenue neutral” carbon tax is theoretically possible, the sudden interest in carbon taxes is due to their obvious potential to feed Washington’s spending addiction. If even one dollar of the revenues from a carbon tax is used for anything except cutting other taxes, the scheme is a net tax increase and a Pledge violation. Wholesale promise-breaking by GOP leaders would outrage party’s activist base. 

Even if the Taxpayer Protection Pledge did not exist, the GOP is currently the anti-tax, pro-energy alternative to a Democratic leadership that is aggressively anti-energy and pro-tax. Endorsing a massive new energy tax would damage the product differentiation that gives people a reason to vote Republican. Recognizing these realities, House GOP leaders recently signed a ‘no climate tax’ pledge.

That’s good news. But this is a season of fiscal panic and I was there (in 1990) when the strength of Republicans failed. Perhaps the best time to kick carbon taxes is when they are down. So let’s review additional reasons to oppose a carbon tax.

Carbon taxes are regressive, imposing a larger percentage burden on low-income households. If Republicans support a carbon tax in return for cuts in corporate or capital gains taxes (a popular idea in some circles), they will be pilloried — this time fairly — for seeking to benefit the rich at the expense of the poor.

If, on the other hand, the tax provides “carbon dividends” to offset the impact of higher energy prices on poor households, it will create a new class of welfare dependents. Guess which party is better at organizing people on welfare?

Carbon taxes pose an existential threat to the development of North America’s vast coal, oil, and natural gas deposits — one of the few bright spots in the economy. The core purpose of a carbon tax is to reduce and, ultimately, eliminate carbon doxide-emitting activities. The tax ‘works’ by shrinking the economic base on which it is levied. To keep revenues up, carbon tax rates must continually increase as emissions decline. Likely result: an exodus of carbon-related capital, jobs, and emissions (“carbon leakage”). Problem: Nobody knows how to run a modern economy on cellulose, wind turbines, and solar panels. Bipartisanship on carbon taxes means co-ownership of U.S. economic decline.

In umpteen hearings on the Solyndra debacle, Republicans excoriated the Obama administration for trying to pick energy market winners and losers. A carbon tax is an even more ambitious green industrial policy than the $34.5 billion in loan guarantees  lavished by the Department of Energy (DOE) on a few dozen renewable energy projects. Carbon taxes attempt to pick and losers across the entire economy, handicapping all firms that produce or rely on carbon-based energy. Indeed, central to Solyndra’s business plan and DOE Secy. Chu’s green tech strategy was the bet that Congress would enact cap-and-trade, the regulatory surrogate for a carbon tax.

Some economists say government should tax ‘bads’ like emissions rather than ‘goods’ like labor and capital. This is sloppy thinking. In technical economic terms, only finished products and services are ‘goods.’ Labor and capital are inputs, production factors, or costs. Energy too is a key input. Without energy, most labor and capital would be idle or not even exist. About 83% of U.S. energy comes from carbon-based fuels. So a carbon tax also taxes what these economists loosely call ‘goods.’ Pretending that carbon taxes only tax emissions and nothing of value is free-lunch economics — a recipe for failure and worse.

Some speculate about a grand bargain in which carbon taxes replace carbon regulations — everything from the EPA’s greenhouse gas emission standards to California’s cap-and-trade program to State-level renewable electricity mandates. The EPA, the California Air Resources Board, the major environmental organizations, and the renewable energy lobbies have spent decades building the regulatory programs they administer or influence. They want to add carbon taxes to carbon regulation, not substitute one for the other. Talk a grand bargain is a ploy designed to lure gullible Republicans to the negotiating table. Few if any of the Left’s regulatory sacred cows would be traded away. In the meantime, carbon tax negotiations would divide GOP leaders from their rank and file and demoralize the party’s activist base.

