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The Lieberman-Warner American Climate InSecurity Act (A-CISA) has, as its core centerpiece, a poorly structured Cap and Trade program, inadequate for achieiving required reductions in US (and Global) GreenHouse Gase (GHG) emissions while giving away $500 billion (and likely more) to serial polluters, making the task of reducing America’s fossil-fuel addiction that much more costly and that much more difficult.

Rather than a Cap and Trade with mass give-away of permits (40% over the first twenty years), a better structure is a Cap-Auction-and-Trade (CAT), with 100% of pollution permits auctioned, with the resources being used to speed pollution reduction and lower the inequities that such a program will inevitably foster.

Another route exists, placing a carbon fee on pollution: directly charging a fee on the polluter.  And, using the raised funds (again) for reducing inequities and speeding reductions in pollution.

A CAT has the benefit of some certainty as to maximum GHG emissions and certainty in reducing emissions.  A carbon fee as the benefit of greater certainty as to financial resources but less certainty as to total emissions.

Truth be told, a better path (one not in consideration in A-CISA) would be a combination of the two: A CAT combined with some based level carbon fee.  This diary discusses a Global Warming Impact Fee.

Tax or Fee? 

Earlier this year, Democratic Presidential candidate Senator Dodd came out with a speech in which he called for a Corporate Carbon Tax.  While I have much in agreement with this, in reality, the nation should not have a “tax” but a fee.  A Global Warming Impact Fee …

Very simply, polluters will be paying to pollute the air that you, I, and our children breathe; to pollute the water that we drink.  Like a tipping fee at the local dump, the polluters should be paying a fee (to us, to the US) for this right.  This is not a “Tax”, which somehow implies taking away something from someone a portion of something that they have earned, but instead a fee for the right to impact on someone else’s property.

Facing reality … and a requirement for action …

Times have changed in DC and the nation when it comes to Global Warming. As bad as Lieberman-Warner is, it would not have been possible to even see the light of day from a committee chaired by Senator Inhofe (R-Exxon).  The political world has changed and is changing.

As for tangible reality … 

There is no question (at least in a reality-based world) that there has been global climate change already and that there will be more.  The questions are:

• Just how bad it will be?
• How drastic will the effects be? And,
• What steps will be taken from individuals to the global community to turn aside from the worst scenarios.

Of course, the reality is that it will get worse.  There is a time delay from emissions to their global impact.  And, even in the most optimistic and aggressive scenarios, emissions worsen before they get better.

And, the challenge is not just in the developed world — moving industrialized nations (especially the United States) onto less polluting paths but also helping developing nations leapfrog polluting stages of industrialized life directly into a sustainable and prosperous future even while the world population continues to expand (peaking at how many billions?).

And, the reality of Peak Oil (whether it occurred last Thanksgiving at 3:45 pm or if it will happen in 2012) complicates the situation horribly as the hydrocarbon options for replacing oil as liquid fuel source are more polluting than burning sweet crude out of Saudi oil wells.

Thus, we need to get about Winning the Oil Endgame while drastically reducing our (global humanity) GHG emissions, if not figuring out a way to actually draw carbon out of the atmosphere and the oceans (to turn it into carbon fibers for building tomorrow’s infrastructure?).

We must recognize that we are where we are and try to create conditions to minimize just how bad it will get. Every day the situation worsens but we remain always with possibilties to turn the path toward mitigation of the extent of damage.  And, there are many real options for doing so.

Many business leaders expect there to be carbon taxes and thus would like them to be imposed to provide certainty for planning and investment. This is a good sign as to an environment ever more ripe for smart action on global warming.

This perfectly exemplifies the principle that we should Make the right choice the easy choice for:

• Government, at all levels;
• Corporations, businesses, and other organizations;
• Communities and associations; and,
• Individuals.

A Cap or a Fee?

A Cap (with Auction & Trade) of pollution levels would provide certainty as to maximum pollution levels. It would not, however, provide any real incentives for doing even better, for reducing pollution far faster than the cap required.

A Fee on pollution, however, would lead to very clear calculations as to which is the more expensive path and might lead some to choose paying for pollution over reducing that pollution.

A combination of the two, however, might foster paths for accelerating pollution reductions faster than a Cap alone might provide while maintaining the Cap’s certainty of some minimum level of pollution reduction.

Conceiving a Global Warming Impact Fee

A carbon fee, of sorts, sensibly applied could provide a means for supporting this objective, turning people away from polluting coal and oil and toward more sustainable energy choices — globally. Perhaps it is time for a carbon fee — globally.  As along the lines of the gas tax proposed in Energize America 2020 discussions, such a fee should be imposed gradually (but with certainty) over the course of a decade (or indefinitely?).   

At what level would this work?  Should we aim for financial certainty over pollution certaitWhile perhaps something even stronger would work to mitigate global warming better, there are real limits of what might pass (especially in the United States). Understanding this limitation, perhaps the fight should be for something like $6 per year ($0.50 per month) per ton of carbon emissions. This would give a fee of $60 per ton at the end of that decade.  

