Yesterday on NPR’s radio program To the Point, I said it was dishonorable for ExxonMobil to support a carbon tax. I compared ExxonMobil’s reported embrace of carbon taxes to Enron’s lobbying for the Kyoto Protocol.

Enron was a a major natural gas distributor and saw in Kyoto a means to suppress demand for coal, natural gas’s chief competitor in the electricity fuel market. ExxonMobil is a major natural gas producer. So I took this to be another case of political capitalism – corporate lobbying to replace a competitive market with a rigged market to enrich a particular firm or industry at the expense of competitors and consumers.

The NPR program host said something like “even oil companies like ExxonMobil now support a carbon tax,” alluding to a Nov. 16 Bloomberg Businessweek article titled ”Carbon Fee From Obama Seen Viable With Backing From Exxon.” I too had read the article, and ExxonMobil’s reported behavior struck me as imprudent as well as unkosher. A carbon tax could come back to bite natural gas producers big time if the EPA decides, along the lines of Cornell University research, that fugitive methane emissions from hydraulic fracturing make natural gas as carbon-intensive as coal.

The Bloomberg article quoted an email from ExxonMobil spokesperson Kimberly Brasington:

Combined with further advances in energy efficiency and new technologies spurred by market innovation, a well-designed carbon tax could play a significant role in addressing the challenge of rising emissions. A carbon tax should be made revenue neutral via tax offsets in other areas.

As explained previously on this site, a revenue-neutral carbon tax is a political pipedream, as is a carbon tax that preempts EPA and State-level greenhouse gas regulations. ExxonMobil is too savvy not to know this. So I interpreted Brasington’s caveats (“combined,” “well-designed,” “revenue-neutral”) to be the typical K Street evasiveness of those wishing to signal rather than declare their support for a controversial policy.

But articles published today in FuelFix and The Hill contend that ExxonMobil “does not support” a carbon tax and is “not encouraging policymakers” to impose such a tax. Both articles quote ExxonMobil VP for public affairs and government relations Ken Cohen:

If policymakers are going to adopt a measure, a regime to affect or put in place a cost on the use of carbon across the economy, then as we look at the range of options, our economists and most economists would support a revenue-neutral, economy-wide carbon tax as the most transparent and efficient way of putting in place a cost on the use of carbon.

Not supporting and not encouraging is not the same as opposing. Indeed, not opposing while saying But if you’re gonna do it, do it like this! can be a low-profile way to support and encourage! Also, why say anything favorable about carbon taxes when cap-and-trade is dead and there’s no longer even a weak prudential case for supporting carbon taxes as the lesser evil?

According to FuelFix, Cohen rejected a carbon tax “imposed solely to raise revenue.”

“If the policy objective is to raise revenue, it’s not on the table,” he [Cohen] said, insisting that a better way to send dollars to federal coffers would be to open up more public lands and waters for drilling.

But of course the leading objective for many proponents is precisely to raise revenue.* Carbon taxes have suddenly emerged as a hot topic for one reason only — their potential to sustain Washington’s spending addiction for a few more years. The folks at ExxonMobil have to know this.

So the question returns: Why on Earth at this time is ExxonMobil making happy noise about carbon taxes? 

* Ditto for cap and trade. As my colleague FOIA master Christopher Horner discovered, the Obama Treasury Department estimated cap-and-trade would bring in revenues up to $400 billion annually from carbon permit sales — a share of GDP roughly equal in size to the corporate income tax.

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.”

Today, Rep. Jim McDermott (D-Wash.) introduced the “Managed Carbon Price Act of 2012″ (MCP), a bill imposing a tax on carbon dioxide-equivalent  greenhouse gas (GHG) emissions from producers of coal, oil, and natural gas, refineries, and other covered sources. The MCP has roughly the same long-term goal as the Waxman-Markey cap-and-trade bill, the Copenhagen climate treaty, and California Assembly Bill 32 — an 80% emissions reduction below 2005 levels by 2050.

Under the MCP, covered sources would have to purchase (non-tradeable) permits equal to the quantity of CO2-equivalent GHGs they emit. The Secretary of Treasury, in consulatation with the Secy. of Energy and Administrator of EPA, would “manage” permit prices to ensure that both the long-term and interim reduction targets are met. Permit prices would have to stay within a maximum and minimum “price collar.” Seventy-five percent of the proceeds would be returned to citizens as “dividends,” and 25% would be applied to deficit reduction. A fact sheet, section-by-section analysis, and side-by-side comparison with last year’s version of the bill provide more detail.