The backlash against GOP leaders’ complicity would be swift and severe. Yet for all the economic pain inflicted and political damage incurred, they would accomplish no discernible environmental gain. As hurricane expert Roger Pielke Jr. points out, even under IPCC assumptions, changes in energy policy “wouldn’t have a discernible impact on future disasters for the better part of a century or more.” Similarly, also using IPCC assumptions, Chip Knappenberger of the Cato Institute Center for the Study of Science calculates that even if the U.S. eliminated all CO2 emissions tomorrow, the impact on global temperatures would be a reduction ”of approximately 0.08°C by the year 2050 and 0.17°C by the year 2100 — amounts that are, for all intents and purposes, negligible.”

Under a carbon tax, the U.S. would keep emitting billions of tons of carbon dioxide annually for a long time – otherwise the tax wouldn’t raise much revenue. So the notion that carbon taxes can measurably reduce extreme weather risk or climate change impacts within any policy-relevant timeframe is ludicrous.

File this one under “be careful what you wish for.” Rep. Ed Markey (D-Mass.) must have thought he was being very clever. At a recent House Energy and Commerce Committee meeting on legislation to authorize construction of the Keystone XL Pipeline, Markey introduced an amendment banning U.S. exports of petroleum products made from Keystone crude.

For Markey, the amendment was never a serious legislative proposal. For one thing, as explained on this site and MasterResource.Org, an export ban would violate U.S. treaty obligations under both the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA). In addition, Markey knew Republicans could not support the ban without jeopardizing the long-term supply contracts that pipeline builder-operator TransCanada Corp. had negotiated with Gulf Coast refiners — contracts on which the project’s commercial viability depends.

In fact, Markey was counting on Republicans to vote against the ban, as that allegedly would expose them as duplicitous shills who care only about oil industry profits, not about reducing dependence on OPEC or alleviating pain at the pump. As also explained in the previous columns, Markey’s exposé is itself bogus, because (1) Keystone crude would displace OPEC crude whether the associated refined products were sold domestically or overseas, and (2) much of the refined product would likely be sold in the USA.

This just in: What Markey introduced as a rhetorical prop may be sprouting legislative wings in the Democrat-controlled Senate, where it could win votes to overturn President Obama’s rejection of Keystone XL. Yesterday in National Journal (subscription required), energy reporter Amy Harder wrote:

Now, liberal Sen. Ron Wyden, D-Ore., has drafted a bill to ban exports of both Keystone-shipped oil and refined petroleum products made from that oil. The effort by Wyden, in line to chair the Energy and Natural Resources Committee next year if Democrats hold the Senate, makes environmentalists nervous, because it could conceivably get enough Democratic support to move a bill mandating approval of the pipeline out of the Senate. Such a measure would be certain to pass in the Republican-controlled House.

In fact, Senate Majority Leader Harry Reid, D-Nev., said late last month that he may support the pipeline if the oil stayed here. His staff has been in contact with Wyden’s office on the export-ban proposal. Wyden’s involvement has thus elevated an environmental talking point to a seeming legislative possibility.

Earlier this week, the House Energy and Commerce Committee marked up and approved the North America Energy Access Act (H.R. 3548), sponsored by Rep. Lee Terry (R-Neb.). The bill authorizes construction of the Keystone XL pipeline, the $7 billion shovel-ready project to deliver up to 830,000 barrels per day of Canadian crude oil to Midwest and Gulf Coast refineries.

Democrats offered five amendments to ‘improve’ (that is, sabotage) the bill. The GOP majority easily defeated the killer amendments, including Rep. Ed Markey’s (D-Mass.) amendment to ban exports of petroleum products made from Canadian oil shipped via the pipeline. Markey claims consumers would benefit because refiners would be forced to sell more gasoline in U.S. domestic markets, lowering prices.

Earlier on this site, National Journal’s energy blog, and MasterResource.Org, I opined that Markey’s proposal would violate U.S. treaty obligations under the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA). I also argued that an export ban could backfire. It could drive refining-related investment, production, and jobs out of the USA, increasing pain at the pump by curbing production at home while making higher-priced foreign imports more competitive.

In “Proposed Keystone Export Ban Fraught With Pitfalls,” National Journal reporter Amy Harder quotes two independent experts who offer similar assessments of Markey’s proposal.

