The Right Warms Up to a Carbon Tax

October 14th, 2010 at 11:56 pm | 15 Comments |

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The conservative American Enterprise Institute released an energy policy proposal on Wednesday that included support for a carbon tax and higher levels of energy innovation funding.

The proposal, co-written by AEI’s Steven Hayward, Brookings’ Mark Muro and the Breakthrough Institute’s Ted Nordhaus and Michael Shellenberger calls for federal investment of $25 billion per year towards R&D and a network of university-private sector innovation. The investment would be paid for by a $5 per ton carbon tax.

Perhaps the most striking thing is that a conservative think-tank has signed on to a proposal that includes an increase in taxes. “That’s the thing I’m least enthusiastic about… [but] any new spending program has to be paid for by a revenue source. These are deficit conscious times,” explains Hayward to FrumForum. “If it’s not a carbon tax, then it has to be cutting subsidies, or higher oil and gas royalties.”

The authors argue in their paper that the $25 billion per year federal investment is necessary because private industry is dedicating too little money to research and development. The energy sector only devotes 0.3% of domestic sales to R&D, compared to industries driven by innovation, such as communications (25.6%), software (15.1%) and pharmaceuticals (11.9%).

Hayward told FrumForum that although market-oriented individuals may shudder at the thought of this type of federal intervention, the energy market isn’t currently free. “The oil market is dominated globally by state-owned oil companies, which means that the marketplace is vulnerable to political manipulation… because it’s not a perfectly free market, I think it’s not sufficient to say ‘oh, just let the market take care of it’ and do nothing,” says Hayward.

From a political standpoint, Hayward understands that there is a lot of work to be done before this initiative can be legislatively realized. “It’s a hard sell. I think it’s an impossible sell, at least right now,” said Hayward. “The next six months or more are going to be about deficit reduction, limited government and fighting over taxes – so this issue will remain on the back-burner. But if we have another election with $4 or $5 gasoline, you’ll see that change in a hurry.”

The policy paper is labeled as ‘post-partisan’, but Hayward admits that many Republicans still don’t view climate change as being man-made, or a problem worth addressing. However, there are other reasons to support his proposals, he argues:

A lot of Republicans, even those who don’t believe in  climate change at all, understand that we’re vulnerable to $4 a gallon gasoline, like we had a couple years ago… and we don’t like the instability that comes from dependence on foreign oil.

The policy paper is the product of a long effort that started when Hayward first read a book written by his co-authors, Ted Nordhaus and Michael Shellenberger, Break Through: From the Death of Environmentalism to the Politics of Possibility. “Their perception of the climate problem was so fresh; lefties who are thinking outside the environmental box,” recalls Hayward, that he went to them and said, “You’re like Gorbachev, you’re someone I can do business with.”

Hayward also offered a look into the political side of the think-tank world. Although the paper was finished in Spring of 2010, the authors agreed not to release it until now in order for it not to be seen as a missive against cap-and-trade.

“We decided not to roll it out during the summer when the cap-and-trade bill was still alive,” says Hayward. If they had, he explains, environmentalists would have accused the authors of bad faith – the paper criticizes cap-and-trade – and not taken the policy paper seriously.

Trans-ideological proposals on energy policy are possible, say the authors. If Americans want to fight the challenges of climate change and reduce their dependence on foreign oil, this piece sets a good baseline for discussion.



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15 Comments so far ↓

  • Nanotek

    “The Right Warms Up to a Carbon Tax”

    someone smells derivatives in the air … time for an about face

  • balconesfault

    Hmmm … sounds like the AEI is becoming pretty elitist.

    I suspect this will make no difference whatsoever to the Tea Party fueled direction of the GOP.

    At least until Rush changes his mind on the subject.

  • Carney

    Again, what tax on the most pernicious and problematic carbon-dioxide emitting fuel, petroleum, could possibly match what OPEC itself imposed? From 1999 to 2008, petroleum went from $10 a barrel to $140 a barrel.

    During that time, we made some progress. Research and development of battery-electric cars proceeded and the first cars resulting from it are hitting the marketplace this year. An increasing percentage of cars have become flex fuel capable, and the number of filling stations selling alternative fuel, especially ethanol, has gone up several fold.

    And yet well over 95% of cars are still gasoline-only, and the percentage of gas stations that offer ethanol is only about 2% at the very most. Progress has been so slow we were still effectively dependent on oil in 2008, leading to a great degree to the economic collapse when the price of oil became so crushingly high it amounted to a foreign-imposed “tax” of hundreds of billions on the US economy.

    If even a brutally punishing 1,400% “tax” could not do the job, then clearly we must look at some other solution.

    And that is to make sure that new gasoline burning cars can also run on alternative fuel. If drivers have a choice of fuels they can use, THEN raising the price of gasoline will encourage them to choose alternative fuels (if I recall correctly, a large portion if not a majority of us are within a 20 minute drive of an ethanol station). If we continue the status quo and allow millions of new cars each year to be added to the domestic fleet that are unnecessarily “locked in” to petroleum-only, then raising the price of petroleum is simply imposing pain on helpless people, and encouraging alternative fuel is pointless because THE CARS CAN’T USE IT.

    On the electricity side of the energy fence, there already is a “flex fuel” situation. Your light bulb doesn’t care whether the electricity powering it came from nuclear, coal, natural gas, solar, or whatnot. So a carbon tax there might work, although it would raise the price of EVERYTHING and slow down the economy.

