Karen Frantz
GHG Monitor
11/15/13
The Congressional Budget Office estimated that a carbon tax of $25-per-ton that would rise 2 percent each year could help cut the deficit by $1 trillion over the next decade, outlining the idea along with its pros and cons among approximately 100 other options for trimming the deficit in a paper released this week. “This option would place a tax of $25 per metric ton on most emissions of greenhouse gases in the United States—specifically, on most energy-related emissions of CO2 (for example, from electricity generation, manufacturing and transportation) and some other GHG emissions from large manufacturing facilities,” the paper says. “Emissions would be measured in CO2 equivalents (CO2e), which reflect the amount of carbon dioxide that would cause an equivalent amount of warming. The tax would increase at an annual real (inflation-adjusted) rate of 2 percent. During the first decade the tax was in effect, the Congressional Budget Office estimates, emissions from sources subject to the tax would fall by roughly 10 percent.”
The paper adds that arguments in support of the option are that “it would reduce emissions of greenhouse gases at the lowest possible cost per ton of emissions because each ton would be subject to the same tax” and that it could generate co-benefits that “would occur when measures taken to reduce GHG emissions—such as generating electricity from natural gas rather than from coal—also reduced other pollutants not explicitly limited by the cap, thereby reducing the harmful effects associated with those emissions.” But it said that an argument against a tax is that “curtailing U.S. emissions would burden the economy by raising the cost of producing emissions-intensive goods and services while yielding benefits for U.S. residents of an uncertain magnitude.”
It compared a tax with the administration’s approach of regulating emissions under the Clean Air Act. “Standards issued under the CAA (for example, specifying an emissions rate for a given plant or an energy-efficiency standard for a given product) would offer less flexibility than a tax and, therefore, would achieve any given amount of emission reductions at a higher cost to the economy than a tax.” It also compared the idea of a tax with a cap-and-trade program, saying that a tax would “provide certainty about the quantity of emissions from sources that are subject to the cap (because it would directly limit those emissions), but it would not provide certainty about the costs that firms and households would face for the greenhouse gases that they continued to emit.”
Funding for Energy Technology Development Also Examined
The paper also lays out an option for reducing the Department of Energy funding for energy technology development, noting that since 1980 the DOE has received $120 billion in 2012 dollars to develop new technologies—and points to carbon capture and storage technology development as one argument for the limits to the “government’s ability to foster new energy technologies.” “For example, although DOE has offered financial incentives to firms to build that technology into new commercial power plants, it has found few firms willing to do so,” the paper says. “Overall, DOE has long sought to introduce new energy technologies for coal through expensive technology demonstration plants that have often failed to deliver commercially useful knowledge or attract much private interest.”
Overall, COB said, “Many analysts have questioned the value of those technology development programs and have considered whether DOE should cut back on programs to develop near-term energy technologies and concentrate instead on basic research in those fields, which is less likely to be undertaken by the private sector.” It said the U.S. could reduce spending on “technology development in the fossil, nuclear, and EERE R&D programs” to 25 percent of their 2013 amounts over three years.
