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).

If “subsidy” is defined as a direct transfer of wealth from taxpayers or ratepayers to energy companies or industries, U.S. subsidies for renewables are much larger than those for fossil fuels, both in absolute terms and especially on a unit of production basis.

Even if we accept the IMF’s ”social cost of carbon” (SCC) estimate ($25 per ton of carbon dioxide emitted) and social cost of coal-related air pollution estimate ($62 billion in 2005), the IMF’s numbers don’t add up. U.S. CO2 emissions in 2011 were 5.5 billion tons. Multiply that by $25 per ton ($137.5 billion), add $62 billion, and we get $199.5 billion. That’s $302.5 billion or about 60% less than the IMF’s $502 billion estimate of total U.S. fossil-fuel subsidies.

The IMF advocates a $1.40/gal gasoline tax. This far exceeds the $0.22/gal tax implied by a $25 per ton SCC. American motorists on average already pay double the alleged SCC in combined federal and state gas taxes.

Gas prices have increased by more than $1.40/gal since the early 2000s, so the market has already granted the IMF’s wish to increase pain at the pump by the amount of the proposed corrective tax.

Traffic accidents and congestion account for 75% of the externalities the IMF proposes to correct via the $1.40/gal gas tax. Accidents and congestion are real costs but they have nothing to do with gasoline. If every car on the road were replaced with an electric vehicle, there would likely be the same number of accidents and levels of congestion.

A $1.40/gal gas tax would do little to curb accidents and congestion but would add about $740 to a low-income household’s annual motor fuel bill. Less affluent Americans would no doubt be grateful for such “efficiency.”

The social cost of carbon is an unknown quantity. Try, for example, to discern carbon’s social cost in the following information: There has been no trend in the strength or frequency of landfalling hurricanes in the world’s five main hurricane basins during the past 50-70 years; there has been no long-term trend in U.S. soil moisture since 1900 or in U.S. flood magnitudes for the past 85 years; global aggregate mortality and mortality rates related to extreme weather have declined by 93% and 98%, respectively, since the 1920s.

The IMF proposes a $65 per ton coal tax and claims to derive the price from a National Research Council (NRC) report, Hidden Costs of Energy, which estimates that coal power plant air pollution caused $62 billion in public health damage in 2005. The main pollutants of concern are sulfur dioxide (SO2), a precursor of fine particle (PM2.5) pollution, and direct PM2.5 emissions. The NRC relied chiefly on an American Cancer Society (ACS) study, Pope et al. (2002), to estimate the mortality effects of PM2.5. 

Even assuming the reliability of the ACS study, recent and forthcoming EPA regulations should virtually eliminate health risks related to coal power plants during the next decade. One EPA regulation alone, the Mercury and Air Toxics Standards (MATS) Rule, is projected to decrease power plant SO2 and PM2.5 emissions to 68% and 44% below 2005 levels, respectively, by 2017 (see Table 5A-6). 

Kreutzer, using Energy Information Administration (EIA) estimates of the U.S. average coal price ($41 per ton) and coal fuel-price elasticity of substitution (0.11), calculates that the IMF’s proposed $65 per ton coal tax would reduce power plant SO2 and PM2.5 emissions by 17.4% — much less than the MATS Rule’s reductions. Hence, Kreutzer concludes, if the IMF accurately estimates the externality to be corrected, “the EPA is already over controlling these emissions even without a tax on coal.”  

The social cost of coal, however, is as elusive as the social cost of carbon. Most PM2.5 pollution from power plants is in the form of ammonium sulfate and ammonium nitrate. As air quality analyst Joel Schwartz documents, clinical studies of volunteers, elderly asthmatics, and animals find that neither substance is harmful even at levels many times greater than are ever found in the air Americans breathe.

The ACS study underpinning the NRC’s $62 billion social cost of coal estimate attempts to find statistical associations between PM2.5 levels and mortality data in different U.S. cities. Toxicologist Julie Goodman cites six other epidemiological studies “that find no association between PM2.5 and mortality.” The NRC report does not consider any of those studies. The IMF probably does not even know what the NRC did not take into account.

Anne Smith of NERA Economic Consulting cautions that even if PM2.5 and mortality are associated, the uncertainties in epidemoliogical studies make quantifying the health benefits of PM2.5 reductions impossible. If so, determining an “efficient” corrective tax is also impossible.

Carbon taxes are very “efficient” at destroying jobs, wealth, and consumer welfare. Kreutzer and Heritage Foundation colleague Nicholas Loris compared two scenarios in the EIA’s Annual Energy Outlook 2012, one assuming a carbon tax that starts at $25 per ton and increases by 5% annually, the other assuming no tax or regulatory policies to curb CO2 emissions. Using the no-climate-policy scenario as a baseline, Kreutzer and Loris calculate that the aforesaid carbon tax reduces household income by $1,900 per year through 2016 and leads to aggregate job losses of more than 1 million jobs by 2016 alone.

Because people use a portion of their income to enhance their health and safety, taxes that reduce income and employment also have social costs. Numerous studies find that poverty and unemployment increase the risk of sickness and death.

