An EPA-Sanctioned State-Based Carbon Tax Could Reduce Emissions and Improve State Finances

By :: April 1st, 2014

The U.S. Environmental Protection Agency (EPA) is developing a proposed rule due out in June that could allow states to use carbon excise taxes or fees to limit the one-third of U.S. greenhouse gas emissions that come from power plants. The tax approach, one of several options EPA could offer states, could provide an important test for price-based limits on climate-changing activities.

A national price on carbon currently has little traction in Washington, but EPA’s power plant rule could open the door for a straightforward state-based tax. EPA just needs to set a minimum tax trajectory that any state could adopt. Here are some potential benefits to such a system:

  1. It’s market-based, flexible, compatible with existing fuel mixes, accommodates the “remaining useful life” of equipment, and doesn’t undermine electricity reliability.
  2.  A tax option is feasible and consistent with the law. If EPA can allow cap-and-trade under the rule, as the agency has indicated it will, it can allow an excise tax or fee.
  3. A carbon fee discourages each fuel’s use in exact proportion to its damage to the climate. This changes the relative prices of different fuels and encourages all pollution reductions that cost less than the tax. EPA can set a tax that reflects the Administration’s estimates of the damages of the pollution.
  4. A tax incentivizes changes at power plants (for example, more efficient boilers and lower-carbon fuels) and greater energy efficiency by consumers.
  5. A tax encourages abatement in ways EPA and states can’t predict, for example by helping drive a market for new technologies. Standards based on existing technologies may not do that.
  6. A tax would be an easy way for states to implement EPA curbs on power plant emissions. Some states already have excise taxes on natural gas. In contrast to cap-and-trade, states wouldn’t have to allocate allowances, create a registry, monitor trades, or enforce a price floor. They wouldn’t have to measure electricity generation, transmission, or consumption. They’d just monitor fossil fuel use and collect the money.
  7. Under a tax, regulated firms wouldn’t have to manage volatile allowance prices or other uncertainties. A predictable compliance price fosters the long term investments that are critical to reducing the use of carbon-based fuels in a cost effective way.
  8. A traditional emissions standard would impose different incremental abatement costs in different states, potentially distorting investment across state lines. In contrast, an EPA-specified tax option available to all states would allow them to harmonize their pollution policies without having to link them directly, for example through a regional allowance market.
  9. States could use the revenue however they wish. For instance, they could lower inefficient taxes, potentially providing pro-growth state tax reform along with environmental benefits.
  10. In its power plant rule, EPA can signal that the same tax will also work for future carbon rules for industrial facilities. This would allow states to adopt only one tax law and help industries invest wisely in pollution reduction before EPA imposes new regulations.
  11. A price-based standard is diplomatically far superior to an emissions rate standard (i.e. “X tons of CO2 per kilowatt hour generated”) because it clarifies the economic ambition of US climate policy and starts a useful international carbon pricing dialogue.
  12. A carbon price in the rule would signal to Congress what the Administration would accept as a federal carbon tax alternative to Clean Air Act rules.

Finally, members of Congress who denounce EPA regulations might support agency rules that give states the flexibility to adopt a modest carbon fee schedule instead of mandated emissions standards. States could choose which option suits them best, leaving the decision and the potential revenue in their control.

 

 

8Comments

  1. Michael Bindner  ::  3:13 am on April 2nd, 2014:

    This is an interesting approach. I would hope, however, that a carbon tax is not used to lower income taxes on the wealthy at the state level – although I could easily see it happening. I could also see the Koch Brothers funded American Legislative Exchange Council fight this tooth and nail for obvious reasons. I hope they fail but I sense an ad war coming on. Actually, the ads against a carbon tax have already started – but my bet is that they will redouble their efforts. Hopefully ads countering the expected blitz will also show up on the airwaves and on cable. Thanks for the heads up.

  2. Secondary Sources: Carbon Tax, Mothers and Daughters, Hollywood and Women |  ::  11:08 am on April 2nd, 2014:

    […] –Carbon Tax: Adele Morris points out that a new rule could lead to state-based carbon taxes. “The U.S. Environmental Protection Agency (EPA) is developing a proposed rule due out in June that could allow states to use carbon excise taxes or fees to limit the one-third of U.S. greenhouse gas emissions that come from power plants. The tax approach, one of several options EPA could offer states, could provide an important test for price-based limits on climate-changing activities. A national price on carbon currently has little traction in Washington, but EPA’s power plant rule could open the door for a straightforward state-based tax. EPA just needs to set a minimum tax trajectory that any state could adopt.” […]

  3. Tammy  ::  6:03 pm on April 2nd, 2014:

    Wow! Really people, a carbon tax, all I can say is wake up people, carbon is one of the four building blocks of our universe, it is needed, it is what our plants use to grow! It is one of the four elements that supplies life on this planet, first one being water, second one being sunlight, third one being carbon dioxide, and lastly oxygen….lol it would be like banning dihydrogen monoxide (for you that don’t know that is WATER)OR banning sodium chloride (table salt for those that don’t know)! If you actually do your research and listen to the scientist not the “elites” then you would know that this is nothing more than a scam to get even more money out of the poor people. When you look at the ones saying this you would know that they are not scientist, they are bureaucrats that will make money in this! The planet is warming because of the increased activity of the sun, sheesh people its even in the news that the sun has been more active!

  4. Brock2118  ::  10:06 am on April 29th, 2014:

    I’ve seen a recent report that the growing season in the Northern hemisphere has lengthened due to increased availability of carbon dioxide.

  5. CB  ::  1:55 pm on May 30th, 2014:

    Have you?

    Have you seen the report that the polar ice caps will be completely destroyed by carbon dioxide?

    If that’s not the future we face if we don’t put the atmosphere back the way we found it, why isn’t there a single previous example in Earth’s history of ice caps being able to withstand CO₂ so high?

    If whatever you’re reading is talking about how great CO₂ is for plants without noting CO₂ is going to put them under 246 feet of salt water, do you think it’s a reliable source of information?

  6. Wonks Collide as Obama Climate Plan Prompts New Ideas – Bloomberg | Enjeux énergies  ::  8:34 pm on June 1st, 2014:

    […] rules President Barack Obama is set to unveil next week. Some of the proposals — ranging from taxing carbon to spurring energy efficiency or expanding cap-and-trade initiatives — could fundamentally […]

  7. does laser hair restoration work  ::  4:11 am on September 6th, 2014:

    The hair follicles are not receiving the right
    balance of nutrients they need to grow. Purchase shampoo or other hair care products that are meant specifically for people
    with thinning hair. Remember, the foaming action of regular
    shampoos and detergents is for looks only.

    Visit my site; does laser hair restoration work

  8. แหล่งท่องเทียวระยอง  ::  1:50 am on September 14th, 2014:

    If you are interested in learning more about quality
    BMW Engines, please contact us by visiting
    our main site: BMW Engine or by calling us at +442085960396.

    Some of this difference can be due to a range in temperatures,
    some due to specific handicrafts being traditional to that village or province: there are silk villages where
    silk material is produced and woven and other villages where this silk is
    tailored into beautiful garments. The Kings Palace is not
    fly no more, as you never have to be head taller than him.

    my weblog; แหล่งท่องเทียวระยอง