A few quick observations. First, the overwhelming majority of Republican members of Congress have signed the Taxpayer Protection Pledge – a promise to the citizens of their State or district not to support any tax increase that is not offset by an equal reduction in other taxes. Because 25% of the proceeds raised by the ‘managed’ carbon tax would be applied to deficit reduction, the MCP is not ‘revenue-neutral.’ Pledge takers cannot vote for the MCP without breaking their promises to their constituents. Even if some GOP lawmakers agree with the bill’s climate policy objectives, few will dare to support it.

Second, as I discuss this week on National Journal’s energy blog, there are only two defensible reasons for economic liberty/limited government advocates to consider a carbon tax proposal such as the MCP. One is if we’re stuck with a choice between carbon taxes and cap-and-trade. Back in 2007-2010, some clever people argued that we had to support carbon taxes because “you can’t beat something with nothing.” They were wrong. We beat cap-and-trade by exposing it as a tax. Why on Earth should we support carbon taxes now, when cap-and-trade is dead?

Some limited government advocates may be intrigued by the possibility of a grand bargain in which a national carbon tax replaces all federal and State anti-carbon regulatory programs. Those include not only the EPA’s greenhouse gas regulations but also the Renewable Fuel Standard, sub-rosa carbon regulations like the Utility MACT Rule (which effectively bans the construction of new coal power plants), California’s EPA-awarded power to meddle in fuel-economy regulation, California’s cap-and-trade program and low-carbon fuel standard, the Northeast States’ regional greenhouse gas regulatory compact (RGGI), and State renewable portfolio standards (RPS).

That the EPA, California, and major environmental organizations would agree to such a bargain is unthinkable. They have spent 40 years fighting for the regulatory mandates they currently administer or influence, not for carbon taxes. The only deal they might accept is one in which they get carbon taxes and carve-outs for regulatory sacred cows.

Perhaps reflecting this reality, McDermott’s fact sheet, section-by-section, and side-by-side contain no hint or suggestion that carbon taxes would replace or preempt other greenhouse gas reduction policies. The MCP is about as DOA as any bill could be.

Yes, that George Shultz, President Ronald Reagan’s Secretary of State. But not everyone who served with Reagan was a Reaganite. Reagan’s VP, G.H.W. Bush, famously campaigned on a platform of “Read my lips: No New Taxes.” Not two years later he raised taxes in a 1990 budget deal that torpedoed the economy and sank his presidency.

Yesterday, in an interview puff piece penned by two associates, Shultz, a distinguished fellow at Stanford University’s Hoover Institution, called for a ‘revenue-neutral’ carbon tax. This is unsurprising. As the article reminds us, in 2010, Shulz, partnering with Tom Steyer, a Democrat, “led the successful campaign to defeat Proposition 23, a California ballot initiative to suspend the state’s ambitious law to curb greenhouse gases.”

Nothing in the article indicates that Shultz thinks a carbon tax should replace California’s cap-and-trade regime established by AB 32. Nor is there any hint that Shultz would condition the enactment of carbon taxes on repeal of the EPA’s court-awarded power to regulate greenhouse gases via the Clean Air Act.

This pattern is becoming boringly familiar.

As noted here, earlier this week, former Rep. Bob Inglis (R-S.C.) launched a new institute with Rockefeller Family Fund backing to promote carbon taxes as a ‘Republican idea.’ Inglis said nothing to suggest that he views carbon taxes as an alternative to EPA’s greenhouse gas regulations, or that one of his objectives is to rein in the agency and return control over climate policy to the people’s representatives.

Kevin Hassett, economic policy director of the American Enterprise Institute (AEI), a conservative think tank, took heat this week for hosting a secret meeting on carbon taxes titled “Price Carbon Campaign/Lame Duck Initiative.” The agenda looks and smells like, well, what it is: the outline for a strategy session to build the PR/legislative campaign to enact carbon taxes. Participants included such ‘progressive,’ pro-Kyoto organizations as Union of Concerned Scientists, Public Citizen, and Climate Action Network.

