Opinions Sustainability Bar The Sustainability Bar: Look for talk of a carbon tax in 2011
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By Daniel K. DeWitt
Partner, Warner Norcross & Judd
The U.S. Environmental Protection Agency’s greenhouse gas (GHG) regulations officially went into effect on January 2, requiring permits for GHG emissions for certain industrial sources. Although legally effective, the battle over their implementation continues.
Thirteen states have filed lawsuits against the EPA seeking to block the new regulations. Texas has been the most vocal, refusing to implement any part of the new regulations while legal challenges are underway. This led the EPA to take the unusual step of seeking to take over parts of the Texas permit program, something that it has rarely attempted to do in the 40-year history of the Clean Air Act.
Regulation of GHGs under the Clean Air Act began when the EPA declared GHGs a threat to the environment and passed regulations governing their emissions from light-duty cars and trucks. Accordingly, GHGs became “subject to regulation” under the Clean Air Act, triggering other requirements, including those that are the subject of the lawsuits against the EPA.
Political challenges are also mounting in D.C. A newly strengthened Republican base has been floating bills to block the EPA. U.S. Rep. Shelley Moore Capito, R-W.Va., introduced a bill that would impose a two-year delay on GHG regulation under the Clean Air Act, but would leave in place fuel economy rules for cars and trucks, which are now generally supported by the auto industry. U.S. Rep. Fred Upton, R-St. Joseph, will have a key role to play as the new chair of the House Energy and Commerce Committee.
Congress also is trying to figure out how to tackle the federal deficit. The Congressional Budget Office estimates that the federal government will hit an unsustainable debt-to-GDP ratio of 185 percent by 2035, far exceeding the historic peak. Cost cutting and economic growth are not likely to be enough. Congress will have to find ways to raise significant additional revenue, making a “carbon tax” more and more attractive. It is only a matter of time before the GHG debate and the deficit debate merge.
A carbon tax would impose a cost on a ton of carbon, either at the place of import or production, such as a coal mine, or the place of consumption, such as the gas pump. By raising prices, a carbon tax would encourage energy efficiency, new technology and lower GHG emissions. It could also raise significant revenue. This could depress overall economic activity, but so could other methods of raising revenue, such as an additional income tax, which has no corollary environmental benefit.
The National Commission of Fiscal Responsibility and Reform has already planted the seed by recommending a 15-cent-per-gallon gas tax to help pay for road infrastructure. While taxes of any sort are never popular politically, a well-crafted carbon tax could receive support from both sides of the aisle, appealing to those who feel strongly about reducing the deficit as well as those who want to do something about climate change.
Many of the climate bills previously considered by Congress were so-called “revenue neutral,” meaning fees generated through a carbon tax or the sale of carbon “allowances” would have been passed back to the public, either in the form of tax breaks or outright payments. For political purposes, Congress may still choose to pass much of the additional revenue back to the taxpayers, for example, lower income earners. Given the rising deficit, however, Congress will be tempted to keep a relatively large share. tbl
Daniel K. DeWitt of Grand Rapids is a partner with Warner Norcross & Judd LLP, a corporate law firm with offices throughout Michigan. He practices environmental law and is the chair of the firm’s sustainability and climate group.
