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Congressman Unveils Carbon Tax Proposal; Asks for Public Review and Comment

US Congressman John D. Dingell (D-MI), Chairman of the House Committee on Energy and Commerce, has developed a legislative proposal that would create a carbon tax. Before introducing a formal bill, the Congressman is inviting constituents and other interested parties to review his current proposal and provide feedback.

The legislation would impose a $50/ton tax on carbon emissions and an incremental $0.50/gallon tax on petroelum-based liquid fuels (diesel is exempt); and phase out the mortgage interest deduction on large houses. A summary of the draft legislation has been posted on Dingell’s Congressional website along with a form that allows reviewers to offer opinions and suggestions regarding the carbon tax proposal.

In order to reduce greenhouse gases and make the planet safe and healthy for future generations it will take a significant investment from all of us. A fee on carbon emissions requires a tithe from all citizens and industries, but no one entity will be unfairly leveled with a devastating burden. More importantly, it provides an incentive for change in our economy and our way of life. I welcome public input on how this policy proposal can best balance our environmental and economic concerns and I look forward to receiving feedback.

—John Dingell

Major provisions of the carbon tax proposal include:

  • A tax on carbon emissions of $50/ton, phased in over five years and adjusted for inflation. This would apply to carbon produced from the combustion of coal, including lignite and peat; petroleum and any petroleum product; and natural gas.

  • A tax on gasoline, jet fuel and kerosene of $0.50/gallon to be added to the existing gas tax, phased in over 5 years and then adjusted for inflation. Diesel fuel is exempt from the tax, as are 100% biofuels. The fuel economy benefits of diesel surpass even its emissions benefits, according to Dingell, hence the exemption to encourage its use. Biofuels blended with petroleum are only taxed on the petroleum component.

  • The $0.50/gallon fuel tax is incremental to the $50/ton carbon emissions tax.

The proposed legislation also phases out the mortgage interest deduction on large homes of more than 3,000 square feet, based on a sliding scale. There are exemptions proposed for historical homes (prior to 1900) and farm houses; and for home owners who purchase carbon offsets to make home carbon neutral or own LEED certified homes.

These homes have contributed to increased sprawl and longer commutes.  Despite new homes in and of themselves being more energy efficient, the sheer size, sprawl and commutes lead to dramatically more energy use—or to put it more simply, a larger carbon footprint.

—John Dingell

Revenue generated by the legislation will flow to an expansion of the Earned Income Tax Credit. This, according to Dingell, helps lower income families compensate for the increased taxes on fuels. The revenue from the gas tax will go into the highway trust fund, with 40% going to the mass transit and 60% going to roads. The revenue from the tax on jet fuel goes into the airport and airway trust fund.

The revenue from the fee on carbon emissions will go into a variety of accounts, including:

  • Medicare and Social Security
  • Universal Healthcare (upon passage)
  • State Children’s Health Insurance Program
  • Conservation
  • Renewable Energy Research and Development
  • Low Income Home Energy Assistance Program

Dingell is a co-sponsor the Hill-Terry fuel economy bill, which maintains separate standards for cars and light trucks, and establishes a minimum of 32 mpg and a maximum of 35 mpg combined standard for 2022. The auto industry is backing the Hill-Terry proposal against the more stringent Senate bill calling for a single 35 mpg standard by 2020, and a House version of that bill (Markey-Platts). (Earlier post.)

Resources:

Comments

Tony Belding

In his recent book, Bjorn Lomborg calculated a preferred tax rate for carbon emissions, weighed against the economic harm that global warming is projected to cause. The number he came up with was $2/ton, not $50/ton.

As for new taxes on gasoline. . . That would have made a ton of sense ten or twenty years go. It made great sense back in 1992 when Paul Tsongas advocated it during his run for president. Today it's too late. Gas prices are already going up and up, and they're going to keep going up as global demand for oil outstrips the supply. A gasoline tax now would be politically infeasible (with everyone crying out for lower pump prices), and probably counterproductive too.

Jim G

"diesel fuel is exempt from the tax"

Also interesting the proceeds get distributed to lots of things unrelated to energy like Medicare, like Dingell had to make things up. I can't tell whether Detroit is seeks with this proposal to shape regulation away from themselves and onto other industries or just wants to propose something so unpopular it stokes a reaction against any change. But the diesel loophole seems big enough to drive a GM diesel truck through. Too bad we can't get a carbon tax and fuel efficiency but this is the USA after all, where we're more likely to see neither :-)

Lou Grinzo

In reading the details of this proposal, I can't see it as anything but a blatant attempt to come up with the most offensive, easily rejected "solution" to the US's oil dependency possible without literally being laughed out of the room.