Hassett issued the following statement in response to media inquiries:

In recent years, AEI has been accused of being both in the pocket of energy companies and organizing to advocate a carbon tax. Neither is true. AEI has been, and will continue to be, an intellectually curious place, where products aren’t influenced by interested parties, and ideas from all are welcome in seeking solutions for difficult public policy problems.

That doesn’t cut it. Such self-congratulatory platitudes tell us nothing about where Hassett stands on carbon taxes. If he is opposed to carbon taxes, he should say so. If he supports some kind of ‘grand bargain’ in which carbon taxes replace the EPA’s greenhouse gas regulatory agenda, he should say so. But I doubt that he will advocate such a swap, because the moment he does, the ‘progressives’ — the EPA’s amen chorus – will pick up their marbles and go home. Until Hassett clarifies his position, people will assume the worst, and reasonably so.

Even if Hassett’s objective is to get the EPA out of the GHG regulation biz, the timing of the AEI carbon tax pow-pow could not have been worse. With the unemployment rate still exceeding 8%, now is not the time to call for a massive new tax on energy. Nor is this the time for GOP influentials to launch a carbon tax campaign when the choice facing the electorate in November is largely a choice between a Democratic Party that is anti-energy and pro-tax and a Republican Party that is pro-energy and anti-tax.

But there has always been a wing of the GOP — the “establishment,” “Country Club,” or “Rockefeller” Republicans — who care more about controlling the party than about advancing liberty or even about winning elections. AEI’s Ken Green (a colleague of Hassett’s) hits the nail on the head. In a story on Shultz’s endorsement of carbon taxes, Green told Climatewire:

“There seems to be an eruption of conservatives — very moderate-seeming conservatives, non-tea party, old country club-style conservatives — who are suddenly enamored of carbon tax,” said Kenneth Green, a resident scholar at the American Enterprise Institute.

“I think this is mostly vanity and egotism on the part of these people who are coming forward, to try and reassert the Republican establishment over the tea party revolution,” he added. “I wouldn’t be surprised if we have more of these guys weigh in.”

Update: 5:45 pm, July 13, 2012

BTW, in 2007 Green co-authored a paper with Hassett and AEI’s Steven Hayward (Climate Change: Caps vs. Taxes) arguing that carbon taxes would be better than cap-and-trade, which would be better than an EPA-run system. Today in AEI’s online journal, The American, Ken explains why he “no longer believe[s] that such a tax (or, for that matter, other eco-taxes) can be implemented in the sort of ideal, economically beneficent way that people favoring either individual liberty, free markets, or limited government might sanction.” He concludes: “Even in flush economic times, carbon taxes would be bad policy. When economies are already laboring under too much spending, and are at diminishing-return levels of taxation, implementing a carbon tax would be a mistake.”

Well, Dr. Hassett, what do you think?

Concerning the “Price Carbon Campaign/Lame Duck Initiative” meeting of center-right and ‘progressive’ pols, wonks, and activists yesterday at the American Enterprise Institute (AEI), herewith a few additional thoughts.

Today’s Greenwire quotes AEI economic policy director Kevin Hassett saying that AEI was just playing host and the meeting was just information sharing. Well, okay, let’s assume he experienced it that way, but what about the ‘progressives’ who set the agenda? They must really be into sharing, because this was their fifth meeting. Whatever the AEI folks thought the event was about, the agenda clearly outlines a strategy meeting to develop the PR/legislative campaign to promote and enact carbon taxes.

During the cap-and-trade debate in the last Congress, there was something of a consensus among economists that EPA regulation of greenhouse gases (GHGs) is the worst option, a ‘comprehensive legislative solution’ (i.e. cap-and-trade) has less economic risk, and a carbon tax is the most efficient option. But the ‘progressives’ in the “Price Carbon Campaign” are pushing for carbon taxes on top of EPA regulation.

Because the meeting was non-public and hush-hush, we may never know who said what. Here are some points the ‘conservative’ economists  should have made:

(1) With unemployment still above 8%, the last thing the U.S. economy needs is a massive new tax on energy. (2) The EPA’s UMACT Rule and GHG Standard Rule each effectively bans the construction of new coal-fired power plants. (3) The GHG Standard Rule is a slippery slope that sooner or later will constrain gas-fired generation. (4) Adding carbon taxes to the GHG Rule could snuff out the shale gas revolution, especially if lifecycle analysis demonstrates that natural gas is actually as carbon intensive as coal or more so. (5) The UMACT/GHG Standard/Carbon Tax Combo could play havoc with electricity prices and reliability almost as much as Al Gore’s goofy plan to ‘repower America‘ with ‘zero carbon’ energy sources in 10 years.