Cato Institute scholar Indur Goklany documents how fossil fuels, by dramatically increasing the productivity of food production, distribution, and storage, ”saved humanity from nature and nature from humanity.” Fossil fuels have been and remain the chief energy source of a “cycle of progress” in which economic growth, technological change, human capital formation, and freer trade co-evolve and mutually reinforce each other.

Given the continuing importance of fossil fuels to human flourishing and the mortality risks of poverty and unemployment, the social cost of carbon taxes is potentially large. The IMF and other carbon tax advocates conveniently ignore this side of the policy ledger.

Carbon and coal taxes are regressive, placing a larger percentage burden on poor households, which spend a larger share of their income on energy and other necessities. The IMF recommends that governments use “targeted social programs,” i.e. welfare, to offset the effects of higher energy prices. Those who view global warming alarm as a pretext for redistributing wealth and transforming America into a European-style welfare state may be on to something.

The American Lung Association (ALA) is hawking the results of an opinion poll that supposedly shows “American voters support the U.S. Environmental Protection Agency (EPA) setting stronger fine particle (soot) standards to protect public health.” ALA spokesperson Peter Iwanowicz says the poll ”affirms that the public is sick of soot and wants EPA to set more protective standards.” Missy Egelsky of pollster Greenberg Quinlan Rosner says the survey “clearly indicates that Americans strongly back the EPA taking action now to limit the amount of soot released by oil refineries, power plants and other industrial facilities” (Greenwire, Nov. 29, 2012). This is all spin.

Most Americans probably have opinions about President Obama’s overall record and many have opinions about the Stimulus, Obamacare, the Keystone XL Pipeline, the wars in Iraq and Afghanistan, the auto industry bailout, and whether Congress should cut spending and/or raise taxes. But how many even know the EPA is revising the national ambient air quality standard (NAAQS) for fine particles (PM2.5)?

So the first thing I notice in the Greenberg Quinlan Rosner poll is the absence of an appropriate first question: Please name or describe any major air quality rules the U.S. EPA is expected to complete in the near future? Starting with that question would likely show most people are unaware of the pending NAAQS revision. From which it follows they don’t have an opinion about it (though of course anyone can have an off-the-cuff reaction to anything).

The survey asks a bunch of demographic questions about respondents’ party affiliation, age, gender, and the like, but only two substantive questions. The first is as follows:

As you may know, the EPA is proposing to update air pollution standards by placing stricter limits on the amount of fine particles, also called “soot,” that power plants, oil refineries and other industrial facilities can release. Do you favor or oppose the EPA setting stricter limits on fine particles, also called “soot?”

Of total respondents, 63% were in favor, 30% were opposed. So according to the ALA, the public supports tougher standards by 2 to 1. But since most respondents have probably never heard or thought about the issue until that moment, the results simply confirm what everybody already knows: Most people think air pollution is a bad thing and would prefer to have less of it.

Since what the question elicits from most respondents is their general attitude about air pollution, it is remarkable that 30% answered in the negative. Note too that most of what the public hears about air pollution comes from organizations like the EPA and the ALA, which relentlessly exaggerate  air pollution levels and the associated health risks.

The second substantive question in the poll asks respondents to state their opinion after hearing two statements “some people on both sides of the issue might make”:

(Some/other) people say: Studies indicate that soot is one of the most dangerous and deadly forms of pollution, especially for children, and can cause heart and lung damage and even lead to cancer or premature death. Independent scientists say that setting stronger soot standards will prevent tens of thousands of premature deaths and over 1 million asthma attacks every year, saving American families billions in lower health care costs. The EPA is taking a common sense approach, setting standards that will be easy for polluters to comply with at a minimal cost.

(Some/other) people say: Given the weak economy, now is the worst time for the EPA to enact costly regulations that kill jobs and increase energy costs. These new rules are unrealistic and unattainable. They will lead to higher energy costs for American families, would cost businesses tens of millions of dollars, and would essentially close areas of the country to new or expanded manufacturing businesses, resulting in American jobs being shipped overseas. President Obama shouldn’t be creating new barriers to job creation or increasing energy costs when our country is trying to recover from a recession.

Now that you’ve heard more about this issue let me ask you again, do you favor or oppose the EPA setting stricter limits on fine particles, also called “soot?”

Permit me to translate: Studies indicate that “soot” kills tens of thousands of people and harms children the most. Others say that preventing widespread death, heart attacks, cancer, and asthma will cost a lot of money. Which do you think is more important, saving lives or saving money?

Note also the first statement claims the revised NAAQS “will be easy for polluters to comply with at a minimal cost,” thereby rebutting the central thesis of the second statement in advance. In contrast, the second statement does not dispute the first statement’s main thesis that ”soot is one of the most deadly forms of pollution.” The poll thus give the impression that even the EPA’s critics accept the agency’s interpretation of the relevant science.

Given this loaded and asymmetric framing of the issue, the remarkable thing is that after hearing the pro and con statements, the percentage of respondents favoring the EPA’s proposal actually decreased, falling from 63% to 56%.