One expert is none other than James Bacchus, former Member of the House of Representatives, former Special Assistant to the U.S. Trade Representative, former Chairman of the Appelate Body of the World Trade Organization (the highest international tribunal of world trade), and current Chair of GreenbergTaurig’s Global Practice Group. The man knows whereof he speaks. From the National Journal article:

“All forms of protectionism are politically appealing, especially in an election year,” said former Rep. James Bacchus, D-Fla., who was a chairman of the WTO’s appellate body. “But that doesn’t mean they make economic sense, and it doesn’t mean they’re legal under international law.”

Bacchus added that recent action taken by the United States against China for similar export restrictions makes any legislation banning exports of oil or refined products a bit hypocritical. Last week, the appeals board of the WTO ruled that China broke free-trade laws with its system of export taxes and quotas for raw materials.

“Why would we impose export restrictions on a basic commodity such as oil when we are opposing export restrictions of basic commodities so vigorously in the WTO?” asked Bacchus.

On Jan. 30, 2012, the WTO ruled against China’s restrictions on exports of bauxite, coke, magnesium, manganese, zinc, and other materials. The ruling responds to legal challenges launched in 2009 by the USA, European Union, and Mexico. GATT rules generally prohibit a WTO Member country from restricting exports. China tried but failed to justify its export restraints as measures essential to conservation, environmental protection, or alleviation of critical supply shortages. Attempts to justify a Keystone crude export ban on those grounds would be laughed out of court.

But here’s the kicker. “Although rare earth metals were not part of Monday’s ruling,” Reuters reports, “a number of U.S. lawmakers urged the United States to use the decision to launch a new case to force Beijing to lift its rare earth export restriction.” Reuters does not identify any of those lawmakers by name, but Markey is a leading critic of Beijing’s export restrictions on rare earth metals. Such metals are used to manufacture the ‘clean tech’ products of which he is so fond, including hybrid and electric vehicles, solar panels and wind turbines. Somebody please tell Mr. Markey: Dissing the same law to which you appeal for redress is neither honorable nor smart.

On the potential consumer impact of Markey’s amendment, Ms. Harder quotes Michael Levi of the Council on Foreign Relations:

But an export ban on refined products derived from the pipeline’s oil would have more complicated repercussions, since products such as gasoline are already being exported from the Gulf Coast in growing quantities. A ban on exporting some refined products could hurt oil companies’ bottom lines because refineries might run at less than full capacity. And that could subsequently raise U.S. gasoline prices, experts say.

“If this was somehow effective at trapping product in the United States that otherwise would be exported, the ultimate impact on gasoline prices could very well be bad rather than good,” said Michael Levi, energy-security expert at the Council on Foreign Relations.

Since writing my MasterResource column, I have given further thought to these issues and conclude that Markey’s amendment traduces the two most basic principles of modern trade law.

The national treatment principle (treating foreigners and locals equally) prohibits importing nations from discriminating against a foreign commodity, service, or item of intellectual property once it has entered into domestic commerce. The moment any Canadian crude crosses the border, whether via Keystone XL or any other mode of transport, it enters into U.S. domestic commerce. Thus, under both GATT and NAFTA (Articles 301, 606), it must be accorded national (equal) treatment. Only if Congress were to ban all petroleum product exports, including those made from oil produced in the USA, would Markey’s amendment not flout the national treatment requirement. Even then it would still conflict with the WTO’s general prohibition of export restrictions.

Markey’s amendment also conflicts with the most favored nation principle, which holds that if you grant a privilege to one trade partner, you must grant it to all. Markey’s amendment would not require OPEC crude and products made from it to “stay here.” The restriction would apply only to Canadian crude and products made from it. Under Markey’s proposal, Congress would grant most favored nation status to OPEC but deny it to Canada. Brilliant!

What should drive fuel efficiency? Select the answer you think is correct: 

(a) Government;

(b) Markets; or

(c) Please pass the sweet and sour shrimp.

If you chose (a), then go straight to www.allsp.com (Season 10) and watch my favorite South Park episode, “Smug Alert.”

If you chose (c), then you’re on your way to a promising career as a diplomat.

Today, on National Journal’s energy blog, I explain why the correct answer is (b).