In short, the only defensible reason for ‘conservative’ economists to discuss carbon taxes is as a TOTAL replacement for ALL EPA greenhouse gas regulations. But that ‘progressives’ would agree to any such swap is unimaginable. So what really is there to talk about?

Another pre-condition for any ‘conservative’ worthy of the name is that the carbon tax be ‘revenue neutral.’ That is, whatever revenues the carbon tax generates should be offset by reductions in other taxes. But how likely is it that ‘progressives’ would agree to apply Grover Norquist’s no-net-increase Taxpayer Protection Pledge to their beloved carbon tax? Again, unless ‘conservatives’ are willing to sell out, there’s no point in forming a left-right coalition on carbon taxes.

Finally, whatever policy objectives the ‘conservative’ participants might have had in mind, the timing of the AEI-hosted pow-wow was all wrong. Any GOP expression of interest in carbon taxes at this time can only muddy the election-year battle lines between what may loosely be called the pro-tax/anti-energy party and anti-tax/pro-energy party. It is also entirely unclear at this point what kinds of concessions might have to be made in 2013 to rein in the EPA. For example, a clean sweep in the November elections might make the GOP strong enough to limit the regulatory fallout from Massachusetts v. EPA without endorsing carbon taxes.

Today, the American Enterprise Institute (AEI), a prominent conservative think tank, hosted a secret, four-and-a-half hour meeting of pols, wonks, and activists, including several self-identified ’progressives,’ to develop a PR/legislative strategy to promote and enact a carbon tax. This was the fifth such meeting to advance the ”Price Carbon Campaign/Lame Duck Initiative: A Carbon Pollution Tax in Fiscal and Tax Reform.” An annoted copy of the meeting agenda appears at the bottom of this post.

Perhaps not coincidentally, earlier this week former GOP Congressman Bob Inglis of South Carolina launched the Energy and Enterprise Initiative, an organization promoting carbon taxes. Inglis obtained funding for the project from the Rockefeller Family Fund and the Energy Foundation, both left-leaning foundations.

Left-right coalitions can be principled and desirable. For example, I worked with environmental groups to help end the ethanol tax credit, and I work with them now to develop the case for eliminating the ethanol mandate. We collaborate because we share the same policy objective, even if not always for the same reasons. The free marketers want to end political meddling in the motor fuel market and the environmentalists want to end federal support for a fuel they regard as more polluting than gasoline. The common objective is consistent with each partner’s core principles.

But such cases are the exception rather than the rule. In general, when left and right join forces, the appropriate question is: Who is duping whom?

My colleague Myron Ebell sent out an alert about the AEI-hosted carbon tax cabal earlier today. It appears immediately below:

From 1:30 until 5 PM today, the American Enterprise Institute is hosting a hitherto secret meeting to discuss how to enact a carbon tax in a lame duck session this fall or perhaps in the 113th Congress.  I have pasted the agenda below and an article from today’s Greenwire.  Note that this is the fifth meeting that they have held.  Also note that the comments made about the meeting in the Greenwire article (just economists brainstorming) bears no relation to the agenda, which is clearly about plotting political strategy to enact a carbon tax.

As my colleague Marlo Lewis noted, we defeated capntrade by convincing the American public that it was really capntax.  Twenty-odd House Democrats who voted for Waxman-Markey lost their seats.  The Democratic Senate refused to take it up.  It’s political poison, so naturally the more brain-dead parts of the Republican and big business establishment have decided how clever it would be to resurrect the carbon tax and push it as an alternative to regulation.  I don’t notice anything in the AEI agenda about repealing the greenhouse gas emissions standards as part of the deal.  Why don’t we do that first?  Then we can talk about alternative policies if any.

