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Arctic Leaf

Can a carbon tax capture oil’s emissions?

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One of the knottiest problems for people who want to reduce carbon emissions with cap-and-trade and command-and-control regulation is that it is impossible to include motor vehicles in these schemes.

The Obama administration is now concentrating on coal plants and other stationary sources. This affects coal and possibly gas plants, but the oil industry gets off scot-free. And cars and other moving sources constitute almost half the carbon we’re putting into the atmosphere.

The idea that keeps popping up, which would deal with these difficulties and perhaps make climate issues less partisan, is a flat tax on carbon products. The tax would fall on coal, gas and oil and be collected at the mine or wellhead. $20 per ton is the number most often mentioned. Coal would pay the largest share, oil second-most and natural gas the least, since they differ in carbon content. But everything else is equal across the board. It doesn’t matter what people do with the fuel once they’ve claimed it. If you conserve energy, you burn less fuel, if you switch from high-carbon coal to natural gas. And if you discover a true alternative that doesn’t rely on fossil fuels, you pay nothing.

In theory, it’s an ideal solution. Adele Morris of the Brookings Institution has calculated that a modest carbon tax of $20 per ton would allow us to lower the corporate tax to 25 percent, just below the world average, and still leave $199 billion for deficit reduction over the 10 years. Most important, though, is that a carbon tax would capture non-stationary sources, which is the Achilles’ heel of cap-and-trade. When it comes to mobile sources of carbon, regulators just throw up their hands. “You can’t measure emissions from individual vehicles,” they say. But a carbon tax captures everyone, including cars and trucks, which are impossible to monitor as individual vehicles. In the end, it is a much better system than that now being pursued by the EPA.

So what would this mean for alternative vehicles?

Corn ethanol would be a big winner. It is not derived from fossil fuels, and it’s already in 10 percent of gasoline that is dispensed at the pump. Morris estimates that a tax of $20 per ton on carbon would mean a 4-to-5 cents per gallon increase in gasoline. E85 now undersells gasoline in the Midwest by that same amount, and a carbon tax would make it even more attractive. Other parts of the country might start taking notes as well, since E85 can be sold anywhere; it just hasn’t caught on yet.

Methanol would not have the same advantages, since it is currently made from natural gas. But gas has only about two-thirds of the carbon content of oil, and a carbon tax would work in its favor. In addition, methanol can be derived from other sources: It’s the simplest alcohol and can be distilled from municipal waste, forest wastes and any number of the other sources that now go unused.

CNG and LNG do not stand up quite as well. Both would have to pay the carbon tax but would enjoy a small advantage over diesel, became the carbon content of gas is lower. Still, they would see their own price go up, because they are fossil fuels.

Electric cars, on the other hand, would be the big winner. Their cost advantage would widen, and they would have a leg up on gasoline and diesel. Of course, electricity must come from somewhere. It is now generated largely from coal and natural gas, and prices would rise. But the tax would encourage a shift from coal to gas, or non-fossil sources, and prices would eventually come down again. Morris calculates that revenues from the tax will eventually taper off from $160 billion to $60 billion by 2030 because of adjustments in the economy.

The carbon tax has a long and curious history. Conservatives often claim credit for it under Milton Friedman’s dictum, “I you want more of something, subsidize it. If you want less of something, tax it.” The Heritage Foundation actually backed a carbon tax in the early days, when the Obama administration was trying to impose cap-and-trade on the entire economy. But other factions of the conservative movement became convinced that the Democrats would just spend the money on renewable energy projects, so Heritage backed away.

Now the ball is being carried by a group of moderates who have a reputation for viewing things with a level head. The Brookings Institution has been at the forefront, arguing that a carbon tax promises to save billions. “By providing simple, transparent, but powerful market-based incentives to reduce damaging greenhouse gas (GHG) emissions, this levy could supersede the array of costly regulatory command-and-control approaches and expensive subsidies aimed at reducing dependence on fossil fuels and promoting clean energy,” writes Morris for Resources for the Future, another non-partisan group. Environmental Defense Fund, another moderate group that takes sensible positions, has said a carbon tax would bring everyone “simplicity and happiness.”

