Carbon Taxes…Sorry, I Meant, "Fees"

by Richard T. Stuebi

For a long time, I have been assuming that U.S. regulations to reduce carbon emissions, when they come, will be in the form of a cap-and-trade program, similar to what is in place in the U.S. for limiting sulfur dioxide emissions.

Even though a cap-and-trade system for carbon emissions is probably workable, it is still (in my opinion) a less direct mechanism for reducing carbon emisisons than the more obvious: a carbon tax, priced on a $/ton emitted basis.

Carbon taxes have not found much favor because…well, they’re a tax, and no politician wants to implement a tax, as it’s deadly to one’s career ambitions. (Remember “Read my lips”?) More substantively, some have argued that a carbon tax would be harder to administer, though I would think that a cap-and-trade system would be much more cumbersome (all those allowances to track!).

For certain, a tax is a better structure dealing with emissions from all sources, large and small, whereas a cap-and-trade system is only manageable for large point source emitters — such as utility powerplants. Not surprisingly, therefore, oil and auto interests generally favor cap-and-trade as the carbon mitigation approach of choice. Perhaps somewhat surprisingly, those utilities that have gone on record in support of climate legislation are OK with a cap-and-trade approach, probably because of accumulate utility experience with cap-and-trade for sulfur dioxide.

However, FPL Group (NYSE: FPL) has cast their lot in arguing for a carbon “fee” — a tax by any other name, but a much more acceptable term. (Policy statement here) This is the first big company that I’m aware of that has gone this far out on the carbon tax limb.

True, FPL is not among the leading carbon emitters: with a large emphasis on gas, nuclear and wind for their electricity generation, they can better afford to adopt a bolder climate stance than other utilities.

But I wonder if other utilities — Exelon (NYSE: EXC) comes to mind, maybe Duke Energy (NYSE: DUK) — can be far behind? And, if so, will the pendulum swing away from cap-and-trade to carbon taxes…er, fees?

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

2 replies
  1. Mandarin AnNi
    Mandarin AnNi says:

    RichardI had to laugh at the attempt by FPL to claim that an incentive tax, which generates revenue for investment in climate protection, is not a tax and would be budget neutral…But it is a sad state of affairs that we cannot have an honest policy debate about the merits of a carbon tax with respect to other policy options. We Americans just need to get over our knee-jerk aversion to "new taxes" (especially if they replace existing taxes that are poorly conceived). In a democracy, taxes should not be a taboo topic!But the commentary in the Miami Herald the same day by the Pew Center, claiming that a tax solution is inherently as complex as a cap-and-trade scheme also seemed odd. As did the implication that taxes only deliver price certainty and cannot be designed to achieve environmental goals, whereas cap-and-trade "provides for environmental certainty". I was surprised to see Pew arguing clearly against a tax solution on such misleading grounds. As anyone with expertise knows, many of the current cap-and-trade proposals provide for a price cap, and carbon taxes can be designed to automatically increase until environmental goals are met. Maybe Pew's motivation to make such simplistic arguments was summed up in the last sentence in their commentary, which basically suggested that a tax scheme has a "snowball's chance in a warming world". If that's true, that would be the more honest/convincing argument.What's the buzz in Washington???Anne Arquit Niederberger

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