Seven Democrats Introduces Alternative Carbon Tax Bill

Mar 5: Representative John Larson (D-CT) has introduced the America's Energy Security Trust Fund Act of 2009 (H.R. 1337), which would amend the Internal Revenue Code of 1986 to reduce carbon dioxide emissions in the United States domestic energy supply by creating a carbon tax. There are six cosponsors of the bill including: Representatives Earl Blumenauer (D-OR); Rush Holt, (D-NJ); Jim McDermott (D-WA); George Miller (D-CA); James Moran (D-VA); and David Wu (D-OR). The bill, which counters the preferred "cap-and-trade" approach favored by most Democrats and President Obama to reduce greenhouse gas emissions, was referred to the Committee on Ways and Means, and in addition to the Committee on Foreign Affairs, for a period to be subsequently determined by the Speaker.

According to the Carbon Tax Center (CTC), Representative Larson's new bill builds on and improves his 2007 bill with the following provisions: The first-year tax rate is $15 per ton of carbon dioxide; The rate rises by $10/ton per year; After five years, that increase rate is automatically bumped up to $15/ton if U.S. emissions stray from an EPA-certified glide path to cut emissions by 80% from 2005 levels in 2050; To protect domestic manufacturers, the bill authorizes the Treasury Department to impose a "carbon equivalency fee" on carbon-intensive products imported from non-carbon-taxing nations; Clean-tech R&D and investments are eligible for $10 billion a year in tax credits; Impacted workers and industries are eligible for transition assistance of $7.5 billion in the first year; this is phased out after year 10 but still totals $41 billion; and All other revenue is tax-shifted to Americans via reductions in payroll taxes.

Last year, Larson spoke on behalf of his carbon tax legislation and said, "Let's look at what would be revenue neutral. Let's look at taxing polluters upstream but passing the benefits downstream to the consumers, reducing payroll taxes and using our creativity and this committee's authority to create a system that will provide the opportunity and innovation and tax relief they need as well."

One of the major supporters of the carbon tax approach, as opposed to cap-and-trade is New York Mayor Michael Bloomberg who called carbon tax policy, like the one in Congressman Larson's bill, "the best way forward." He said, "Larson has proposed legislation that will reduce payroll taxes for citizens in exchange for a tax levied on the carbon emissions spewed by approximately 2,000 polluters. It passes the benefits of the tax onto consumers."

Bloomberg, at the 2007 Mayors Climate Protection Summit in Seattle [See WIMS 11/06/07], and at the February, 2008 United Nations General Assembly thematic debate on Climate Change said, "Cap-and-trade is an easier political sell because the costs are hidden -- but they're still there. . . A cap-and-trade system will only work if all the credits are distributed from the start -- and all industries are covered. But this begs the question: If all industries are going to be affected, and the worst polluters are going to pay more, why not simplify matters for companies by charging a direct pollution fee? It's like making one right turn instead of three left turns. You end up going in the same direction, but without going around in a circle first."

Among others, in addition to Bloomberg, supporting a carbon tax, that WIMS has reported on in the past include: Peter Orszag, former director of the Congressional Budget Office (CBO) and now Director of the Office of Management and Budget in the Obama Administration; James Hansen, PhD, Director of NASA's Goddard Institute of Space Studies; and Friends of the Earth (FOE) President Brent Blackwelder. Even one of the most cynical climate change opponents, Senator James Inhofe (R-OK), Ranking Member of the Environment & Public Works Committee, has said that carbon taxes are the “most efficient” way to regulate CO2 emissions and “could offer significant advantages” over the cap-and-trade approach [See WIMS 2/22/08].

According to a release from the Carbon Tax Center, the tax would take effect in 2009 and tax emissions at a rate of $15 per ton of carbon dioxide and increase by $10 each year (or by $15 each year if needed to keep emissions falling fast enough). It would be virtually revenue-neutral, with over 95% of carbon tax revenues used to cut payroll taxes to help Americans with higher energy prices.

Charles Komanoff, co-director of CTC said, "Congressman Larson has shown great leadership in introducing this bill and ramping up the debate on carbon pricing in this Congress. It's a debate we urgently need to have. President Obama took a big step forward in proposing carbon pricing in his budget. The strong consensus among economists is that a carbon tax is the quickest, most effective and most transparent approach. Now that we have a well-crafted carbon tax bill to work with (and more such bills in the pipeline), Congress will be able to compare the details of actual carbon tax and cap-and-trade bills, and debate them on the merits. As that debate unfolds, you'll see a groundswell of support and eventual consensus line up behind a carbon tax proposal like Rep. Larson's."

CTC indicated that unlike cap-and-trade proposals, the Larson bill calls for taxing carbon at the source, such as oil refineries and coal mines for domestic fuel, or shipping terminals for imported fuel. A total of $100 billion over the first 10 years, equivalent to three percent of the revenue, would be dedicated to tax breaks for clean energy, while another $41 billion, equivalent to one percent of the revenue (more in the initial years, less in later years) would be used for transitional assistance for workers in industries directly impacted by the carbon tax. All of the remaining carbon tax revenue - over 95% - would be spent on cutting payroll taxes, offsetting increased energy prices for working families, and helping stimulate job growth. This would amount to a tax shift rather than a tax increase. In fact, most working families will actually come out ahead if they conserve energy modestly.

Access a release from the CTC (click here). Access legislative details for H.R. 1337 (click here). Access a 2008 release from Rep. Larson (click here). Access the CTC website for extensive background and related information (click here). Access various WIMS-eNewsUSA blog posts on the carbon issue (click here). [*Climate, *Energy]