Harvey D

Tony,

You seem to be well in tune with the average (majority) USA driver, i.e. let's pollute as much as we want to and future generations will deal with the problem we created.

It is one way to look at it but is it the proper way? If the rest of the world takes a similar approach, will future generations be able to clean up the mess we created, and if so, at what cost?

A more reasonable approach may be to start acting now. Having polluters pay for the pollution they create seems fair to me. Why should non-polluters pay for them?

Distributing the pollution cost fairly is not easy. Why exclude dirty diesels? They could be given a longer time period but not be completely excluded because they certainly are part of the problem.

Other heavy polluters, like coal fired power plants, should also pay for the pollution they create. Is $50/tonne/CO2 sufficient to convince them to switch to cleaner ways to produce energy? Time will tell. May be $100/tonne/CO2 will be required.

As the extra cost is going to be passed on the most consummers, (i.e. voters), and the majority of the population is not yet ready, this proposal will unfortunately die quickly.

tom deplume

The Social Security/Health Care inclusion may be a ploy to gain support from soon to be retiring boomers. In an age of declining real wages another source of financing these vital programs is needed. I seriously doubt that new taxes alone will reduce use significantly considering the impact a tripling of prices has had. It looks like a good start.

Mort

A carbon tax would be a good idea, except for the criminal miscreants we have in gubbermint spending the money. They will just give the money to their war monger buddies, or spend it on private jets. If they spent 100% of the money on solar and wind projects, that didn't go to their corporate fascists buddies it would be fine. The problem is, there is no way you could ever convince me that isn't exactly where it would end up. They have lost all credibility. They are not the answer, they are the problem. States rights now!

Rafael Seidl

I think it's great that a senior member of the House has the gumption to even start a discussion on this. President Bush and many others will of course declare it DOA immediately, but the Bush presidency will be over soon.

It's perfectly sensible to invite discussion before even attempting to write actual legislation. Only if the general public shares the twin objectives of energy security and GHG emissions will there be a basis for taking the next step. It's perfectly possible to raise taxes on activities like burning fossil fuels that harm the commons IFF other taxes are cut to compensate. At first, this amounts to taking with the left hand what you've just given with the right.

However, corporations and consumers alike can earn themselves a net reduction in their total tax burden by adopting more efficient technology or changing their usage patterns. Unfortunately, even if they want to, they usually can't do much about the bulk of their carbon footprint in the short term. Industry cannot afford to write down expensive assets at a significantly accelerated rate. Consumers cannot easily move house or even switch cars if resale values for gas guzzlers plummet.

That is why it is important to ramp up any carbon and/or fuel taxes slowly but predictably and irreversibly (a political rather than legal concept). If corporations know that the carbon tax will rise by e.g. $1/ton each and every year, with no firm end date but countervailing tax cuts, they will invest accordingly.

Similarly, adding e.g. $0.01/gallon (the "carbon penny") in fuel tax each and every month makes little actual difference in the first couple of years. Rather, the impact is psychological. If consumers know in advance that fuel taxes will slowly rise basically forever, demand for high MPG vehicles will be sustained - even if these cost thousands of dollars more up front.

Tony points out that gas prices have already risen very quickly in the last few years, creating demand for high MPG vehicles than Detroit has few products to meet. He also states that additional taxes would be counterproductive.

In fact, the reverse may be true, provided the Big Three adjust their product plans: the European example shows that high fuel taxes reduce the relative impact of fluctuations in the price of oil. The investment risk associated with a decision to develop more expensive high-MPG models is therefore substantially reduced. Moreover, revenue and margin per sale go up.

The only downside is that consumers tend to hang on to more expensive assets longer, so in due course total unit volume demand for new LDVs would probably decline. As long as the transition is gradual enough, the industry can shrink its production capacity at acceptable financial and social cost (e.g. not replacing retiring workers rather than layoffs). I'm not saying the transition will be easy or even, that all of the Big Three would survive it. However, there is every chance that they could.

Jim G.

I have to point out for those who might not be aware, John Dingell is a senior member of Michigan's delegation to the House, directly representing the auto industry, the UAW, etc. Not that he or the industry are bad, but they do have self-interest and it's not identical with that of the public at large. As an industry that uses ICE's with gas, diesel, etc., they stand to be heavily affected by any global warming legislation that passes in the US.

Eric S

Folks - this is the type of legislation we will end up with.