Also note the idea that a deal could be done so that a carbon tax would be offset by reductions in other taxes and would therefore be revenue neutral.  There are multiple problems with the idea of revenue neutrality.  First, it never works.  A new tax will quickly be raised.  Second, the poorer people are, the higher the percentage of their income that goes for energy.  Poor people already don’t pay much or any income tax.  So a consumption tax offset by, for example, cuts in the corporate income tax rate, will be highly regressive.  Third, the only way a carbon tax will reduce fossil fuel consumption is if it’s set quite high.  And the only way a carbon tax will raise much revenue is if it’s set quite high.  Thus they must be advocating European levels of taxation.  Say $5 dollars a gallon of gasoline.  Roughly $500 per ton of coal.

We must kill this incredibly harmful idea as quickly as possible.  We can start by letting our contacts at AEI know what we think of their plotting to foist a carbon tax on America.

This is troubling because the dumb party has an uncanny ability to snatch defeat from the jaws of victory. Stopping Obama’s war on affordable energy is a key GOP campaign theme in 2012, and the base is upset because the Supreme Court just upheld the Obamacare individual mandate as a tax. Yet some GOP influentials now call for an open, unvarnished tax on affordable energy.

The GOP’s only clear product differentiator – and most durable political asset — is its reputation as the no tax increase party. The Inglis and AEI initiatives, if successful, would destroy this asset.

Inglis, by the way, proposed a carbon tax bill in the last Congress. He was roundly defeated in the primary by a Tea Party candidate, now-Rep. Trey Gowdy (R-S.C.). At least in 2010 Inglis could claim that he was offering a less mischievous alternative to cap-and-trade. But cap-and-trade is dead. There is no longer a prudential case to be made for carbon taxes as the lesser evil.

Some proponents claim that a carbon tax can be structured to be revenue neutral. For example, revenues from the carbon tax could be used to lower Social Security (FICA) taxes. So why not tax ‘bads’ like greenhouse gas emissions rather than ‘goods’ like labor? This clever rhetoric glosses over serious risks and downsides.

• Substituting carbon taxes for FICA taxes would weaken the already tenuous link between Social Security contributions and benefits. It would doom any prospect of transforming Social Security from a Ponzi-like scheme to a system in which younger workers are ”allowed to save a portion of their payroll taxes through privately invested personal accounts.”
• As mentioned in Myron’s alert, a carbon tax is an energy tax and energy taxes are regressive.
• In a genuinely free society, taxes are used solely for revenue collection to fund essential (limited) government services. That is, taxes are not used to control behavior, reward friends and punish enemies, or pick winners and losers in the marketplace. While all taxes affect behavior and industrial competitiveness, carbon taxes deliberately aim to do so. Consequently, the extent of the tax will be determined not only by fiscal considerations but also by ideological judgments about which industries should win and lose, and by sky’s-the-limit speculation about the ‘social cost of carbon.’
• Finally, revenue neutrality is a pipe dream, not only because of the way Washington works, but also because many proponents want a carbon tax precisely to increase federal revenue. For example, digital analysis traces the AEI meeting agenda to James Handley, a principal at CarbonTax.Org. Although the Web site talks about ‘softening’ the impacts by distributing revenues to households as carbon ‘dividends’ and about ‘reducing other taxes,’ a key selling point is “generate revenue to help close our looming budget gaps.”

* * *
Price Carbon Campaign / Lame Duck Initiative:
A Carbon Pollution Tax in Fiscal and Tax Reform

Meeting V, Wednesday, July 11, 2012
American Enterprise Institute, 1150 17th Street, N.W.

12:45 – Lunch

1:30 – Background and orientation
1) Welcome from AEI (Kevin Hassett [Director of Economic Policy Studies, AEI])
2) Brief introductions from participants
3) Overview of agenda and facilitation format (Alden Meyer [D.C. Office Director, Union of Concerned Scientist])
4) Background and context for meeting (Tom Stokes[Climate Crisis Coalition Coordinator and Pricing Carbon Campaign])

Session I: Update on posture of key constituencies

1:45 – Congressional Republicans, Romney and Business Leaders
Detoxifying climate policy for conservatives.
Discussants: Kevin Hassett [Director of Economic Policy Studies, AEI], Dave Jenkins [Vice President of Government and Political Affairs, Republicans for Environmental Protection], Eli Lehrer [Research Fellow, Independent Institute and President of the R Street Institute, former Senior Fellow at the Competitive Enterprise Institute, and Vice President at the Heartland Institute], Bill Newman [Legislative Consultant, Clean Air Cool Planet]

