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Patrick Takahashi

Patrick Takahashi

Posted: June 29, 2009 11:57 AM

The Carbon Dioxide Credit Program


We all know now that the House of Representatives barely passed a global warming remediation bill last week, known as the American Clean Energy and Security Act of 2009. I should be rejoicing, for compared to the Bush Administration, the Obama White House has been remarkably progressive about renewable energy and becoming a responsible partner to check global warming. Yet, I'm not, and equally concerned about this legislation are the Nature Conservancy and Friends of the Earth. Of course, many Republicans are apoplectic, but that's expected.

There are various HuffPos commenting on this victory for President Obama, and I can cite two in particular that provided useful information: The Simple Arithmetic of Global Warming and Cap and Trade Explained. These two postings supported the legislation. I would like to provide a different look for the sake of longer term implications.

There are two basic approaches to reduce fossil fuel consumption. Cap and trade is the version today popular with politicians. The second is the carbon tax. Anyone with any knowledge of this subject will tell you that the carbon tax is more sensible than cap and trade. So why is cap and trade being foisted on the public?

This is simply because the carbon tax sounds like a tax. Republicans are inherently opposed to more taxes. As both houses of Congress are so dominantly Democrat, with a Democrat in the White House, what is, then, the big deal, for Democrats who are not totally allergic to taxes?

Furthermore, this is oh so ironic because people don't directly pay this tax. Companies that burn coal to generate electricity or refine crude oil into gasoline are so burdened. Then, of course, because these fuel suppliers need to make a profit, they add this charge to your electricity and gasoline bill. This then becomes an indirect tax to the masses.

But there should be general acceptance by the people if much of this extra charge is then credited to your account when you file your taxes. Yes, of course, the cost of everything then also goes up, but all polls show that the American public is supportive of the Renewable Electricity Standard.

But how much more would we be willing to pay? A Financial Times/Harris Poll of early last year showed that both Europeans and Americans do not want to pay any more for renewable electricity and clean gasoline substitutes. Others say that the scare of $147/barrel oil a year ago has changed the attitude of most of us. But how much will electricity and gasoline increase in cost if a meaningful carbon credit (let's not call it a tax) is instituted?

A 5 cents/pound carbon dioxide credit on petroleum would translate to $1/gallon more at the pump, or the $3/gallon some of you currently pay would go up to $4/gallon, exactly where we were in July of last year when oil prices peaked. Coal fired electricity would increase by about 10 cents/kWh. As the current price is about 11 cents/kWh, that would almost double the price to 21 cents/kWh. In comparison, my HuffPo of earlier this year reported that the California Public Utilities Commission indicated that a coal fired power plant with carbon capture would be expected to generate electricity at 17 cents/kWh. Rightfully, these facilities should not pay this assessment. In that same article Joseph Romm seems to feel that nuclear power should not be a factor, for the cost of electricity from NEW nuclear facilities would fall in the 25 cents to 30 cents/kWh range.

Would a 5 cents/pound carbon dioxide credit make a sufficient difference to ameliorate global warming? Well, the March issue of Scientific American indicated that, while wind and geothermal power could be produced for 7 cents/kWh, solar thermal electricity still costs more than 20 cents/kWh and solar photovoltaics are at almost triple that rate. However, there is reasonable hope that those next generation thin film PV systems will be much cheaper.

Thus, the swift enactment of a 5 cents/pound carbon dioxide credit would be very effective, indeed. But is there any way to just toss away the term carbon tax and replace it with the carbon dioxide credit program, where 100% of the credit collected by the government would be returned to the taxpayer? Well, the Senate has not yet acted. Plus, the general reaction to the House measure is that this legislation is seriously flawed because of cap and trade. Unfortunately, the Senate version will be cap and trade, so, unless there can be a dramatic readjustment, I'm afraid our politically compromised global climate warming remediation package will become the centerpiece for the World to embrace when the successor to the Kyoto Protocol is discussed this coming December in Copenhagen. That very much concerns me.