The $50 / ton level is not just a randomly thought up number, there is a significant amount of academia that backs this number - and historical EU prices in the tonne of CO2 trading market.

As for diesel being exempt from the $.50 fuel tax - makes since as the $50/ton maeans that for every gallon of diesel burned it will cost the user of this fuel about $.56. (1 gallon of diesel produces about 22.2 lbs CO2, 22.2 lbs CO2 / 2000 pounds/ton = .0111, .0111*$50 = $.555) This will lead to a direct investment of MANY companies to reduce their diesel fuel consumption. It will begin to instantly reshape the industry. Just the threat of this coming will, and has driven companies to begin to invest to reduce fuel conumption in their supply chains.

I hope this passes. What a huge win for the environment this would be!

Cervus

I could support this legislation, provided that the revenue only goes towards energy-related issues. The intent of this tax is to reduce consumption. Linking Social Security or anything unrelated to energy to this source of ever-decreasing revenue is a bad idea.

With the rampant earmark abuse in Congress, I don't intend to allow them to have more of my money than is absolutely necessary.

shaun

If the goal is to reduce sprawl for the sake of reducing energy consumption, there is no need to penalize owners of large homes. The rest of the bill will already increase their costs by making their HVAC and commute more expensive. Why punish them again?

Anyway, it is hardly worth talking about, since the bill has no chance of passing.

Brad

While I agree with most of this plan I disagree with the extra taxation of aviation fuel. I mean gas is already by far and large their number one cost, and they are doing things to try to reduce their consumption, for example buying Boing 787's or A380s, which are both highly efficient airplanes. And if they're not going to tax diesel because of it's fuel economy benefits, flying in a 787 is much more efficent than driving yourself in any deisel car.

K

I have no objection to a carbon tax.

But no one should think Washington will pass either a sensible and simple plan or a plan without pork and/or exemptions for a dozen favored lobbies.

I think we can safely say the bill will be a thousand pages long.

The way to do it is to tax every fossil fuel at the source based upon simply on carbon content. The taxation would be on extraction at a well or mine. Imports would be taxed right at the point where the tanker comes in or the pipeline comes down from Canada.

It is extremely hard to evade taxes collected in that manner since business in the US is well regulated and measured. Ever try to hide an oil tanker or coal mine?

Forget about synthetic fuels, biofuels, etc. for now. They are not much of a factor in the overall carbon budget.

Richard C Burton

I suggest a gradated carbon tax,with a base amount per week or month exempt,or at least at lower cost-similar to a "base line allowance" that the utilities use here in Calif for gas and electricity. Here in Calif,we all use driver's licenses that look like credit cards,and since most gas pumps here take credit cards it should be fairly easy to impliment...

chillpill

Agreed. Polluter pays all the way in order to fund the next generation of clean technologies. Pollute all you want and let us tax it to help the transition to a sustainable future. Thanks.

Cervus

K:

I would suggest that the taxes be borne by the purchaser of the good, rather than on the companies that do the extraction or importation. Ultimately, it's consumers who are responsible, and those costs should be up front and transparent at the gas pump and the electric bill.

I'm about as cynical about our politicians are you are, though. Total agreement there about the porkbarrel politics involved.

Elliot

Whatever carbon tax is passed needs to take measures to not screw over poor people. There are a lot of undereducated and/or poor people driving gas guzzlers around because they can't afford to maintain it, or they just bought the cheapest car they could get. If it comes down to eating or gas for these people, that's just not fair. And don't say take public transportation, because not every place has it.

My hometown for example, is the biggest city in the US without public transportation:

http://online.wsj.com/article/SB118964900293725997.html

Talk about culture shock when I went to NYC!

critta

Tony,Bjorn Lomborg is hardly an objective source on the importance of combatting climate change. I would take anything he says with a cup of salt.

I'm surprised no one has commented on the relative merits of a cap and trade system for mitigating greenhouse gas emissions versus a carbon tax, especially given the knee-jerk reaction of American business and public to new taxes.

A cap and trade system creates a market for innovation and that is supposed to be what the market does best. It would also fit in with the current administration's obsession with technology as the only solution to climate change. Of course you have to be careful in setting the rules if it is to work as intended, as the Europeans have already found out.

Bill Young

I have just responded to Dingell's request for comment:

I supported a carbon tax over cap and trade.
I said $50/ton is on target but $2/year rather than $5.
I suggested $1.50/gal rather than $0.50/gal on gas.
I said tax diesel as well as gas.
I suggested a CO2 sequestering bounty of $25/ton of carbon or the carbon tax which ever is higher.
I suggested that all revenue beyond the bounty be 'equitably' returned to the citizenry to keep the carbon tax revenue neutral.