2:15 – Progressive/Social justice groups
Discussants: Danielle Deane [Director of Energy and Environment Program, Joint Center for Political and Economic Studies], Tyson Slocum [Director of Energy Program, Public Citizen], Chad Stone [Chief Economist, Center of Budget and Policy Priorities]

2:45 – Economists and deficit hawks
Discussants: Autumn Hannah [Senior Program Director, Taxpayers for Common Sense], Aparna Mathur [resident scholar, AEI], Diane Lim Rogers [chief economist, Concord Coalition], Rob Shapiro [ex- U.S. Under Secretary of Commerce for Economic Affairs under President Bill Clinton, currently Senior Policy Scholar at the Georgetown University School of Business, Senior Fellow of the Progressive Policy Institute, advisor to the International Monetary Fund, director of the Globalization Center at NDN, chairman of the U.S. Climate Task Force, co-chair of America Task Force Argentina]

3:15 – Break

Session II: Framing and selling a carbon pollution tax

3:30 – Initial thoughts on a post-election public opinion and education campaign
Discussant: Kevin Curtis [Program Director Al Gore’s Climate Reality Project; Board of Directors, Climate Action Network]

4:00 – Building bipartisan support and navigating Ways & Means
Discussant: Tom Downey [former Democrat Representative]

4:30 – Honing the case for a carbon pollution tax
Ian Parry [Technical Assistance Advisor in the IMF’s Fiscal Affairs Department] : IMF book on carbon tax in fiscal context
Rob Williams [Senior Fellow and Director, Academic Programs, Resources for the Future]: RFF FAQ
Adele Morris [Policy director for the Climate and Energy Economics Project, Brookings Institute] : November 13th AEI/Brooking/IMF event & July 12th RFF discussion

5:00 – Next steps and Wrap-up
5:15 – 6:00:  Gather for informal conversation and light refreshments

Aussie Labor Party Prime Minister Julia Gillard is waging an aggressive PR campaign to sell carbon taxes in the Land Down Under. Resistance is fierce, with opposition leaders saying the tax “is so toxic that Labor MPs could dump her to save their own seats” (The Australian, June 3, 2011). 

In June 2010, Labor ousted Ms. Gillard’s predecessor, Kevin Rudd, not long after the Australian Parliament, in April, rejected Rudd’s Carbon Pollution Reduction Scheme (CRPS), a greenhouse cap-and-trade program.

In August 2010, Guillard barely survived an election that produced “Australia’s first hung parliament in recent decades” (Reuters, Sept. 7, 2010). The current Labor-Green-Independent coalition has a one-vote majority in the Australian House of Representatives.

In a campaign speech on climate policy shortly before the 2010 election, Gillard claimed to have learned the “lessons” of CRPS’s defeat. According to her, the government moved too fast because the “consensus” for cap-and-trade was not a “community consensus.” So Gillard pledged that if she won the election, Labor would establish a “Citizens’ Assembly” – a 12-month ”process” whereby government experts would engage the community and make the case for urgent action on climate change. 

And what if this re-education program failed to work? As President Obama might say, Ms. Gillard noted there were other ways of skinning the cat. “I [will not] hold back actions that could move us forward from today to create a cleaner, more efficient future,” she declared. Gillard mentioned several options such as policy privileges for renewable energy, jaw boning big emitters, and voluntary emission reduction credits applicable to a future cap-and-trade program. She did not, however, mention the policy she’s pushing now: carbon taxes.

Under her proposal, about 1,000 of Australia’s largest emitters would pay a $26/ton carbon tax. The tax would take effect in July 2012 and morph into a cap-and-trade program three to five years later.

Opposition Leader Tony Abbott has been criss-crossing the country warning of enormous job and GDP losses (Courier Mail, June 4, 2011). Opinion polls indicate that 60% of voters oppose the tax compared to 30% in favor (Reuters, June 2). Actress Cate Blanchett made a “just say yes, to the carbon tax” television ad. Some 140 celebrities signed a petition supporting the tax as part of a $1 million advertising campaign (Climatewire, May 31). 

Why should Americans care?

