The Carbon Tax Miracle Cure

The 'bang for the buck' from a phased-in CO2 levy would be infinite at first—lots of jobs at zero cost to the federal budget..
By ALAN S. BLINDER
In his State of the Union address last week, President Obama called for a major technological push for cleaner energy: "the Apollo projects of our time." But when the details emerge, it is predictable that his political foes will object to the new government spending and decry the "heavy hand" of government in telling business what to do. Fortunately, there is a marvelous way to square the circle.

Under this policy approach, decision-making is left in private hands and the jobs created will be in the private sector. Furthermore, the policy would not cost taxpayers a dime. In fact, it would eventually reduce the federal budget deficit significantly. Plus, there are a few nice side effects, like reducing our trade deficit, making our economy more efficient, ameliorating global warming, and showing the world that American capitalism has not lost its edge.

What is this miraculous policy? It's called a carbon tax—really, a carbon dioxide tax—but one that starts at zero and ramps up gradually over time.

The timing is critical. With the recovery just starting—we hope—to gather steam, this is a terrible time to hit it with some big new tax. Hence, while the CO2 tax should be enacted now, it should be set at zero for 2011 and 2012. After that, it would ramp up gradually. Adapting some calculations from a recent paper by Prof. William Nordhaus of Yale, the tax might start at something like $8 per ton of CO2 in 2013 (that's roughly eight cents per gallon of gasoline), reach $25 a ton by 2015 (still just 26 cents per gallon), $40 by 2020, and keep on rising. I'd like to see it top out at more than $200 a ton in, say, 2040—which is higher than in Mr. Nordhaus's example.

But the time pattern is more important than the exact dates and numbers. What's critical is that we lock in higher future costs of carbon today. The key thing, as the president said, is that "businesses know there will be a market for what they're selling."

Think about what would happen. Once America's entrepreneurs and corporate executives see lucrative opportunities from carbon-saving devices and technologies, they will start investing right away—and in ways that make the most economic sense. I don't know whether all this innovation will lead to 80% of our electricity being generated by clean energy sources in 2035, which is the president's goal. But I can hardly wait to witness the outpouring of ideas it would unleash. The next Steve Jobs, Bill Gates and Mark Zuckerberg are waiting in the wings to make themselves rich by helping the environment.

Jobs follow investment, and we need jobs now. Even if our economy manages 4% growth for several years in a row, unemployment is destined to remain high for years. We have become accustomed to grading stimulus programs on their "bang for the buck." The 2009 Recovery Act, for example, was expected to cost $90,000-$100,000 for each job created. The "bang for the buck" from a phased-in carbon tax would be infinite at first: lots of jobs at zero cost to the federal budget.

Furthermore, many of the new jobs will be good jobs with good wages, just what America needs right now. It is probably true, as some critics say, that much of the resulting manufacturing activity will move offshore—eventually. But not necessarily right away. And besides, many of the best jobs—in design, sales, marketing and executive positions—will remain in the U.S.

Another salutary effect would be that no one would pay higher taxes for the first two years or so. Using Mr. Nordhaus's tax rates as an illustration, the tax would begin to bring in revenue starting in 2013—a trickle at first but building. Mr. Nordhaus estimates $123 billion in annual tax revenue in 2015 and $282 billion by 2025. If we eventually hit a $200 per ton tax rate, the tax yield would be close to 2% of GDP.

No one likes to pay higher taxes. But every realistic observer knows that closing our humongous federal budget deficit will require a mix of higher taxes and lower spending as shares of GDP. Forget about value-added taxes and other new levies you may have heard about. A CO2 tax trumps them all.

Among the major benefits is that a carbon tax would reduce oil imports. Everyone knows that we import too much oil—even if we ignore the fact that much of what we pay for it goes to countries that are not exactly friendly to us. In recent years, our imports of energy-related petroleum products have accounted for nearly two-thirds of our overall trade deficit in goods and services.

Everyone also knows that CO2 emissions are the major cause of global climate change, that climate change poses a clear and present danger to our planet, and that the U.S. contributes a huge share of global emissions. Up to now, our country has done approximately nothing to curb CO2 emissions. A stiff tax would make a world of difference. Let's remember that even a tax of $200 per ton 30 years from now won't turn us into France. (A carbon tax would have very large effects on the cost of energy generated by burning coal, but essentially none on the costs of nuclear, solar, or wind-generated energy.)

I know this sounds like a pipe dream now. America has elected a Republican House of Representatives that, among its first acts, decided that tax increases don't really add revenue and that tax cuts don't really lose revenue—at least not any revenue they are willing to count. These folks are not about to vote for a CO2 tax, even one starting at zero.

But let's remember Winston Churchill's marvelous aphorism: "You can always count on Americans to do the right thing—after they've tried everything else." First, we'll try everything else. But eventually we'll succumb to the inexorable logic of a phased-in CO2 tax. Just watch—if you're young enough to live that long.

Mr. Blinder, a professor of economics and public affairs at Princeton University and vice chairman of the Promontory Interfinancial Network, is a former vice chairman of the Federal Reserve.

We'll fight the wind farms off the D-Day beaches...

By John Lichfield in Paris

French President Nicolas Sarkozy announced this week that one of the most poignant sea and beachscapes in the world – the Calvados coast, between Juno and Omaha beaches – had been selected as the site for one of five vast wind farms to be built off the French Atlantic seaboard from 2015.

Officials insist the generators, two-thirds the height of the Eiffel Tower, will only just be visible from the coast. But the leader of an official commemorative association and a militant ecologists' group said yesterday that France was failing in its duty to preserve the memory of D-Day, and the "essential character" of the five landing beaches on which 2,500 allied soldiers died on 6 June 1944.

