OBAMA, CAP-AND-TRADE AND THE EMISSIONS TAX

On November 4, 2008, the U.S. did something many, perhaps most, baby boomers thought would not be possible in their lifetimes.

Despite the brutal reality of the financial meltdown that came along with the barrier-shattering presidential election, boomers and the history-making generations of X, Y and O are once again dreaming impossible dreams.

As recently as September-October 2008, it was a given that 2009 would see the institution of a cap-and-trade system similar to the European Union (EU) Emissions Trading Scheme (ETS). Both candidates backed versions of cap-and-trade, with few but important disagreements about the details, and many business, energy and environmental leaders were on board.

A tax on emissions (dubbed a “carbon tax”) was considered a better idea but politically unreachable.

That was then.

In the past few days, consumer advocate Ralph Nader and climate scientist/prophet James Hansen (in the Wall Street Journal) and Tom Friedman (in the New York Times) have called for a carbon tax.

The phrase to know: Revenue neutral. This new tax, the thinkers think, can be redeemed from a form of high-concept political suicide by assuring the public the money that goes into government coffers will go back out in the form of payroll tax cuts, investments in New Energy infrastructure that create new jobs and other benefits.

This rising call for a carbon tax puts a new decision on President-elect Obama’s agenda. Does he take the safer fight for cap-and-trade to Capitol Hill or does he take on this much riskier (albeit potentially more effective) tax?

Remember, the new President would be taking a new tax to politicians who generally like new taxes about as much as they like sticking needles in their eyes.

But consider: A cap-and-trade system may not work fast enough or aggressively enough to stop the worst effects of global climate change from becoming inevitable. Yet those effects, which would surely motivate leaders to back the more effective tax, will only become INEVITABLY DEVASTATING – not DEVASTATINGLY OBVIOUS – in the short term, whereas the politicians who must choose between cap-and-trade and a tax must run for re-election in the short term.

And the voters who re-elect them are not famous for far-sightedness.

Al Gore favors the tax. Nader, Heaps and Hansen contend the tax is the only method of controlling emissions rigid and severe enough to impact global climate change. None of them, however, have any expectations of running competitively for public office. The President-elect, on the other hand, has no doubt already begun planning for the 2010 midterms and thinking about 2012.

Some will characterize the Obama choice as between the good and the perfect. Others will say a cap-and-trade system, so widely accepted just a few months ago, is not even good.

A factor from the Right: Condemning cap-and-trade as ineffective and calling for a tax has been used by the Free-Market Right as a means of suppressing action against global climate change. (See Kenneth Green from the American Enterprise Institute, a right wing think tank.)

The essence of the political choice: Is a cap-and-trade system good enough?

European leaders believed it would be when they created the EU ETS. Instituting and developing their system since 2005 has been a rocky road and the jury is still out on its effectiveness.

Leaders in British Columbia believed the carbon tax was the best answer. Instituting and developing it since July 2008 has been a rocky road and the jury is still out on its effectiveness.

There are insiders in the fight for New Energy and the fight against climate change on both sides. They agree on one thing: A serious debate is welcome.

From what is said about Barack Obama, he will likely be listening.

The Price Carbon Campaign

The Carbon Tax Center

Al Gore: “We’ve gotta put a price on carbon.” From tedjames via YouTube.

We Need A Global Carbon Tax; The cap-and-trade approach won’t stop global warming
Ralph Nader and Toby Heaps, December 2, 2008 (Wall Street Journal)
and
Some Carbon Candor; A climate guru rebukes his mates on cap and trade
December 5, 2008 (Wall Street Journal)

WHO
Ralph Nader, consumer advocate and three-time presidential candidate; Toby Heaps, coordinator, the Option 13 campaign to create a successor to the Kyoto Protocol that includes all major nations; James Hansen, NASA climate scientist and early leader in raising global climate change awareness; Tom Friedman, Pulizer Prize-winning columnist, NY Times; Former Vice-President Al Gore and the Intergovernmental Panel on Climate Change (IPCC), Nobel laureates for work on climate change

WHAT
The urgently-needed shift to New Energy requires putting a price on the destructive emissions generated by Old Energy and the debate is now emerging between a market-based cap-and-trade system and a tax on emissions.