The carbon tax does have its problems. It comes down particularly heavy on the poor, who pay a much larger portion of their income for things that require oil and gas. Morris suggests putting 20 percent of the tax aside and earmarking it for the poor. This undoes some of the benefits of the tax and, in practice, is very difficult to do, and it creates a new distribution problem. It also hurts the middle class and especially Middle America.

Carbon taxes have been tried in other countries, with mixed results. Australia tried to impose a blanket tax a few years ago, but by the time it stopped awarding special exemptions and dispensations, the program was such a mess that oil refineries and others were making out better than before. The tax fell particularly heavily on farmers, whose operations, it turns out, are heavily dependent on fossil fuels. On the other hand, a tax in the United States might push more of agriculture into ethanol, since E85 is already widely available in the Midwest and would substitute nicely for gasoline.

Special pleading by individual parties is always the problem. France tried a carbon tax a few years ago, but by the time they were through, the law was so loaded down with exceptions and exemptions that it was practically meaningless. Sweden, on the other hand, has a flat $200 per ton carbon tax – four times the highest rate being suggested by the U.S – and no one seems to mind. The Swedes eliminated all special exemptions and used the revenue to lower personal income and estate taxes. True, the Swedes pay a higher price for gasoline – close to $4 per gallon – but they are happy with the simplicity of the system and accept the higher price as a fact of life. Of course, Sweden is a much more egalitarian country, with few truly poor people, but the population is happy and no one complains.

And the main problem is that the amount of tax will really not introduce any behavioral change. Five cents a gallon is just a tax – it will not create any real incentive to change to alternative fuels. What is blocking off alternative fuels today is not price, as they are already cheaper. It is the monopolistic structure of the car and distribution market. Even if gas prices were a dollar higher, the market first needs to be opened to competition so people could actually choose a fuel.

A carbon tax would cross political lines and maybe prove to be one of those rare instances where we can all agree. Conservatives would show that they take climate change seriously, and liberals would have to give up on their complex regulatory schemes and admit that simplest sometimes works best. Most of all, it would show the public that things can get done in Washington. However, a prerequisite for any tax or other solution is to open the market for competition by other fuels. Otherwise, the consumer will not have any option, and it will be just a new government tax.

Arctic Leaf

Ruminations on oil donations, foreign nations and replacement fuels

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The “Old Gray Lady,” The New York Times, did it again….its recent article indicating the extent of government funds from foreign countries supporting so-called independent think tanks and universities in the U.S. was enlightening and was also clearly in the public interest. Most of us policy wonks suspected or knew what the Times indicated on September 7. “More than a dozen prominent Washington research groups have received tens of millions of dollars from foreign governments in recent years while pushing United States government officials to adopt policies that often reflect the donors’ priorities…” The money is transforming the once-staid, think-tank world into a muscular arm of foreign government’s lobbying in Washington. And it has set off troubling questions about intellectual freedom — some scholars say they have been pressured to reach conclusions friendly to the government that is financing the research.” In this context, NATO, European, Middle East and Asian nations (e.g., Norway, Germany, Qatar, Saudi Arabia, United Arab Emirates, Japan, etc.) have been visible funders according to the Times and other media..

Before readers become holier than thou about the perception of perversion in foreign governments that link their support to what they want done regarding research and lobbying (implicit, if not explicit), they should know that the grant system in the U.S., in general, is not free of, at times, donor efforts to influence and/or sometimes pressure, whether it involves foreign governments, all levels of government in the U.S, business or foundation grants. Both have been and will remain the way of doing business.

I suspect attempts to influence or pressure research institutions or scholars are sometimes worse in social science research than in the sciences or engineering, where data, analysis and results can often claim at least some visible and quantifiable correlation or causation relationships. A donor’s ideological commitments also may predetermine and lessen the need for donors to try to negotiate the outcomes of grants or gifts. Not many liberal academics will apply for research money from the Koch Family Foundations, not many conservatives will likely go to the George Soros Open Society Foundations (OSF) for money.

