Thursday, April 07, 2005

Duke Energy Gets Behind The Carbon Tax

At the risk of sounding like a broken clock, another story from Green Car Congress, this one about Duke Energy proposing a carbon tax.
"Personally, I feel the time has come to act — to take steps as a nation to reduce the carbon intensity of our economy," Paul Anderson told several hundred Charlotte business and civil leaders at a breakfast meeting. "And it's going to take all of us to do it."

Anderson acknowledged a national carbon tax would mean bigger utility bills and higher prices at the gas pump for consumers. But unless industry leaders take the lead, he said, the long-term outcome could be even more disastrous.

"If we (the U.S. energy industry) ignore the issue, we would be the easy target," he said. "The worst scenario would be if all 50 states took separate actions and we have to comply with 50 different laws."

The last sentence is telling. Essentially, what they're trying to avoid is something that's already happening. California has already passed a law limiting auto greenhouse gas emissions, and recently started discussions about cap-and-trade emissions standards for electrical generation. Duke is worried that, as with California pollution standards, the new CO2 standards could extend to a half-dozen states -- each with different, possibly conflicting rules -- before the federal government gets behind a single national standard. This is a Bismarckian co-opting of the Socialists; it's a move founded in realpolitik more than altruism.

So aside from Doing The Right Thing, taking the moral high ground, what other motives would Duke have? One GCC poster suggested it could conceivably be used to cripple competition: if oil producers are running out of oil, a carbon tax mainly handicaps coal liquifaction and other similar technologies. While that's certainly possible, Duke Energy, with the majority of its holdings running coal-fired technology, wouldn't be the one to apply that approach.

The real danger with a carbon tax, though, is the secondary effects they induce. Say vehicles get dinged some very large amount for a carbon tax on every gallon (or liter, if you're in a place where they use rational measuring systems) of carboniferous fuel. First, this brings in a lot of money to the state. That money will get spent, and moreover, it will rather rapidly become a primary source of revenue, one to be defended. Governments are loath to give up money or power, and do so only when cornered. This puts the state in the position of the French government, which has found itself in the ironic position of funding health care, in part, through cigarette taxes.

The second problem extends from the first. What happens if a carbon-cycle-neutral fuel, such as hydrogen, biodiesel, or cellulosic ethanol, should become commonplace? Will the state, from the motive of "doing the right thing", not tax this fuel? And if it doesn't tax this fuel, mightn't that be a factor making it cheaper? And if it's cheaper, wouldn't that encourage people to switch? And if they switch, wouldn't the state make less money on carbon taxes? And wouldn't they therefore see that coming, and not exempt carbon-cycle-neutral fuels in the first place?

Finally, there's a third, and to me, compelling reason to avoid carbon taxes, and that is, we should avoid taxes on general principles. That is, taxes aren't a sacrament -- unless you like paying for Tom DeLay's vacations. Further, taxes inevitably squeeze free capital out of the system -- and make less money available for investment, including for productive research on energy. (I've already briefly treated why government research frequently comes up short in its goals.) Government functionaries spend money on their families, on putting up a statue of the local dog catcher, but rarely do they have motivation to do the right thing and stay with it. A question for anyone believing otherwise: why is Bush still pursuing drill-drill-drill as the only watchwords of his energy policy?

So, a carbon tax, no matter how well intended, is just too likely to backfire. The California state legislature, and Duke Energy, may have their hearts in the right place -- or the former may be just sniffing for new taxes they can get away with levying, while the latter hopes for a toothless federal system they can readily manipulate. Either way, there's good reason to be skeptical.