(I don't have as big an ego as all the "I"'s above would suggest.) It is my suspicion that he is expecting negative feedback so that he can say that the people oppose either cap/trade or carbon tax.

If you think either cap/trade or carbon tax is appropriate, go to his website at www.house.gov and give him your thoughts. Maybe we can convince him that it is actually a good idea.

Dollared

Watching all of us comment, is it any surprise that meeting every objection and considering every impact results in a bill of 1,000 pages?

What we all object to is how too many of those "mitigated impacts" do not promote the interests of US residents, they are instead the result of the lobbying of multinationals who have too much influence because politicians need money to get re-elected, and who get 1,000% returns on their lobbying investments.

K

Cervus: I agree that taxes should usually be apparent rather than embedded. IMO the carbon tax would be an exception.

If you tax right at the end point: be it pump or electric bill or gas meter, you introduce tens of millions of collections. Granted those will be be summarized at higher levels by the gas company, the electric company, each gas station, etc. Thank goodness for computers.

That record keeping would not be a nightmare because tax collections are already done at all those places. But why reprogram and adjust in thousands or millions of places when much the same result can be avoided by changes at coal corporations, oil and natural gas companies, a few pipelines, and port facilities.

But my real objection is that if the tax is collected at the consumer we will immediate see large numbers of exemptions and manipulations written into law. There will be complex rules for low income people or students or someone else. There will be different rates for electricity and gasoline and aviation fuels and diesel and coal and NG. And there are different grades and mixes of each of those.

How much should a bus or subway fare be changed?

There will be a lament that it is not carbon but CO2 that should be taxed. So every industry and company and consumer will try to show they control emissions well even if they do use a lot fuel. The frome there the next step is to a carbon credit market.

Everyone will want to write the tax off their income so tax forms and laws will change. State income tax will be changed, or not, to agree with federal adjustments.

Members of Congress will find a reason to exempt Company X because Company X is performing some wonderful act of public merit that Company Z isn't.

I am not sure anything can be well done by our beloved politicans anymore. But on this topic my guess is that source rather than use is the point to collect a carbon tax.

Cervus

K:

We already do it for sales taxes, so I don't see why a carbon tax collected at point of sale (printed on the electric bill and the gas pump) would be any different. Besides, we use oil for more than just fuel. We use it for chemicals and plastics that do not necessarily end up going into the atmosphere, and therefore should not be taxed on emissions.

And I can give you another reason. Unless people actually see the costs that they are paying, they will assume that they don't have to pay it. Somebody else does. And then they'll complain that the oil companies are gouging them by raising the price on gas. I can see the sales tax my government collects on every item I buy. It's right there on the receipt. I don't see why a carbon tax can't be done the same way.

Hal

$50 per ton of carbon is 13 cents per gallon. (A gallon of gas has about 5.3 pounds of carbon.) Not anything to get excited about either way (pro or con) if you ask me.

Stan Peterson

More nonsense from our wonderful politicians. The automakers say they are committed to produce HEVs, and the market acceptance of HEVs has forced that response. Automakers have already locked in their 2010 model cars. That can't be changed. PHEVs will start arriving in showrooms in Model Year 2010.

The Future is already written.

The demand for fossil fuel and CO2, will begin to drop by about 50% over the second decade of the 21st century.

With the current pipeline of committed Nuclear Gen III+ plants alone, never mind any new ones that will be ordered, the CO2 emission from coal power stations will be cut in half. For a drop of 20% of present total CO2 output. That is from 40% of US CO2 output to 20%.

Taken together the projected reduction is some 70%. The AGW Proponents aim to reduce CO2 to 1990 levels is not only met, it is exceeded and much lower. So much lower, that it is lower than 1940 levels, the so called last normal levels of AGW proponents.

You can just... Declare Victory... without the need for new taxes; without resorting to Dingle's dingle.

"You can't save the Earth unless you're willing to make other people sacrifice" - Scott Adams (speaking through Dogbert)

Bill Young

Hal,

You are right, 13 cents/gal is not a big deal for transportation fuel. That is why there is also a gas tax in Dingell's proposal.

$50/ton on coal is a very big deal. The going price for coal is about $65/ton so this comes close to doubling the fuel cost for a coal fired power plant. It would mean that no new coal plants would be built and plans to replace the existing ones with something not based on fossil fuel would be initiated.

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