Carbon tax talk re-igniting post-election - WOWK 13 Charleston, Huntington WV News, Weather, Sports

Carbon tax talk re-igniting post-election

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A tax on the carbon dioxide released by power plants is seemingly off the legislative agenda, but the idea is being re-examined now that the nation is getting a second Obama term.

The policy is a way to tackle climate change by reducing the amount of greenhouse gases released into the atmosphere. Energy producers contend the cost of capping carbon dioxide emissions is far too high, and many consumers worry about the cost of curtailing emissions.

Several media reports have indicated that the White House has no intention of pushing a carbon tax at the moment. The Republican-led House would also likely not allow passage of such a policy.

The Congressional Budget Office released a working paper yesterday that examines methods of reducing the cost of a carbon tax on low-income families. The report emphasizes the benefits of using existing tax and transfer programs targeted at low-income households.

"Using existing transfer programs or providing rebates through the income tax system would avoid creating new institutional structures for administering payments," the report states. "Existing systems that already collect information on household income also are well suited to targeting assistance based on need. However, no single existing system would reach all households."

Programs that appear to be good candidates for delivering carbon tax relief pose their problems. For example, not all members of low-income households pay payroll taxes or file tax returns.

The carbon tax, as pointed out in the paper, would increase the cost of goods and services that emit high amounts of carbon dioxide. Electricity produced from coal-fired power plants – the primary source of power in West Virginia – is one such example of an industry that would face high carbon taxes without significant investment in new technologies to curtail emissions.

"Those changes in relative prices are essential to the success of the program because they provide incentives for businesses to produce goods in a manner that result in lower emissions and for households to reduce consumption of energy-intensive goods that cause high emissions," the paper describes. "At the same time, those price increases would impose a burden on low-income households."

The report looks back at another CBO study that found a policy placing a cost of about $103 per ton on carbon would impose a cost of about $425 per year on the average household in the lowest income quartile and cost the highest income quartile about $1,380 per year. That's a difference of about 2.5 percent of after-tax income for the lower income families and about 1 percent of the after-tax income of higher income families.

Some federal payments would automatically increase. Supplemental Nutritional Action Payments are tied to food prices. Social Security and Supplemental Security Income programs are tied to the Consumer Price Index. Both would increase if carbon-intensive products are taxed.

The CBO isn't the only group looking at a carbon tax this week. The left-leaning Brookings Institute issued a proposal to impose a "modest carbon tax" to "help clean up the economy and stabilize the nation's finances."

"Specifically, Congress and the president should implement a $20 per ton, steadily increasing carbon excise fee that would discourage carbon dioxide emissions while shifting taxation onto pollution, financing energy efficiency (EE) and clean technology development, and providing opportunities to cut taxes or reduce the deficit," the Brookings report states. "The net effect of these policies would be to curb harmful carbon emissions, improve the nation's balance sheet, and stimulate job-creation and economic renewal."

A carbon tax, Brookings argues, would make great strides toward not only cleaning up the environment, but also toward reducing the nation's debt.

The Institute acknowledged a political reality – Washington is not too keen on "price-related strategies for addressing climate issues." The aversion, the report states, is from high-profile failures of public investment in companies such as Solyndra, concerns of impeding an "anemic" economy and the "hangover" effect of failure to pass cap-and-trade legislation in 2010.

"The bottom line: Any proposal of a carbon price needs to overcome some steep hurdles," the report states. "First, it will need to allay suspicions that carbon pricing is inevitably a hyper-complex, special-interest free-for-all and a drag on growth. And second, it will need to answer the accumulating evidence that carbon pricing systems have thus far been largely ineffective at inducing technology change and substantially lowering carbon emissions."

Skepticism regarding the efficacy of price-based systems is addressed in the Brookings report by directing funds to research and development. The addition is an attempt to overcome concerns that clean energy won't be clean enough without new technologies.

Basically, the Brookings report says, the U.S. can't tax it's way to significantly reduced carbon dioxide emissions. Specifically, the report's proposal sets aside $30 billion for investment in clean energy research.

The rest of the revenue, an estimated $120 billion per year, would be allocated toward rebates to low-income households.

The American Enterprise Institute held a conference on the economics of a carbon tax Nov. 13. The event was co-sponsored by the Brookings Institution, International Monetary Fund, and Resources for the Future.

"Offsetting a Carbon Tax's Costs on Low-Income Households" is available on the CBO's website. Brookings' proposal, "Institute a Modest Carbon Tax to Reduce Carbon Emissions, Finance Clean Energy Technology Development, Cut Taxes, and Reduce the Deficit" is also online.