One can only wonder what the breakdown would have been had the con statement gone something like this:

(Some/other) people say: The EPA cherry picked among an extensive literature to support its health assessment, ignoring studies that find no correlation between lower soot levels and improved health. The health benefits of the EPA’s proposal are biologically implausible, because fine particles from coal power plants are mostly ammonium sulfate and ammonium nitrate, and neither is harmful to humans at levels even 10 times higher than the air Americans breathe. This economy-chilling rule will likely do more harm than good to public health, because poverty and unemployment increase the risk of illness and death.

A quibble perhaps, but Ms. Egelsky of Greenberg Quinlan Rosner claims “Americans strongly back” the EPA’s proposal. She should read her own poll! Only 39% of respondents said they “strongly favor” the EPA setting a more stringent soot standard in response to the first substantive question, and only 33% said they “strongly favor” the EPA doing so after hearing the pro and con statements.

What we have here is another attempt to influence public opinion in the guise of reporting it. More voters are likely to support the ALA agenda if they believe (however mistakenly) that most of their neighbors ”strongly back” it too.

The ALA’s press release on the poll urges the public to send President Obama an email asking that he direct the EPA to set a more stringent standard “to protect the public from this dangerous pollutant.” By law, however, it is the EPA administrator’s “judgment” alone that is to determine the stringency of the standard. Legally, the President has no say in the determination. So the ALA email campaign is a call for political interference in an allegedly scientific process.

In reality, of course, political calculation and ideological agenda permeate EPA rulemakings. Nonetheless, at this late date, President Obama likely plays no part in shaping the EPA’s final rule, which is due to be released Dec. 14. Clearly, the point of the email campaign — and the poll — is to provide talking points Obama can use later this month to defend regulatory decisions his administration has already made. The ALA’s email campaign exploits the naivety of simple folk by pretending they can influence the EPA’s decision. But hey, if you’re going to hype air pollution risks and rig opinion polls to favor your agenda, then why not also mislead people about how the sausage is made?

The ALA presents itself as an honest broker of public health information. In reality, the ALA’s advocacy on behalf of the EPA is tainted by a massive conflict of interest. In the words of Junk Science blogger Steve Milloy, ”the American Lung Association is bought-and-paid-for by the EPA.” In the past 10 years, the ALA received $24,750,250 from the EPA, according to the agency’s records. The EPA uses our tax dollars to fund groups like the ALA who then demand that the EPA wield more power and get more of our tax dollars.

Maybe one of these days the media will pay attention to such facts when covering polls sponsored by green advocacy groups.

It’s also high time journalists started wondering why NAAQS revisions seldom (or never) lead to decreased stringency. At the EPA, new science always seems to find that air pollution is harmful at lower concentrations than the agency previously believed. That’s an odd result if each review is genuinely free of bias – kind of like flipping a balanced coin 10 times and always getting “heads.”

There is a pervasive problem with the entire Administrative State, yet I’ve never seen a journalist address it: Agencies are judges in their own cause. The EPA, for example, both develops, adopts, and enforces emission controls and standards and conducts the analyses authorizing or mandating such regulation. That obvious (though seldom acknowledged) conflict of interest inevitably biases agency analyses in favor of ever-increasing regulatory stringency.

In 2007, the American Enterprise Institute (AEI) published Joel Schwartz and Steven Hayward’s Air Quality in America: A Dose of Reality on Air Pollution Levels, Trends, and Health Risks. This book is a powerful antidote to air pollution alarmism.

Although five years old, Air Quality in America is as relevant as ever. As public susceptibility to global warming alarmism has waned, EPA and its allies in the war on affordable energy rely increasingly on old-fashioned air pollution alarmism to sell their agenda.

You can still buy Air Quality in America from Amazon.Com. However, AEI no longer maintains a PDF version on its Web site. Because I make frequent use of the book, and want readers to be able to check my sources, I am posting a PDF copy on GlobalWarming.Org.

A recent study by the Manufacturer’s Alliance/MAPI finds that EPA’s proposed revision of the “primary” (health-based) national ambient air quality standard (NAAQS) for ozone would have devastating economic impacts, such as:

• Impose $1 trillion in annual compliance burdens on the economy between 2020 and 2030.
• Reduce GDP by $687 billion in 2020 (3.5% below the baseline projection).
• Reduce employment by 7.3 million jobs in 2020 (a figure equal to 4.3% of the projected labor force in 2020).

In a companion report, the Senate Republican Policy Committee estimates the job losses and  ”energy tax” burden (compliance cost + GDP reduction) each State will incur if EPA picks the most stringent ozone standard it is considering.

The costs of tightening ozone standards are likely to overwhelm the benefits, if any, as Joel Schwartz and Steven Hayward explain in chapter 7 of their book, Air Quality in America: A Dose of Reality on Air Pollution Levels, Trends, and Health Risks. 

So let’s see — we have emission regulations that function as de-facto energy taxes, and the costs far outweigh the putative benefits. Sound familiar? The resemblance to Waxman-Markey is more than superficial, because if stringent enough, air pollution regulations can restrict fossil energy use no less than carbon taxes or greenhouse cap-and-trade schemes.

For more information on EPA’s proposed ozone NAAQS and the MAPI study, see my post today on CEI’s Open Market.Org.