The choice of the site, 11 kilometres off Courseulles-sur-Mer (Juno Beach), was "inappropriate and incoherent", Admiral Christian Brac de la Perrière, the president of the Comité du Débarquement, the official French body for commemorating D-Day, said yesterday.

"The French government says it wants the whole stretch of the Norman coastline from Utah Beach to Sword Beach to be declared a Unesco world heritage site," he said . "At the same time, it wants to build these generators in the very centre of the landing areas of 1944."

Jacky Bonnemains, president of Robin des Bois (Robin Hood), a militant French ecological group, said: "I find it extraordinary no one in government grasps that this will change forever the character of a place of sacred memory. They just don't seem to care." In future, the seascape would be "desecrated" by rows of wind generators, he added.

"The promoters and the government say the generators will be hardly visible but this is not so," he said. "They will easily be visible on a clear day and they will generate light pollution at night." Mr Bonnemains, whose group opposes all offshore wind farms, said there was already fear about unexploded wartime munitions near two wind farms off the northern Norman coast. "The seabed in the approaches to the D-Day landing beaches must be carpeted with unexploded bombs," he said.

France has no large offshore wind farms and wants to catch up with Britain and Germany. President Sarkozy announced on Tuesday a €10bn plan to build five giant arrays of generators off France's western coast from 2015. The sites – two off the north Norman coast, one off the D-Day beaches and two off the Breton coast – will generate as much electricity as two nuclear power stations.

The precise location of the D-Day wind farm has yet to be decided. An initial 50, and then at least 80, windmills will be built in the waters "off Courseulles-sur-Mer" or a little farther to the west. This would put the wind farm off Juno Beach, the landing place for 21,000 Canadian and British troops in 1944; or Gold Beach, stormed by 25,000 British troops; or even, conceivably, in sight of Omaha Beach, the bloodiest of the five landing areas, which was finally captured by the Americans on the evening of 6 June.

The offshore generators would be 160 metres high. The official proposals say the "impact on the maritime landscape" seen from the coast would be "limited". Only 24 per cent of the sweep of the horizon would be affected, the proposals say. Seen from 11 kilometres away, a 160m-high wind generator is "equivalent to a 1.6cm tall object (roughly a matchstick) seen from a metre away". Critics say 80 "matchsticks" along the maritime horizon at the D-Day beaches would be highly intrusive. The local councils have welcome the D-Day wind farm which will, it is promised, bring thousand of jobs to the area. Laurent Beauvais, the Socialist president of Lower Normandy, "rejoiced" at the choice, and said the wind park would have "no impact on fishing or tourism".

Two-thirds of UK biofuel fails green standard, figures show

Just 31% of the biofuel supplied under the government's initiative to tackle climate change met its own green standards, the Renewable Fuels Agency reports

Sylvia Rowley
guardian.co.uk, Thursday 27 January 2011 11.04 GMT
Less than one-third of the biofuel used on UK roads meets government environmental standards intended to protect water supplies, soil quality and carbon stocks, according to new figures.


The Renewable Fuels Agency says that just 31% of the biofuel supplied under the government's initiative to use fuel from plants to help tackle climate change met its green standard. For the remaining 69% of the biofuel, suppliers could not say where it came from, or could not prove it was produced in a sustainable way, the figures show.


In April 2008, suppliers began mixing biofuel into all petrol and diesel supplies under the Renewable Transport Fuel Obligation (RTFO), and by 2009-10 – the time period to which these latest figures relate – biofuels accounted for 3.3% of UK transport fuels. Suppliers were supposed to ensure that 50% of biofuel met government environmental standards, but the target is not mandatory and was not met.


Several suppliers, including BP, Total, Morgan Stanley and Chevron, also failed to meet targets on reducing greenhouse gas emissions and providing data on the source of their biofuels.


The Renewable Fuels Agency's chief executive Nick Goodall said: "We've seen some progress from suppliers in meeting the challenge of sourcing their biofuels responsibly, but in many cases it has been disappointingly slow. Too many are lagging behind and dragging overall performance down. With mandatory sustainability criteria due to be introduced with the [European] Renewable Energy Directive, companies currently missing all three targets need to make a step change in performance."


Scientists and campaigners have warned that biofuels could cause more problems than they solve, with concerns over the destruction of tropical forests and impact on global food supplies.


As a whole, suppliers exceeded the target of 45% reduction in greenhouse gases compared to petrol and diesel fuels – achieving 51% savings. However, these figures do not include carbon emissions from indirect changes in land use, such as forests and grasslands being turned over to cropland, which experts have warned could cancel out the environmental benefits of biofuels and even accelerate climate change.


The majority of UK biofuel is imported. Biodiesel from soy was the single biggest source (31%) in 2009/10, with a large increase in Argentinian soy compared to the previous year, something that Friends of the Earth biofuels campaigner Kenneth Richter calls a "huge cause for concern".


"This report shows us that current biofuels policies are unsustainable " he says. "Additional demand for crops like soy and palm oil only creates extra pressure for agricultural expansion in producer countries, which in many cases leads to rainforest being cut down to make way for plantations."


There are also concerns about the impact of biofuels on food prices. The United Nations has singled out biofuel demand as a major factor in what it estimates will be as much as a 40% increase in food prices over the coming decade.


The Renewables Fuel Agency published the Gallagher review into biofuels in 2008, which recommended that the government slow the introduction of biofuels until more was known about the possible negative impacts.


Ministers responded by reducing the rate at which the RTFO's biofuel targets will increase, so that the total biofuel content in petrol and diesel will reach 5% in 2013-14. A separate EU plan aims to include 10% biofuel in transport fuel by 2020.