Climatologist James Hansen was one of the first to sound the alarm about global climate change. Now he’s one of the leading voices for New Energy and a carbon tax. From ondayonebwc via YouTube.

WHEN
- During the 2008 political season, it was taken for granted Congress would establish a cap-and-trade system under the new president.
- It appears 2009 will first see a vigorous debate between cap-and-trade system advocates and carbon tax advocates.

WHERE
- The EU has a mandatory cap-and-trade system.
- Japan has a voluntary carbon cap system.
- Some U.S. companies have established voluntary caps and voluntarily offset their emissions, primarily as the act of a good global citizen, for favorable public relations and in anticipation of a federally-imposed cap-and-trade system.

WHY
- The seriousness of the tax could engage China in a way the cap-and-trade system would not because China is staunchly opposed to a hard cap on emissions. Without dramatically reducing China’s emissions, global climate change is unlikely to be reversed.
- The IPCC-determined $1.375 trillion/year cost of reversing climate change may not be met without a carbon tax.
- The Montreal Protocol that turned back acid rain with a cap-and-trade system is not a good model for the climate chance fight. That fught was more circumscribed and amenable to such a response.
- Cap-and-trade is too subject to gaming. Present legislation is too malleable. Lobbyists can similarly pulverize any other legislated trading system.
- The IPCC estimates $50/ton must be added to the cost of coal to turn climate change around by 2020 and no trading system can impose such costs in that time frame.
- Where to impose a carbon tax: trunk pipelines for gas, refineries for oil, railroad heads for coal, liquid natural gas (LNG) terminals, cement, steel, aluminum and GHG-intensive chemical plants.
- The tax would be (1) levied on a relatively small number of large sources, (2) monitored by satellite and (3) checked by the IMF.
- China and India might find a global carbon tax more affordable, transparent and trade-friendly than a cap-and-trade system.
- Hansen’s endorsement of the tax is based on his fervent opposition to climate change. He compares trains transporting coal to Nazi trains transporting victims to crematoria. He is also fervently opposed to the bureaucratic complexities of the cap-and-trade system.

From The Carbon Tax Center. (click for the center)

QUOTES
- Tom Friedman, Pulitzer Prize-winning columnist, NY Times: “It makes no sense to spend money on green infrastructure — or a bailout of Detroit aimed at stimulating production of more fuel-efficient cars — if it is not combined with a tax on carbon that would actually change consumer buying behavior./////“Many people will tell Mr. Obama that taxing carbon or gasoline now is a “nonstarter.” Wrong. It is the only starter. It is the game-changer. If you want to know where postponing it has gotten us, visit Detroit. No carbon tax or increased gasoline tax meant that every time the price of gasoline went down to $1 or $2 a gallon, consumers went back to buying gas guzzlers. And Detroit just fed their addictions — so it never committed to a real energy-efficiency retooling of its fleet. R.I.P./////“If Mr. Obama is going to oversee a successful infrastructure stimulus, then it has to include not only a tax on carbon — make it revenue-neutral and rebate it all by reducing payroll taxes — but also new standards that gradually require utilities and home builders in states that receive money to build dramatically more energy-efficient power plants, commercial buildings and homes. This, too, would create whole new industries…”
- Nader and Heaps: “…we in the rich world must recognize our culpability for creating three-quarters of this global warming mess, as well as our greater capacity to finance industrial retooling. Thus, there could be a carrot for developing-world nations which commit to applying the phased-in carbon tax: Access to a portion of the carbon tax levies from rich countries to help preserve forests and to prepare for climate change through flood walls, improved irrigation, drought resistant crops, desalination facilities, and the like. This is no small change: 10% of $50/metric ton CO2e carbon tax levied in all rich countries would be $100 billion per year. The stick for carbon free-riding countries would come in the form of incrementally severe penalties, leading up to countervailing duties on carbon-intensive imports.”
- James Hansen, NASA climate scientist and climate change prophet: "A tax should be called a tax…The public can understand this and will accept a tax if it is clearly explained and if 100 percent of the money is returned."