Life is complicated for donors and recipients. Free speech and the free flow of ideas are embedded in the U.S. creed and the nation’s constitution. Truth in advertising in research grants and their products, a mythological spin-off, is often muted by the overwhelming influence and importance of money and the need for it, in light of fund shortages. However, the American public, for the most part, cannot easily separate the respected status of the Brookings Institution, the University of California, the Center For Global Development, the Center for Strategic and International Studies, etc. from their willingness to accept what seem clearly donor advocacy grants and subsequently to participate in what appears, to many, to be advocacy research and lobbying. The involved leaders, not always the researchers, of recipient institutions will deny the fact that research money sometimes comes with a price concerning legal, moral and often spoken words in grantor testimonials or contracts concerning obligations to search for the truth and increase wisdom concerning policy and program options.

Oil and oil-related companies and Middle Eastern nations seem now to be among the biggest givers and perhaps receive the biggest “take back” benefits. They fund schools and centers as well as analyses in and at major universities and independent think tanks, both within and outside universities. They have also funded “independent” scholars, chairs and specific RFPs (Request for Proposals) describing general and sometimes relatively specific areas of energy or transportation and fuel-related research. Significant oil and foreign money for policy-related research is also funded through third-party groups, which often mask the source of donations. Donors, understandably, expect benefits from supported research — at least consistency with and, in some cases, advocacy for their economic, social welfare and environmental objectives.

Perhaps one of the more egregious relationships concerning policy or program research involved the Coordinating Research Council (CRC), generally a mouthpiece of and also funded by the oil and automotive industry. Its relatively recent study debunking of E15 reflected the views of their sponsors — again the oil and auto industries. It indicated that E15 significantly harmed engines of many vehicle classes. The study was legitimately criticized by the EPA and others concerning methodology and content. Indeed, it and its implications concerning use of E15, was refuted in part or whole by the EPA’s more extensive analyses, by the National Renewable Energy Laboratory (NREL) and by other respected groups and individuals, some even associated with the auto industry. CRC’s efforts stimulated analyses and similar findings by groups like AAA— again based on even weaker methodology and unknown funding (likely mostly membership dues). Critics have pointed to AAA’s tenuous policy links to members and its long-time support by and of the auto and oil industries. Remember, more cars result in more gasoline use and increased ownership secures more AAA memberships.

Forget the legitimacy or illegitimacy of the proponents and critics of research concerning E15, or for that matter E85. At most times, policy choices and behavior are not based on perfection concerning data and analysis.

What concerns me the most is the predominance of oil and its friends’ money and the lack of transparency concerning funding sources and grant and gift requirements or constraints — both informal and formal.

Like the Times, I am also concerned about the dividing line between education and lobbying concerning grants and gifts provided by oil companies and, foreign nations. Lobbyists are required to register as such. Most think tanks and universities do not see themselves as lobbyists and do not register.

Industry, some foundation and even government-supported research grants sometime come with strings attached. Even if they didn’t, the results of paid research into complex issues are generally not conclusive and can be helpful in stimulating dialogue, if it’s matched by research initiatives funded by donors with different perceptions. Bad, or mediocre research funded by advocates, like speech, shouldn’t be countered by censorship, but by efforts to execute better research and by initiatives to provide to policymakers and the public with countervailing views and analysis to generate dialogue and debate.

I am not a purist. There is no chance in hell that the basic system of what I call advocacy grants and gifts now in existence will end. But public policymakers should insist on transparency as to funding sources and research methodology. Key advocacy studies likely to affect public sentiment and decision maker views concerning replacement fuels and gasoline should be granted, at least some form of even informal refereed reviews. If I could figure out an easy way to do it, I would define alternatives that would provide some reasonable equivalency concerning research funding. They would assure Americans that all key replacement fuel options are examined fully and are compared to gasoline. The research on replacement fuels should not be submerged by foreign nation or internal U.S. oil interest funding. But I don’t get paid enough nor am I smart enough to think this one through, at least until the next column. Maybe you can help me? Paraphrasing my favorite oil scholar, Socrates, unexamined studies funded without independent review, only by the oil industry or its Middle East friends and colleagues, are often not worth having or debating. Peace.