Washington is engaged in the biggest budget battle ever. Democratic leaders are unwilling to cut the deficit through spending cuts alone. And for Team Obama cap-and-trade was always chiefly a plan to raise federal revenues. That’s why it’s more popularly known as cap-and-tax. Carbon taxes as a partial solution to the nation’s fiscal crisis — and as less odious than EPA regulation of greenhouse gases via the Clean Air Act — was a topic of debate at a recent American Enterprise Institute panel, “Whither the carbon tax?”

Politicians in Washington will thus be watching closely how the battle over carbon taxes plays out in Australia. Dems in particular will be more likely to push for carbon taxes here if Gillard can pull it off.

To my knowledge, Colorado is the only state in which regulators allow utilities to incorporate a carbon tax into the economic models used to make resource acquisition decisions (see here and here). Ratepayers can’t see it in their monthly bill, but the tax is used in the models, and the models dictate spending. It’s the worst kind of virtual reality: The carbon tax leaps from computers to ratepayer wallets.

The Colorado Public Utilities Commission was authorized to allow for a carbon tax in 2008 with the passage of HB 1164 by the General Assembly. The legislation was advertised as an essential component of former Governor’s Bill Ritter’s environmentalist “New Energy Economy,” but, in practice, the carbon tax has served as an accounting loophole through which Xcel Energy, the largest investor-owned utility in the State, has awarded itself big time profits. In a previous post, I explained in some detail how Xcel uses the carbon tax. Here are a few examples:

• One of Xcel’s priorities is winning market share from independent power producers on the wholesale electricity market. Older natural gas plants are Xcel’s fiercest competitors, because they have already paid off their capital costs, so they can bid electricity prices relatively low. The $20/ton carbon tax eliminates this advantage, because new plants are more efficient than older plants. It tilts the playing field to Xcel’s favor.

• In implementing HB 1365, the Clean Air Clean Jobs Act, 2010 legislation mandating fuel switching from coal to gas for almost 1,000 megawatts of electricity along the Front Range in Colorado, Xcel used the $20/ton carbon tax to obfuscate the price impact. The carbon tax inflated by scores of millions of dollars the baseline rate against which the costs of the law were calculated.

• On HB 1001, Colorado’s renewable electricity standard, Xcel employed the $20/ton carbon tax to circumvent the 2% rate cap that lawmakers had implemented to protect consumers. The effect of the carbon adder is to significantly expand Xcel’s annual expenditures, which increases the pool from which the company can reap profits.

A recent flip flop by Xcel demonstrates the company’s cynical manipulation of the carbon tax. As part of the 2007 Electric Resource Plan, Xcel committed to building a 250 megawatt concentrated solar power plant in the San Luis Valley in southern Colorado.  The commitment was finalized in late summer, 2009. Less than a year later, in June, 2010, Xcel petitioned the PUC for permission to abandon the solar plant.

Investor-owned utilities like Xcel play a delicate balancing act when it comes to capital expenditure. Generally speaking, the more Xcel spends, the more profit it makes, so it has an incentive to press for as much capital construction as possible. However, if the utility builds too much, and prices rise too fast, then it risks a backlash from the legislature, which could lead to the enactment of policies inimical to the utility. The 250 megawatts of concentrated solar power was so ridiculously expensive that Xcel realized it could upset this balance, and thereby risk blowback from the General Assembly.

Altering an Electric Resource Plan is no small matter. There are serious due process issues inherent to unilaterally changing a PUC-approved order. So Xcel needed a good reason for backing out of the solar deal. Specifically, it had to demonstrate that solar power is egregiously cost-ineffective relative to conventional power generation.

For accounting purposes, Xcel calculates the cost of renewable energy relative to natural gas generation. And in calculating the cost of natural gas, Xcel should be bound by the procedures established by Phase 1 of the 2007 Electric Resource Plan, which included, for the first time, the carbon tax. But that would have harmed Xcel’s argument, because the carbon tax would make gas much more expensive vis a vis a carbon free energy source, like concentrated solar power. So Xcel dropped the carbon tax. Here’s how Xcel’s Kurtis J Haeger, Managing Director of Wholesale Operations, justified Xcel’s decision in April 14, 2011, testimony before the PUC.

