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.

Heritage Foundation analysts David Kreutzer and Kevin Dayaratna yesterday released a study on the economic impact of carbon tax legislation (the Climate Security Act of 2013) sponsored by Sens. Barbara Boxer (D-Calif.) and Bernie Sanders (I-Vt.). The Boxer-Sanders legislation would establish a new tax that starts at $20 per ton of carbon dioxide (CO2) emitted and increases by 5.6% annually.

As Kreutzer and Dayaratna point out, hydrocarbon fuels supply 85% of all the energy Americans use, and “basic chemistry” dictates that CO2 will be emitted when those fuels are oxydized (burned) to release energy. The economic implications of those facts are significant and unavoidable:

Therefore, a tax on CO2 would be a tax on the 85 percent of energy derived from hydrocarbons and would increase energy costs broadly. The higher energy costs would ripple through the economy, driving up costs of production of virtually all goods and services. Faced with higher costs for energy and other goods, consumers would cut consumption, translating into a reduction in sales and a marked decline in employment. Though rebating the tax partially offsets these impacts, there would still be a net loss of income and jobs.

Using an energy model derived from the Energy Information Administration’s National Energy Model System (NEMS), the Heritage scholars calculate that, compared to a no-carbon tax baseline, the Boxer-Sanders proposal would:

• Reduce the income of a family of four by more than $1,000 per year.
• Reduce employment by more than 400,000 jobs in 2016.
• Decrease coal production by 60% and coal employment by more than 40% by 2030.
• Decrease employment 10.4% and 20.9% in the iron and steel and aluminum industries, respectively, by 2030.
• Increase gasoline prices $0.20 by 2016 and $0.30 before 2030.
• Increase electricity prices 20% by 2017 and more than 30% by 2030
• Increase federal taxes by $3 trillion through 2030.
• Reduce GDP by $92 billion in 2020 and $146 billion in 2030.
• Decrease projected global warming by, at most, 0.11C by 2100 [probably too little to be reliably detected].

My two cents: The Boxer-Sanders proposal exhibits the same old abysmal cost-benefit ratio that preempted U.S. ratification of the Kyoto Protocol and scuttled the Waxman-Markey cap-and-trade bill. Boxers and Sanders must surely know that a carbon tax has no chance of passing as a stand-alone bill. The Climate Security Act is thus a messaging bill designed to move public debate in favor of including carbon taxes in “comprehensive tax reform.” The Heritage study is a valuable and timely antidote to the message Boxer and Sanders are promoting.

Heritage Foundation economists David Kreutzer and Nicolas Loris have posted an assessment of the economic impacts of a carbon tax that starts out at $25 per ton and increases by 5% annually (after adjusting for inflation). Rather than use industry data or assumptions, they compare two policy scenarios (“side cases”) from the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2012.

Specifically, Kreutzer and Loris compare projected household income, utility bills, gasoline prices, and job creation in the $25 per ton carbon tax side case and the no-greenhouse-gas-concern side case, a scenario in which energy investors face no risk of a carbon tax or greenhouse gas (GHG) regulation.  

Here’s what they found. A ‘modest’ carbon tax, as described above, would:

• Cut the income of a family of four by $1,900 per year in 2016 and lead to average losses of $1,400 per year through 2035;
• Raise the family-of-four energy bill by more than $500 per year (not counting the cost of gasoline);
• Cause gasoline prices to increase by up to $0.50 gallon, or by 10 percent on an average gallon price; and
• Lead to an aggregate loss of more than 1 million jobs by 2016 alone.

The foregoing numbers do not take into account the economic benefits of a carbon tax that displaces other taxes or that preempts EPA and state-level GHG regulations. But that is fitting and proper, argue Kreutzer and Loris, because a revenue-neutral carbon tax is a political pipedream, and so is a tax-for-regulation swap.

Carbon taxes are in vogue in certain quarters today for one reason only: their obvious potential to feed Washington’s spending compulsion by increasing net tax revenues. “Before carbon tax legislation has even been introduced,” the Heritage analysts note, ”ideas on how to use the revenue already include income transfers, paying for [avoiding?] defense spending cuts, reducing the deficit, transferring money to developing countries to adapt to climate change, and the list goes on.”

Setting a carbon price and letting markets sort out the consequences may appeal to some blackboard economists, but not to the global warming movement, which has continually lobbied for mandates in addition to carbon pricing schemes like cap-and-trade. ”For instance,” Kreutzer and Loris point out, ”the Waxman-Markey bill went on for nearly 700 pages before it even began the cap-and-trade section.”

The Heritage duo let Rep. Henry Waxman have the last word on the likelihood of a tax-for-regulation swap. Asked for his position, Rep. Waxman recently stated: 

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.

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.

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Update (Dec. 27, 2012)

Over at MasterResource.Org, my colleague Rob Bradley reproduces Enron Lobbyist John Palmisano’s Dec. 12, 1997 memo on the Kyoto climate treaty conference crowing that, “This agreement will be good for Enron Stock!!”

Palmisano lobbied for Kyoto’s three main policy mechanisms – joint implementation, clean development, and emissions trading. He enthused:

The endorsement of joint implementation within Annex-1 is exactly what I have been lobbying for and it seems like we won.  The clean development will be a mechanism for funding renewable projects. Again, we won. (We need to push for natural gas firing to be included among the technologies that get preferential treatment from the fund.)  The endorsement of emissions trading was another victory for us.

Palmisano and Enron won plaudits at the Kyoto conference:

I gave three speeches and received an award on behalf of Enron. The speeches dealt with emissions trading, energy efficiency/renewable, and the role of business in promoting clean energy outcomes. The award came from the Climate Institute and was for Ken Lay and Enron for our work promoting clean-energy solutions to climate change.

Enron had become the green Left’s corporate darling. Palmisano reported:

Through our involvement with the climate change initiatives, Enron now has excellent credentials with many “green” interests including Greenpeace, WWF, NRDC, GermanWatch, the US Climate Action Network, the European Climate Action Network, Ozone Action, WRI, and Worldwatch. This position should be increasingly cultivated and capitalized on (monetized).

(Parenthetically, I heard many times people refer to Enron in glowing terms. Such praise went like this: “Other companies should be like Enron, seeking out 21st century business opportunities” or “Progressive companies like Enron are….” Or “Proof of the viability of market-based energy and environmental programs is Enron’s success in power and SO2 trading.”)

In a separate column, Bradley explains that, “Enron, in fact, had no less than six profit centers tied to pricing carbon dioxide (CO2), and seven if CO2 were capped and traded.”

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.