Sen. Steinberg Proposes Carbon Tax on Gas Instead of Cap-and-Trade

Estimated effect of a carbon tax on sources of United States electrical generation Source: US Energy Information Administration via wikimedia.
Estimated effect of a carbon tax on sources of United States electrical generation Source: US Energy Information Administration via wikimedia.

CA Senator Darrell Steinberg proposed a change yesterday to California’s nascent cap-and-trade program that would replace next year’s cap on fuel emissions with a per-gallon carbon tax. Steinberg called it a “broader, more stable, and more flexible” way to reduce emissions from fuels than cap-and-trade.

His proposal would apply the revenue raised from the tax towards tax relief for poor and middle-income Californians, who would feel the greatest pinch from higher gas prices. That could help defuse anger at having to pay more at the pump, while still discouraging demand for gas. “Under either [program], consumers will pay more at the pump. That’s necessary,” said Steinberg. “If carbon pricing doesn’t sting, we won’t change our habits.”

CA Senate President Pro Temp Darrell Steinberg, D-Sacramento. Photo: Sacramento Bee
CA Senate President Pro Temp Darrell Steinberg, D-Sacramento. Photo: Sacramento Bee

Reactions to Steinberg’s proposal so far have been mixed. The Western States Petroleum Association prefers it as “a transparent alternative” to cap-and-trade, and the Environmental Defense Fund criticized what it sees as a mid-stream switch that could “compromise” CA’s emission reduction strategies.

Stuart Cohen, executive director of TransForm, said “we strongly believe that California is creating an excellent cap-and-trade program that is, and will work, effectively. Yet a carbon tax is an extremely clear and straightforward, and ultimately more predictable, way to approach the fuels sector.”

“If this had been offered as a serious proposal seven years ago, we would have thought it was heaven-sent,” he added. “I don’t think it makes sense to reject it outright. It’s certainly worth having the discussion” about cap-and-trade vs. a carbon tax.

John White of the Clean Power Campaign, a coalition of public interest groups working for clean fuels, says his organization has no official stance yet on the proposal. However, he said, “This is a good conversation to have. A carbon tax is a different way to do the same thing. The point of collection is also at the pump, but with cap-and-trade there’s no clear signal except for a higher price, and no predictability of what that price would be.”

The California Air Resources Board chose cap-and-trade as a market mechanism to lower greenhouse gas emissions, as authorized under California’s Global Warming Solutions Act (AB 32). Cap-and-trade sets a cap on the amount of greenhouse gas emissions any particular source can produce and creates a market for “pollution credits.” Companies that cut their emissions to levels that are lower than the cap earn credits and then can auction those credits to other companies unable or unwilling to cut their emissions. It’s supposed to produce a net reduction in emissions as well as a stream of revenue for the state, and it has.

Governor Jerry Brown’s cap-and-trade expenditure plan for 2014, released in January, includes $850 million from the auctioning of these credits. The cap-and-trade program is even being attacked by the California Chamber of Commerce for making too much money for the state.

Carbon taxes haven’t caught on widely in the United States, even though pollution fees are law in several other countries. Among municipal governments, just three have carbon taxes: Boulder, Colorado, Montgomery County, Maryland and the Bay Area Air Quality Management District, which covers nine counties in the San Francisco Bay Area.

So far, CA’s cap-and-trade has only applied to stationary sources of emissions. Starting in 2015, however, it is scheduled to apply to fuels. This would mean higher gas prices, which some hope will give consumers an incentive to cut their fuel use, but others fear will lead to higher food prices and heavy losses to small businesses.

Steinberg’s proposed legislation, SB 1156, could be an end run around some of these objections. Under the bill, the proceeds of the carbon tax would go to poor and middle-income California families in the form of an earned income credit on their state income taxes. In his speech announcing the legislation, Steinberg proposed that remaining revenues be used to improve and develop mass transit, but the draft legislation does not mention this.

“We need to be careful how we do this,” said White of the Clean Power Campaign, “because of its importance to the economy as well as the volatility of markets. It’s also important to think about how the revenue gets spent, especially in relation to poor people who are affected more by higher fuel prices.”

