David Kreutzer

Post image for 400,000 Lost Jobs by 2016 — Heritage Study of Boxer-Sanders Carbon Tax Proposal

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]. [click to continue…]
Post image for IMF Pushes Carbon Tax as Energy Subsidy “Reform”

The International Monetary Fund (IMF) recently published a report urging the world’s governments to “reform” energy subsidies estimated at $1.9 trillion in 2011. Eliminating government policies designed to rig markets in favor of particular energy companies or industries is a worthy goal. Unfortunately, that’s not the agenda the IMF is pushing.

The IMF seeks to shame U.S. policymakers into enacting carbon and coal taxes by redefining the absence of such taxes as energy subsidies. The IMF’s rationale goes like this. Market prices do not reflect the harms (“negative externalities”) fossil fuels do to public health and the environment. Consequently, fossil fuels are under-priced and society consumes too much of them. Policymakers should enact corrective (“Pigou”) taxes to “internalize the externalities” (make polluters pay) and reduce consumption to “efficient” levels.

The IMF estimates that, by not imposing corrective taxes, the U.S. subsidizes fossil fuels to the tune of $502 billion annually, making America the world’s biggest energy subsdizer!

This is blackboard economics (the pretense of perfect information and flawless policy design and implementation) in the service of a partisan agenda.

Carbon taxers disclaim any intent to pick energy-market winners and losers, but that is in fact the core function of a carbon tax. As with cap-and-trade, the policy objective is to handicap fossil energy and, thereby, “finally make renewable energy the profitable kind of energy in America,” as President Obama put it.

Predictably, the IMF says not a word about the policy privileges widely bestowed on renewable energy (renewable electricity mandates, renewable fuel mandates, targeted tax breaks, feed-in tariffs, preferential loans, direct cash grants) or about the negative externalities associated with such subsidies (avian mortality, air and water pollution, food price inflation). 

This week at MasterResource.Org, I offer skeptical commentary on the “IMF’s Carbon Tax Shenanigans.” Here is a summary of key points (including two shrewd comments posted by Heritage Foundation economist David Kreutzer). [click to continue…]

Post image for One Million Fewer Jobs Created by 2016 under ‘Modest’ Carbon Tax

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. [click to continue…]
Post image for Carbon Taxes: Kick ‘Em While They’re Down

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

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

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

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

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

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

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

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

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

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

Post image for Should the GOP Champion Climate Change as a National Security Issue?

Yes, argues Daveed Gartenstein-Ross in The Atlantic (Sep. 17, 2012). Gartenstein-Ross is the author of Bin Laden’s Legacy: Why We’re Still Losing the War on Terror. I haven’t read the book, but judging from the favorable reviews, Gartenstein-Ross has the ear of defense hawks of both parties. Does he offer sound advice on global warming?

In his Atlantic article, Gartenstein-Ross chides Republicans for taking a “decidely unrealistic tack” on climate change. “The available evidence overwhelmingly suggests that climate change is real; that extreme weather events are increasing; and that this dynamic will have an impact on American national security, if it hasn’t already,” he avers. He goes on to blame this summer’s drought on global warming, citing NASA scientist James Hansen’s claim that the 2003 European heat wave, the 2010 Russian heat wave, and the 2011 Texas-Oklahoma drought have “virtually no explanation other than climate change.” (For an alternative assessment, see these posts.) 

Since 2010, notes Gartenstein-Ross, the Department of Defense has classified climate change as a conflict accelerant — a factor exacerbating tensions within and between nations. Well, sure, what else is Team Obama at DOD going to say in an era of tight budgets when no rival superpower endangers our survival? The concept of an ever-deepening, civilization-imperilling climate crisis is an ideal mission-creep accelerant

Gartenstein-Ross concludes by urging Republicans to face “reality” and take action on climate change. However, he offers no advice as to what policies they should adopt. Does he favor cap-and-trade, carbon taxes, the EPA’s greenhouse gas regulatory cascade, ’all of the above’? Gartenstein-Ross doesn’t say. He ducks the issue of what economic sacrifices he thinks Republicans should demand of the American people. 

Below is a lightly edited version of a comment I posted yesterday at The Atlantic on Gartenstein-Ross’s article: [click to continue…]

Post image for Blame China for Solyndra’s Downfall?

Tomorrow, the House Energy and Commerce Committee will hold its second hearing on Solyndra, the manufacturer of innovative non-silicon-based solar panels that borrowed $527 million only to file for bankruptcy, shutter its brand new Freemont, Calif. factory, and lay off 1,100 employees on September 6. Expect Committee Democrats to blame China and the allegedly unforeseen fall in the price of conventional silicon-based solar panels for the debacle.

That’s the line the Department of Energy’s (DOE) witness, Jonathan Silver, took at the Committee’s first (September 14) Solyndra hearing, noting China’s provision of more than $30 billion in subsidized financing to its solar manufacturers, which rapidly dropped silicon prices, “taking Solyndra, and many industry analysts, by surprise.” DOE’s blog, Energy.Gov, had already adopted this explanation on August 31, the day Solyndra announced it would file for bankruptcy.

Similarly, Solyndra’s August 31 announcement coyly cited the “resources of larger foreign [i.e. Chinese] manufacturers” and a “global oversupply of [mainly Chinese] solar panels” as factors foiling the company’s business plan. Solyndra’s ex-employees have applied to the Department of Labor (DOL) for aid under the Trade Adjustment Assistance (TAA) program, claiming that China put them out of work. If DOL approves the application, Solyndra’s former workers will receive allowances for job retraining, job searching, and health care for up to 130 weeks, or about $13,000 per employee. Blogger Scott Linicom decries such double dipping:

So to recap: massive government subsidies created 1,100 “green jobs” that never would’ve existed but for those massive government subsidies.  And when those fake jobs disappeared because the subsidized employer-company inevitably couldn’t compete in the market, the dislocated workers blamed China (instead of what’s easily one of the worst business plans ever drafted) in order to receive . . . wait for it . . . more government subsidies. Behold, the Circle of Government Life.

Whether it’s Solyndra execs and DOE officials trying to save face, ”progressives” defending the honor of green industrial policy, or former employees looking for more taxpayer freebies, they all would have us believe that Solyndra’s $535 million loan guarantee was a good bet at the time it was made. They need a scapegoat for Solyndra’s crash, so they blame China. Indeed, some (e.g. Grist) claim Solyndra’s collapse shows that the U.S. government isn’t doing enough to help our “clean tech” companies “compete.” Balderdash.     [click to continue…]