    But again, on the transportation fuel side, nearly all cars sold now are monovores – able to eat only ONE thing, like koalas with eucalyptus. We need to make them omnivores like bears and humans, able to run on a wide variety of fuels, made from a wide variety of sources.

  • oldgal

    It is encouraging to see a serious post about a serious issue with a target of bipartisan resolution. It would be helpful to also look at other areas where R&D funding could yield positive long-term results. When the economy contracts R&D funding always dries up, then the science and math folks (of whom we are constantly screaming we need more) find out that there is much more job security in the bean-counting world and, oddly enough, bean-counting is a whole lot easier…and often pays better… than rocket science. Where would the U.S. be today if we had not been on the leading edge of computer technology?

  • LauraNo

    Socialists! Marxists! Redistributists! Why does the AEI hate America? I’m going to be hearing this from conservatives, right? HaHa.

  • Cato

    Exactly LauraNo, I cant wait to hear the GOP and their defenders spin such an about face on “cap and tax”

  • Frogmorton

    As a person who lives in Alberta and derives the bulk of my income from the fossil fuel industry I must say that simply taxing carbon as a punitive measure in an attempt to reduce its effect is, as Carney has pointed out futile. The cure is worse than the disease. If however a tax is implemented and the revenue is directed solely towards R & D then I feel most people would be in support. Wind and to a lesser degree solar simply are not scalable. If we run out of oil in the next 20 years, even if we maximize the development of Wind and Solar we would still find ourselves on the express train to the Stone Age in a heartbeat. The energy source in line to replace fossil doesn’t even have a name today. If we focus our resources on this goal we just might stand a chance. If this seems like pie in the sky sci-fi remember the trip from Kitty Hawk to the Sea of Tranquility took less than 70 years.

  • Carney

    Frogmorton, wind and solar aren’t alternatives to oil anyway, because we don’t burn oil to make electricity anymore. The oil problem is basically confined to being one of transportation fuel, NOT electricity generation.

    Oil can be replaced as a transportation fuel by alcohol fuel and electric vehicles.

    Non-oil fossil fuels, namely natural gas and coal, are not nearly as big of a problem, as they are not controlled by a price-hiking cartel and do not fund terrorism. To the extent we need to replace them we can do so with nuclear fission.

    And in the long run, nuclear fusion will be able to produce such an abundance of power that the sheer quantity will qualitatively transform our lives in much the same way that electricity itself did.

  • pnwguy

    Carney:

    “Frogmorton, wind and solar aren’t alternatives to oil anyway, because we don’t burn oil to make electricity anymore. The oil problem is basically confined to being one of transportation fuel, NOT electricity generation. ”

    I suspect Hawaii is the one exception to that. Alaska has tremendous untapped natural gas reserves for generation, but I don’t think Hawaii does, though they probably have some geothermal potential. At their latitude and ocean isolation, wind and solar might make good sense to replace oil-based electricity. Whether or not they have sufficient agriculture waste for biomass fuels is anyone’s guess. But they could easily solve their needs with wave power generators, as that technology moves forward.

  • nhthinker

    “The Right Warms Up to a Carbon Tax”

    Yeah, as soon as hell freezes over.

    Hayward reveals he is liberal-lite like Frum and Bush.

    The US has magnitudes more carbon available than any major economy. China’s rising star will start to fall within a measly twenty years because they will run out of carbon. If someone invents an economical replacement to carbon, it will be the Chinese economy that will most directly benefit. China should not expect the US taxpayer to borrow more money and hurt our economy to invest in the R&D to solve an impending Chinese problem.

    That said, suggesting a shift to NG, coal and Nuclear and decreased use of imported energy would help the stability of the US economy.

  • Carney

    pnwguy, I believe you are right that Hawaii is one of the few, if not the only, locations left in the US with oil-fired power plants. On an overall basis, only 1-3% of the USA’s electricity comes from oil. Thus from a geo-strategic perspective, our electricity sector is oil-free for practical purposes.

  • balconesfault

    nhthinker: China’s rising star will start to fall within a measly twenty years because they will run out of carbon.

    http://www.2point6billion.com/news/2010/10/13/cnooc-to-invest-over-us1-billion-in-u-s-shale-assets-7589.html

    Oct. 13 – China National Offshore Oil Corporation (CNOOC) is set to invest over US$1 billion into one of the largest U.S. producers of natural gas, Chesapeake Energy, taking with it a minority ownership stake in one of the company’s shale oil and gas fields.

  • nhthinker

    @balconesfault

    Are you acknowledging China’s problem or not? China’s heavy industries are not going to economically run on shale oil and gas from the US.

  • Crockett Sally

    This country absolutely needs to raise the price of carbon based fuels in a straightforward and transparent way. We need to avoid the evasion and market manipulation that plague a cap and trade system and implement a revenue-neutral carbon tax. Moreover, a carbon-tax would directly raise the price of carbon-based energy, imposing the greatest cost on those firms and forms of energy that produce the most emissions, all while providing powerful incentives for the development of new, climate-friendly technologies.

  • NH

    And we will vote their a**es out if they dare vote for a carbon tax.

    Consider that groups like 350.org are funded by the biggest oil and banking families in the world, you know it’s to control us, not because of climate change. It’s the biggest phony crisis in history. Anyone who falls for it is a fool.