Some are skeptical about the likelihood of Steinberg’s bill passing, and others worry about its ultimate effect on California’s climate change policies.

“Given the momentum behind cap and trade, the immediate opposition from some groups, and the need for the legislation to pass by two-thirds,” said Cohen, “this would take a Herculean effort to pass.”

  • Joe Linton

    The carbon tax sounded good until I read that the petroleum industry liked it!

  • Kenny Easwaran

    It’s possible that they like it just because it’s simpler, which would actually be an advantage for everyone.

  • John P

    They probably also like it because they can directly blame the government for higher gas prices in California on a tax versus with cap and trade.

  • CharliePeters

    BP-DuPont GMO fuel affect the beef?

    GMO fuel affect the water?

    Butanol corporate welfare?

  • Melanie Curry

    WSPA, the fuel industry reps, haven’t “taken a stand” on the carbon tax, but they sure would be happy if it saved them from the cap-and-trade program. It’s also true a straight per-gallon tax would be much simpler and more stable than the complicated auction involved in cap-and-trade. It remains to be seen whether Steinberg can pull off a carbon tax when few have been willing to talk about raising gas taxes.

  • Allan Erickson

    The middle class must feel the sting too. Split the booty equally between politicians and ex-cons who have remained out of jail for one month or longer.

  • andrelot

    Liquid fuels are only a part (slightly below 25%) of total energy consumption.

  • jhlangerman

    This is absolutely wonderful. There does not need to be an “either/or” debate – carbon tax vs. “Cap and Trade.” As the World Bank demonstrated in a recent paper, each mechanism reinforces the other. We should have both. Well done, Senator Steinberg – and if the Petroleum Industry is on board, we’ve entered a new, and perhaps less hate-filled, era.

ALSO ON STREETSBLOG

CA Sen. Steinberg Proposes New Spending Plan for Cap-and-Trade Revenue

|
Senate President Pro Tempore Darrell Steinberg (D-Sacramento) announced a proposed plan to create a permanent spending strategy for cap-and-trade revenue [PDF] that prioritizes investments in affordable transit-oriented housing, transit expansion, and CA high-speed rail. Unlike the Governor’s plan for this year’s budget, Senate Bill 1156 also proposes investments in “complete streets” and transit operations. Calling the […]

Steinberg Kills Bill That Sought to Delay Cap-and-Trade on Fuels

|
The misinformation campaigns trumpeting an imminent “hidden gas tax” in California lost a battle with the defeat of Assemblymember Henry Perea’s bill, A.B. 69, which was designed to delay application of cap-and-trade to the fuels industry for three years. Fuel companies have already begun participating in the state’s cap-and-trade auctions, buying pollution credits that they […]

Could a New Kind of Fuel Tax Help Break the Senate Climate Deadlock?

|
Even before the Senate environment panel pushed through a GOP protest to approve its climate change bill, Sens. Lindsey Graham (R-SC), Joe Lieberman (I-CT), and John Kerry (D-MA) were working behind the scenes on a so-called "tripartisan" plan that can win enough votes in Congress’ upper chamber to make nationwide emissions cuts a reality. (from […]

Steinberg’s Cap-and-Trade Spending Plan Gains Momentum, No News on Deal

|
Despite being only 0.5 percent of the California budget, cap-and-trade revenue spending is emerging as a sticking point in Sacramento as Democrats in the Assembly, Senate, and Governor’s Office push three different spending plans. The legislature must approve a state budget by June 15. Each of the three proposed plans for spending cap-and-trade revenue to reduce greenhouse gas (GHG) […]

New Legislation Seeks to Lower Voter Threshold for Transit Tax Approval

|
A series of amendments proposed by Senate President Pro Tem Darrell Steinberg (D-Sacramento) to SB 791 would lower the threshold of voter approval for new taxes to fund transportation improvements from 67% to 50%. “SB 791 empowers local communities to meet their local transportation needs, improve regional mobility, and invest in high-priority, job-creating infrastructure improvements,” said Sen. […]