In response to an op-ed in the Washington Post by Robert Samuelson, a letter to the editor from Citizens’ Climate Lobby published on January 1 stated that private investors have no economic incentive to fund research and development in low carbon technologies since fossil-fuel users don’t have to bear the environmental costs of CO2 emissions. 

Their proposed solution is to increase the cost of fossil fuels “…by applying a gradually increasing greenhouse-gas-emissions fee on fuel extractors and importers and returning all fee revenue to households equally (emphasis added). Prices for gasoline, fuel oil and natural gas would rise, providing an economic incentive for investors, entrepreneurs and businesses to invest in conservation, efficiency and renewable energy sources. Revenue returned to households would help consumers with rising energy costs during the transition to a clean-energy economy.”

First, let’s address economic incentives for investors. Although the letter writer may despair of ever developing a renewable energy source that will be competitive with fossil fuels, it is incorrect to say that there is no economic incentive to develop them. Fossil fuels cost something so there is always an incentive to develop alternative ways to transport goods and people or generate power that cost less. And energy markets are enormous so the cost advantages can be small yet still provide enormous incentives for alternative technologies. Don’t nuclear power producers already have an incentive to lower their unit costs so that they can take market share from coal or natural gas? Those incentives also exist for developing technologies.

Second, I’d like to ask some questions about a “greenhouse-gas-emissions fee”:
 
1. Why don’t they call it a tax? Everyone else calls it a carbon tax. (My political spin detector is beeping.)

2. Why do they propose having “fuel extractors and importers” pay the carbon tax, but returning the money to “households”? (My political spin detector is honking.)

3. What does it mean to say that the carbon tax revenue will be returned to households “equally”? (My political spin detector is clanging.) The only way that the carbon tax rebate works as an incentive for alternative energy technologies is to allocate equal amounts to each household. Who benefits from this? Those who use less energy than the average because they conserve energy (think small houses, small cars, smart thermostats, additional home insulation, etc.) or who choose renewable or low carbon energy sources to displace fossil fuels (think electric automobiles, solar water heaters, etc.). Those consumers that continue to use fossil fuels will subsidize those who choose alternative energy technologies. This is an extension of current federal policy which has all taxpayers underwriting $90,000 Teslas for the company’s well-heeled clients.

4. Does anyone really believe that all carbon tax revenues will be returned to consumers? Doesn’t experience tell us that the legislators and regulators will want to siphon off part of that revenue stream to invest in research, their favored technologies, and infrastructure?

The point of a carbon tax is to encourage consumers to substitute more expensive energy technologies for those that are, for now, less expensive. (It also punishes “bad” consumers and rewards “good” consumers, but that’s just a side benefit.) Even though all consumers are forced to share the costs of the more expensive technologies, the net effect is that we pay more for energy and, collectively, end up poorer as a result.

Jeff Hazle

Posted by Jeff Hazle

Jeff Hazle is the former Senior Director of Refining Technology for AFPM. To learn more about AFPM, visit AFPM.org.