Tough odds facing bill to impose carbon tax

By John M. Broder
Published: March 8, 2009

WASHINGTON: Representative John Larson has embarked again on his lonely quest to enact a national tax on carbon dioxide emissions. His idea is to set a modest price on a ton of emissions, gradually increasing it each year until the desired reduction in heat-trapping-gas pollution is achieved.
Under the bill he introduced last week, virtually all the revenues from the tax would be returned to the public in lower payroll taxes.
"The American people want us to level with them," Larson, a moderate Democrat from Connecticut and a member of the House leadership, said in an interview. "We create price certainty without any new bureaucracies or complicated auction schemes."
Many economists and academics, as well as a handful of Larson's colleagues on both sides of the aisle and perhaps a few White House officials, if secretly, agree that a carbon tax is a simpler and more effective means of tackling global warming than the complex cap-and-trade scheme embraced by the Obama administration and most Democratic leaders in Congress.
The supporters of a carbon tax have watched as the new European cap-and-trade system has failed to achieve its emissions goals while prices for carbon permits have gyrated. They see taxing as a more effective means of cutting emissions than cap-and-trade or other hybrid plans now under consideration.

But for a variety of political, environmental and economic reasons, a national carbon tax is probably going nowhere.
Obama and Democratic leaders argue that cap-and-trade, in which polluters must either reduce emissions on their own or buy credits from more-efficient companies, is a better system for assuring reductions, letting the market set the right to pollute.
But the main reason most in Washington recoil from a carbon tax is political: few are willing to openly advocate billions of dollars in new taxes at a time of economic distress, even though a cap-and-trade program also means higher energy prices.
Many congressional Democrats were around in 1993 when President Bill Clinton and Vice President Al Gore pushed an energy tax and then abandoned it after it failed to generate any Republican support. Some noticed last fall when the Liberal Party in Canada suffered its worst loss ever running on a platform that included a national energy tax.
Representative Edward Markey, Democrat of Massachusetts, is leading a special committee writing the House version of climate change legislation. He voted for the 1993 energy tax bill, which is known - not fondly - as the BTU tax, for British thermal unit, a measure of energy output. Markey has since become a faithful follower of the cap-and-trade school.
"I am aware of the economic arguments for a carbon tax," Markey said, "but politics is the art of the possible, and I think cap-and-trade is possible."
Gore, who shared a Nobel Prize for his work on climate change, has long advocated a tax on carbon dioxide emissions as a substitute for taxes on income ("We should tax what we burn, not what we earn," he says).
But in an e-mail messagelast week, Gore said that passage of a tax on carbon "appears to be beyond our reach for the foreseeable future" and that he could accept a cap-and-trade program if it reduced emissions and provided relief for those most burdened by the costs.
"For more than 20 years, I have supported a CO2 tax offset by an equal reduction in taxes elsewhere," Gore wrote. "However, a cap-and-trade system is also essential and actually offers a better prospect for a global agreement, in part because it is difficult to imagine a harmonized global CO2 tax. Moreover, I have long recognized that our political system has special difficulty in considering a CO2 tax even if it is revenue neutral."
Gore and others pointed out that the United States has had a largely successful experiment with cap-and-trade in the acid rain program set up under the 1990 Clean Air Act amendments. That system brought greater pollution reductions and lower costs than expected, although sulfur dioxide and nitrogen oxide pollution from a limited number of power plants was a far simpler problem than carbon emissions will be.
One of the arguments against cap-and-trade is that it requires a complex market for trading pollution permits that could be manipulated by speculators and energy companies. Larson said the last thing the nation needed after its experience with the housing bubble and the banking collapse was a new market in carbon derivatives. His plan, he said, is simpler and fairer.
But cap-and-trade advocates said a carbon tax could also be gamed, just as the Internal Revenue Code is.
Yvo de Boer, who directs the climate change program at the United Nations, said he was agnostic as to how member states meet targets on the emission of heat-trapping gases. But those who support a carbon tax, he said, are walking uphill.
"If you were a pure economist, the most logical thing is taxation. It is the simplest," de Boer said in an interview. "But 'taxation' is a word that makes people choke in normal times. And these are not normal times."