Flaws In The Baker-Schultz Carbon Tax Plan
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Since retiring from the Congress, former Senators Trent Lott, a conservative Republican from Mississippi, and John Breaux, a conservative Democrat from Louisiana, have spent many years as oil industry lobbyists. That being the case, it clearly came as a surprise to many people that they put together a political action committee (PAC) to support a carbon tax. I have to admit that I was intrigued when I saw an article in Vox, “Energy lobbyists have a new PAC to push for a carbon tax. Wait, What?”
The PAC is called Americans for Carbon Dividends. It supports a specific proposal, referred to as the Baker-Schultz plan, after two of its authors who had both been Secretaries of State, James A. Baker, III, and George P. Schultz. This plan has had some support from conservatives, as was made clear last March in the CleanTechnica article, “Young Republicans Embrace Carbon Fee Proposal.”
Since it is being backed by oil industry lobbyists, one might ask, could a carbon tax actually be a benefit for the oil industry in some way? It is a question worth asking.
The plan is being promoted by the Carbon Leadership Council (CLC). Among the CLC’s founding members are a number of companies strongly associated with fossil fuels, such as BP, ExxonMobil, and Shell. On the other hand, founding corporate members also include First Solar, Schneider Electric, and Unilever, which are not exactly known for supporting the fossil fuels industry. Also, there are NGOs, Conservation International and the Nature Conservancy, and such individual founding members as Michael Bloomberg, Steven Chu, and the late Stephen Hawking. One might hope something good could come out of such a group.
There are a number of things I find at the CLC website that also appear to be pretty good news. One is an implied admission that we have to do something about climate change. There is also a recognition that our environment is a global commons that needs to be protected. The need to provide for the good of ordinary people comes across as a very important issue, along with such things as the importance of dealing with destructive nationalism.
It is when I get into the specifics of the Baker-Schultz plan that I see problems. The plan has four “pillars.” Briefly, they are (1) a gradually increasing carbon tax, with a suggested starting point of $40 per ton of carbon dioxide emitted; (2) carbon dividends for all Americans, which would return the income of the carbon tax to the people, preferably through the Social Security Administration; (3) border carbon adjustments, charging a carbon tax on any imports from any country without a carbon tax and providing rebates for exports to any country with one; and (4) eliminating “regulations that are no longer necessary upon enactment of a rising carbon tax,” specifically including elimination of the Clean Power Plan. The complete description can be seen in a page at the CLC Website.
It was when I read the fourth of these that my hackles went up. After all, if the carbon tax is working on reducing emissions, there might hopefully be no need for the Clean Power Plan (CPP), but neither would there be any reason to eliminate it. The CPP seemed pretty tepid, at least to me, with goals that might be achieved almost by accident.
The example of Arkansas came to mind. In October of 2015, Arkansas was one of the states that sued to eliminate the CPP, claiming it would be too expensive to implement. Nevertheless it was clear in May of 2016 that the state would achieve the goals the CPP set for it, according to an article in Utility Dive, because it was switching from coal to less expensive sources of power.
The only reason to eliminate the CPP is if you really want to maintain levels of emissions it would find unacceptable. With that idea, I began to feel more suspicious, and I returned to a slight feeling that something was amiss in the second pillar.
The language for that pillar included the words, “In the example above of a $40/ton carbon tax, a family of four would receive nearly $2,000 in carbon dividend payments in the first year. This amount would grow over time as the carbon tax rate increases, creating a positive feedback loop: the more the climate is protected, the greater the individual dividend payments to all Americans.”
What struck me was the explicit assumption that the amount would grow as the carbon tax rate increased. We do not know that would happen at all. In order for that to happen, the gradually increasing carbon tax would have to go up faster than any decline in emissions.
The decline in costs of renewable energy has been astonishing. In the case of solar modules, the decline is expressed as Swanson’s law, which says that every time the number of solar cells shipped doubles, the price declines by 20%. While this is an observation, rather than a true law, it is an expression of Wright’s Law, first described in 1936 by Theodore Paul Wright.
Simply put, Wright’s Law says that the more of some thing we make, the more effective we get at production, and less expensive they are, in a mathematically predictable manner. While we can intuitively grasp the idea that we improve as we perform, the idea that the precise degree of improvement can be mathematically predicted may seem almost like a superstition. It has nevertheless been observed in a broad number of industries. It has applied to automobiles, refrigerators, radios, telephones, and computers. And it appears to be reliable.
We might safely predict that the prices of power from solar, wind, and batteries will continue to decline, and the decline will put increasing pressure on traditional technologies for power generation, transportation, and heating. The decline, which has to date been rapid, could be predicted to continue being rapid. The question that arises is whether the gradual increase in the tax on fossil fuels will be outstripped by the rapid decline in the cost of renewable power.
Under the Baker-Schultz plan, all ordinary Americans would have a somewhat steady income that is dependent on our use of fossil fuels. But a rapid decline in the use of fossil fuels, in the face of carbon dividends that only increase gradually, could cause all Americans to lose some of that income. The effects would fall most heavily on those for whom the dividends would be the greatest portion of their incomes, people who are poor.
In other words, under the Baker-Schultz plan, the poorer you are, the greater your incentive may become to vote in favor of anyone who promises subsidies for continued use of fossil fuels.
The Baker-Schultz plan looks like it is almost ready for prime time. But left as it is, I think its four pillars could just be a prop to guarantee a long retirement for the fossil fuels industry. I very much doubt that is the intention of the Nature Conservancy or Michael Bloomberg. But I cannot feel confidence in the thinking of those more closely tied to the gas and oil industry.
My suggestion is that instead of returning the income from the carbon tax to individuals and families, it should be used to provide for the medical expenses of the cardiorespiratory diseases and cancers associated with air pollution. This would help everyone in the country by reducing medical insurance costs and taxes. And though the carbon dividend would probably never cover all external costs of fossil fuels, it would help most those they injure most.
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