How might this affect life?  Today, ‘dirty’ coal in the United States can be burned for electricity at as low as 2 cents per kilowatt hour (kwh).  This cost, however, does not account at all for all of the damage to the commons (long-term mining impacts, polluted air for breathing, mercury that ends up in the food system, and carbon in the atmosphere contributing to global warming).  Quite roughly, that dirty coal kilowatt hour equates to two pounds of carbon-dioxide pollution (2.095 lbs per in kwh in 1999, to be exact).  Thus, for every $10 per ton of a carbon fee, this would equate to about 1 cent per kilowatt from dirty coal.  

In the United States, diry coal electricity can be quite profitable for Duke Energy and other producers of the world — produced at 2 cents and sold retail at an average of about 9.5 cent per kwh.  A few hundred billions of these and soon you’re talking real money and real profits.  A Duke Energy, knowing that their price would be hit by roughly 0.6 cent per kwh from dirty coal every year, year-in and year-out, would make decisions about investments for tomorrow’s power generation.  Do they want carbon sequestration?  How much can they do at 3 cents per kilowatt hour (the fifth year of the tax)?  Do they want to invest in wind power (which is roughly a 4-6 cent kwh production cost)?  Or, solar? Or, nuclear?  

The above is, of course, just for electricity.  What about other carbon pollution.  This carbon worksheet provides a way to learning one’s carbon impact — with number of pounds per activity. For example, a gallon of gas is roughly 22 pounds of CO2 from its roughly six pounds of carbon (plus carbon from its production …).  Thus, the $6 per ton, per year would mean roughly 3.5 cents Global Warming Fee per gallon, per year.  And, so on through all the energy system … While the $.03 is relatively low compared to calls for gas tax, this would be a sure $.30 over a decade.  there would be real impacts.

A known fiscal impact would enable Duke to plan and invest. As it would for everyone else in the economy. Thus, this would provide a steadily mounting level of fees that would enable all decision-makers (from the individual consumer to the major industry to national leadership) to make investment decisions, knowing with some certainly the future fiscal impacts of those decisions.  

And, this fee should be announced simultaneously by Japan, the EU, and the United States.  

To deal with a key challenge (how to engage ‘devloping’ countries) and risk to economies institituting carbon limits,  is that these nations (the principal importers in the world) should agree that all imports will be judged by this standard: if the originating country does not impose carbon tax fees, then the fee will be imposed on entry into their country. This would quickly get other nations in line.  Would China want the United States collecting Global Warming Impact fees on all imported goods for spending as the US government deems most effective or would it want control over these resources to focus their moves away from hydrocarbon dependence and to reduce pollution within China?

Realize that these fees would not stand alone, they would be a flat fee for polluting. Polluters would also have to buy (at auction or via trade) permits under a constantly reducing cap. Thus, a company would know (without question) that it would pay $x for carbon pollution and that fee would go up every year. Certainty. They would also have to deal with the incentive to aggressively reduce pollution in face of reducing permit limits. And, those auctioned permits would increase the raised revenues.

Massive revenues 

How to use the revenue?

First, we should recognize that this is to mitigate an issue of global and not just national challenges.

Second, we should be clear in understanding that this will be politically and socially difficult.

Third, we should be aware of inequities in society and that this program could worsen the equities.

Thus, first off, roughly half the revenue should go directly to every cititizen (resident in the United States) on an equal basis.  (With, perhaps, minors money going half to their guardians and the other half into a Energy Bond program where they could withdraw the money, 20% per year, starting at age 18.)  Thus, if you pollute less than 50% of the average American, you would actually earn money. As one tends to have a larger carbon footprint the higher ones income, this would also provide a path for somewhat balancing economic disparities in the nation. Finally, this would provide a path toward guaranteeing political and social support by putting money back into people’s pockets.

Depensing the remaining half … 

The majority of the maining fees should be used (by agreement with an international monitoring) toward moving toward sustainable energy (energy efficiency, renewable energy), global warming mitigation (including carbon sequestration), and environmental action. All of this should be additive on top of what already exists.  And, there should be a commitment for perhaps 10% of that 50% (or 5 percent of the fees) to be dedicated toward programs for sustainable energy and global warming mitigation activities in the developing world.  

And, a large portion of that money should be spent to reduce the carbon impact of every citizen (but most aide to the least financially able among us) to enable everyone to reduce their carbon footprint every year so that there costs from increased carbon fees per ton would actually even out (if not lower) in terms of total costs.

We are ready for change …

Polling shows an ever growing awareness of Global Warming and its threats. 

Business leaders’ comments suggest that there are major players in the United States who would feel the impact of such fees who are ready to deal with them.

There is a breath of fresh air when it comes to Global Warming and politics in Washington.  It is no longer be politics as usual and real potential exists to move America (and the world) toward a more sustainable and prosperous energy future.    The Democratic Party Presidential candidates have platforms calling for 100% auction and a 2050 target of at least 80 percent reductions (both stronger than Lieberman-Warner; perhaps Lead-Der-Men toward Warmer …).

A Global Warming Impact Fee could be a key tool toward achieving that better tomorrow.