Texas public policy foundation
A Dangerous Delusion Is Back In The Form Of Carbon Tax
 
COMMENTARY
 

Note: This article originally appeared at Investors Business Daily on Sept. 11, 2012.

After hovering in the shadows for several years, calls for a carbon tax have re-emerged from diverse quarters including the Brookings Institution, MIT, the International Monetary Fund, self-professed conservatives, supply-side economists and the usual left-of-center suspects.

On Aug. 2, Congressman Jim McDermott introduced H.R. 6338, "The Managed Carbon Price Act." There is even hope of a grand tax compromise in the coming lame duck session of Congress: swapping the looming massive income-tax hike for a carbon tax as part of a proposed tax system overhaul.

Unless there is a cabal of renewable energy investors and select natural-gas interests desperate to increase the cost of their competitors' fuels (oil or coal), what could be motivating these ill-timed initiatives to tax fossil fuel-based energy - what is now the most productive sector of the U.S. economy?

Whether proffered as revenue-neutral tax swaps, a source of new revenue to reduce the deficit or the market-friendly method to avert catastrophic global warming, the benefits attributed to these carbon tax schemes are as lofty as they are implausible and irrelevant to the exigencies of the day.

What a whoppingly inopportune time to resuscitate a politically defeated, publicly unpopular, economically damaging policy with no measurable benefits! With 85% of our energy derived from carbon-rich fossil fuels, a carbon tax is simply a tax on energy not unlike the BTU tax summarily squelched during the Clinton administration.

Energy's role in the economy remains remarkably misunderstood. Energy - aptly called the "master resource" by economist Julian Simon - drives modern industrial economies. The cost of energy is imbedded in the price of all goods and services. There are no near- or medium-term alternatives to the abundance, affordability and efficiency of fossil fuels.

Renewables, such as wind and solar, are not on the cusp of some game-changing deployment at scale. After an increase of some 500-fold in the last few years - driven by lavish government subsidies and mandates - renewable energy still provides only a sliver of U.S. demand at a much higher cost than fossil fuels.

The U.S. has long claimed to offer the highest standard of living in the world. Since the 1950s, the comparatively lower costs of food, energy and housing in the U.S. left families with disposable income unmatched elsewhere. Increasing energy prices, however, presage real poverty.

According to the U.S. Census Bureau, slightly more than one-half of U.S. households (with a median income of $50,000) spent an average of 21% of average after-tax income on energy in 2012. These same households, in 2001, spent an average of 12% on energy.

If the slew of EPA's heavy-handed standards for electric generation survive judicial review, the price of electric power will dramatically escalate. Declining family incomes combined with higher energy and food costs have pushed poverty rates to the largest number in 52 years. A new carbon tax would exacerbate this trend.

Are the carbon tax promoters oblivious to the economically and geopolitically game-changing new access to oil and gas? The head of Saudi Arabia's Aramco already concludes the world's energy axis has shifted to North America. Under existing taxes and royalties, increased oil and natural gas production is projected to reduce the federal deficit by as much as 60% by 2020, according to Citi GPS.

Among the most out-of-touch promotions for a carbon tax is former Congressman J. Inglis' Energy and Enterprise Initiative. Touted as the conservative, free-enterprise solution, the Inglis carbon tax intends to make fossil fuel derived energy bear the full cost of its "negative externalities" construed as health impacts, global warming and "dangerous dependence on a scarce resource."

Inglis has overlooked some glaring facts in air quality improvement, discredited climate science and newly accessed abundance of domestic oil and gas.

Mr. Inglis apparently agrees with President Obama's claim that "we can't drill are way out of dependence on foreign oil." In fact, free enterprise is well on the way to drilling this country out of energy dependence. Some refineries on the Texas Gulf coast which three years ago were refining 80% imported and 20% domestic oil have flipped that tally and now refine 80% oil made in the U.S.A.!

In 2009, when enactment of muscled-up cap and trade legislation was considered inevitable, a "modest" carbon tax appeared a less-damaging alternative. Cap and trade is now cold-dead, and EPA's inglorious regulatory mess of greenhouse-gas regulation will either fold on its own weight or be vaporized by Congress.

This current carbon tax push - although only rumblings at the margins - reveals business models dependent on a carbon price. Billions of public and private funds have been invested in alternative energy with the assumption of an eventual government diktat to increase the price of fossil fuels. Without such a sanction on carbon, it is increasingly obvious that inherently less efficient, far more expensive alternative energies cannot compete.

Kathleen Hartnett White is distinguished senior fellow and director of the Armstrong Center for Energy and Environment at the Texas Public Policy Foundation. She was commissioner and chairman of the Texas Commission on Environmental Quality from 2001 to 2007.

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