No 1203: Biofuels and Clean Technology

Let the games begin!

Representative John Dingell (Michigan’s 15th District) has developed a draft Carbon Tax legislation.

Let’s look at the highlights:

A tax on carbon:$50 / ton of carbon (phased in over 5 years and then adjusted for inflation)

• Coal, including lignite and peat
• Petroleum and any petroleum product
• Natural gas

A tax on gasoline:

$0.50/ gallon of gas, jet fuel, kerosene (petroleum based) etc…(added to current gas tax) (phased in over 5 years and then adjusted for inflation)

• Exemption for diesel – The fuel economy benefits of diesel surpass even its emissions benefits; it provides about a thirty percent increase in fuel economy and a twenty percent emissions reduction
• Biofuels that do not contain petroleum are exempt. Biofuels blended with petroleum are only taxed on the petroleum portion of the fuel.

**The $0.50 gas tax is in addition to what is derived from the per ton carbon tax in the previous bullet.

And more:

Phases out the mortgage interest on primary mortgages on houses over 3000 square feet.
Expansion of the Earned Income Tax Credit

The revenue from the gas tax goes into the high way trust fund, with 40 % going to the mass transit and 60 % going to roads. The revenue from the tax on jet fuel goes into the airport and airway trust fund.

Finally, the revenue from the fee on carbon emissions will go into the following accounts:

• Medicare and Social Security
• Universal Healthcare (upon passage)
• State Children’s Health Insurance Program
• Conservation
• Renewable Energy Research and Development
• Low Income Home Energy Assistance Program

Wow…. Where to start.

Magnitude
These are huge numbers. $50/ton is a huge number. Just so we have a baseline, the U.S. emits 2Billion pounds of CO2/year from burning coal alone. That would mean a $100Billion year tax on the coal industry.

Further, the U.S. also emits 2Billion pounds CO2/year from driving. That’s another $1Billion in taxes (albeit more manageable).

Tack on another $60Billion to cover natural gas emissions (1.2 Billion pounds CO2/yr).

The kicker is really the fact that the auto pollution tax is added on to the CO2 pollution. So that indicates that individuals will be accountable for their own car pollution. That adds another $100Billion.

Wow. That’s really far-reaching.

That adds up to $261 Billion/yr in taxation. That’s extraordinary.

That would amount to a huge financial burden for individuals and industries over time.

Lifestyle tax
Interestingly enough, this bill also taxes consumers of coal/natural gas electricity via the mortgage tax. Essentially, it asserts that 3000 sq ft is all that is required for the average American family and anything above that is egregious (and presents a harm to the environment). This makes sense from the standpoint of putting a price on a house holds’ carbon footprint. But it also seems like a tax on success. Or, more to the point, it would be a tax on people in older communities. Many homes in places like Cleveland or Detroit have fairly large homes - they’re old, rather large brownstones or the like that were once owned by the city elites. This could be an undue burden on these families.

It’s good that they are also taking poor people into account by improving the earned income tax credit (as though poor people knew how to get the most out of their tax write-offs). They even have a fund for low-income home efficiency programs. That’s a nice touch.

Bold Move
This Bill certainly is bold. It would prove an impetus (urgency really) to cut emissions fast. But it’s also clearly politically unfeasible. I mean, the government is still infected by lobbies. I don’t expect this one to be able to pass the lobby test.

I don’t really expect this Bill to go anywhere. It’s a little too radical - but I like the boldness. What this bill will really do is create more panic. While a crisis is probably what we need, it’s important to note that we don’t have very good alternatives. Companies don’t have a lot of good sequestration options - it’s only in its seminal testing phases now. Individuals don’t really have good alternatives for their lifestyle choices. I mean, at these prices, even a Toyota Prius would be a heavy tax burden. And hydrogen technology still isn’t ready yet (in spite of my previous post). So I actually don’t think this bill is done in the appropriate context.

Good show. We’ll see what happens.