The Climate Cost Dance Goes Faster

After a long, leisurely romance, the nation has apparently come to the conclusion that, by golly, maybe we ought to do something about global warming.

But what? Cap-and-trade? Carbon capture and storage? Traditional regulation? Promote alternative technologies? A group of Coloradans is proposing a bold “carbon tax” to raise the price of carbon-based fuels. It’s an idea that is running into trouble even among people who want to see urgent action on climate.Frank Maisano, a Washington, D.C. lobbyist and spokesman for energy companies, the refining industry and utilities — who, it should be said, don’t want to see urgent action on climate all that much — said the other day, “I don’t think we’re to that stage yet where we’re really thinking about unintended consequences. It’s almost impossible to know how it’s going to play itself out. It’s hard to understand how we move relatively quickly in an area” — climate change policy — “where we have fundamentally no agreement on whether we should have cap-and-trade, carbon taxes or something else.”

“What we’ve talked about in Washington is, `We’ve got to do something about climate change.’ Yet nobody is willing to really talk about what it would cost for us to do that,” Maisano said.

In the U.S. House of Representatives last month, House Energy Chairman John Dingell (D-Mich.) said that he planned to float a carbon tax proposal in Congress — mostly as a way of demonstrating that doing anything is, well, just too expensive.

“I sincerely doubt that the American people will be willing to pay what this is really going to cost them,” Dingell said.  “I will be introducing in the next little bit a carbon tax bill, just to sort of see how people think about this.  When you see the criticism I get, I think you’ll see the answer to your question.”

Maisano acknowledges that states can serve as petri dishes for climate policies. “This is what states do,” he said. “The states can experiment and we can learn from that.”

Taking up this challenge, a group of Colorado activists have proposed a state carbon tax. To oversimplify somewhat, they’ve proposed a gradually increasing tax on carbon-based fuels while at the same time reducing other taxes imposed by the state, making the whole thing “revenue neutral.” That is, state doesn’t collect any more money from its citizens than it already does, it just levies taxes on different items, like gasoline, coal-fired electricity and so on. The tax would have to be passed by voters in a ballot initiative.

But at the meeting last month where this was first made public, the idea had no sooner been outlined when the “fundamental disagreements” mentioned by Maisano raised their heads. Hold on, folks said, this is way too expensive. It’s too complex. Nobody’s going to vote for it.

The leading alternative proposal was to put on the ballot a small carbon tax that raised a little additional money which would be dedicated toward encouraging the development of renewable resources. The city of Boulder has done just this in its own carbon tax, which could raise as much as $1.3 million in 2007 at its highest level.

The difference in the two proposals is stark. The full-on carbon tax — Go Big — brings home the full costs of climate change. And it is expensive. A price of $6 per ton of carbon, for instance, would increase the price of gasoline 5 cents a gallon, and the price of electricity one-half cents per kilowatt-hour in the first year, according to an economic model developed by Sue Radford of the Colorado Carbon Tax Initiative and the national Carbon Tax Center. And in order to be effective, the price of carbon would have to increase $6 a ton — and five cents a gallon and a half-cent per kwh — every year.

After eight years, when the price of carbon has reached about $50 a ton, consumers are looking at a 40 percent increase in electricity costs, a 12 percent increase in gasoline, and a 48 percent increase in natural gas costs.

But … a $6 per metric ton carbon price would only hold Colorado emissions constant. In order to actually reduce Colorado carbon emissions close to 80 percent in 2050, carbon would have to be priced at nearly twice that level, $11 a ton.

The alternative proposal — a relatively low carbon-based tax to encourage renewable energy providers — has the advantage of being cheaper and more politically palatable, but the disadvantage of doing nothing to reduce carbon emissions. While it’s not directly comparable to Colorado’s situation, California has initiated a Renewable Portfolio Standard which requires that 20 percent of the state’s energy be generated by renewables by 2020.

The Electric Power Research Institute (EPRI) looked at the effectiveness of this and other emissions constraints plans (though not a carbon tax). They found that “RPS20 makes little difference to overall emissions, but its cost is modest.” In other words, it’s cheap, but ineffective.

Now EPRI is an industry-funded research group, and it could be argued that they’re out to make renewables look bad. But the environmental group Greenpeace issued a report in June that reaches essentially the same conclusion, although the spin on it is different. In Greenpeace’s Futu[r]e Investment: A Sustainable Investment Plan for the Power Sector to Save the Climate, by 2020 globally, even following their strategy, the contribution of renewables to world energy production is modest. Most greenhouse gas reductions come from “efficiency.”

In a paper for the Climate Policy Center in 2003, economist Randall Lutter wrote:

Economists who have studied climate change are nearly unanimous that increases in the price of energy according to the carbon content of different fuels are essential to cost-effective policies to control emissions of greenhouse gases.

Charles Komanoff, an economist with the Carbon Tax Center, says a carbon tax “has to be comprehensive … In terms of magnitude, it’s got to be at least $10 per ton of carbon per year, ramped up at that same rate every year.”

But he adds that a carbon tax on its own is not sufficient. “There are many other programs that ought to be undertaken,” he says. “Nobody — not even us — is going around saying the carbon tax is the only thing you have to do.”

The Colorado Carbon Tax Initiative group will meet again on August 1.