“We attempted to use the approved resource planning methodologies and factors from the last resource plan as we are directed to do…and in this case, the assumption used in the ’07 Resource Plan was for a carbon tax or carbon proxy to go into effect in 2010. Sitting in 2011, I know that didn’t happen…We updated the assumptions because the carbon assumption we had in the original modeling was not valid anymore.” [Transcript from April 14 PUC hearing, p 19 lines 19-21, 25; p 20 lines 1-4, 12-14]

This rationalization is bogus. It’s been apparent that the Congress won’t put a price on carbon since the fall of 2009, when the Senate shelved a cap-and-trade scheme that had been enacted by the House the previous summer (the legislation was the American Clean Energy and Security Act), yet this didn’t stop Xcel from using the carbon tax in its models.

Fattened profits are a much more plausible reason for Xcel to suddenly flip-flop on the carbon tax. Quite simply, when use of the carbon tax benefited Xcel, the utility wanted to use it. And now that the carbon tax no longer benefits Xcel, the utility doesn’t want to use it.

The stunning victory by Stephen Harper’s Conservatives in Canada’s election means the death of cap-and-trade or a carbon tax in Canada.  The Conservative Party’s platform firmly opposed both cap-and-trade and carbon taxes. The Liberal Party, which was annihilated in the election, equally strongly supported imposing a cap-and-trade scheme to reduce greenhouse gas emissions.

Conservatives won  a clear majority of 167 seats in the 308-member federal Parliament.  They had formed a minority government since 2007.  For the first time in Canadian history, the Liberal Party dropped to third place with 34 seats.  The hard left New Democratic Party (NDP) wiped out the Bloc Quebecois in Quebec and will become the official opposition with 102 seats.  The NDP and the Bloc Quebecois also support cap-and-trade.  The Green Party won its first seat in Parliament.

This is another clear sign that public support for cap-and-trade and other energy-rationing policies is waning.  Cap-and-trade has been dead in the United States since the Waxman-Markey bill narrowly passed the House of Representatives on June 26, 2009.  And in Australia, the Labour Party government is in deep trouble as a result of proposing a carbon tax.  The global warming fad appears to be fading fast.

5.       New Jersey Governor Chris Christie
Christie’s skepticism of global warming alarmism is great. What’s not so great is his continued participation in a regional cap-and-trade energy rationing scheme. For whatever reason, the climate skeptic sounding governor has yet to pull his state out of the Regional Greenhouse Gas Initiative, the aforementioned energy tax.

4.       Florida Governor Charlie Crist (lame duck)
In 2007, Crist signed a series of environmentalist executive orders, which, thankfully, never came to fruition because they were spurned by the State Legislature. Crist earned his spot on this list for his invertebrate take on offshore drilling. When he campaigned for Governor, he opposed offshore drilling; when gas prices spiked in the summer of 2008, he supported drilling; and after the Gulf oil spill this past summer, he reverted back to opposing the practice.

3.       California Governor Arnold Schwarzenegger (lame-duck)
As I’ve explained here, here, and here, the Governator’s environmentalist pandering is empty blathering. For all the talk about California going green, the fact of the matter is that California’s environmentalist energy policies have been ineffectual at achieving anything other than higher energy prices. Rather than environmentalist accomplishments, Schwarzenegger’s only lasting legacy will be the almost-unlimited power he has bequeathed to his successor, Governor-elect Jerry “Moonbeam” Brown. Starting in 2011, the law accords the Governor amorphous, yet absolute, authority to mitigate climate change.

2.       New Mexico Governor Bill Richardson (lame duck)
Using authority derived from 1978 state law, New Mexico Governor Bill Richardson (D) last month imposed a cap-and-trade energy rationing scheme. The lame-duck Governor enacted the energy-rationing scheme administratively on November 2, the same day that voters indicated their displeasure with expensive energy climate policies by electing Susana Martinez (R) to succeed Richardson. She had campaigned against cap-and-trade. To be sure, Richardson’s energy policy is largely toothless; nonetheless, the executive power grab is disconcerting.

1.       Colorado Governor Bill Ritter (lame duck)
It will take a generation for Coloradans to undo the harm inflicted by the Governor Bill Ritter’s much-ballyhooed “New Energy Economy.” At Ritter’s behest: the General Assembly changed the mission of state utilities from providing “least cost” electricity, to fighting climate change; the Public Utilities Commission allowed the nation’s first carbon tax; and Department of Public Health and Environment exaggerated the threat of federal air quality regulations in order to justify legislation that picks winners and losers in the electricity industry.