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Pitch

Imposing fee equal to social cost of carbon on fuels from public lands would raise price, increasing demand for other sources, upping price


Description

Summary

The US Government holds the public lands in trust for the American people. A substantial share of US fossil fuel energy comes from public lands. Recognizing the importance of the climate change issue, the Administration has been applying the social cost of carbon as a measure to determine priorities for taking actions and preparing regulations that would contribute to limiting climate change. To fulfill its trust responsibilities for environment, it should take actions to rapidly phase in a fee for extraction of fossil fuels from public lands that rises quickly to the social cost of carbon that has been established and that is adjusted to updates to that value over time.

The major share of such revenues from this fee should be used to fund provide the capital for programs that will promote the more efficient use of energy. For the past few decades, groups such as the National Academy of Sciences and McKinsey have identified approaches that have the potential to reduce US GHG emissions by order of one third using existing technologies that have an economic payback period of a few years or less. The impediment to such actions appears to be a lack of available capital at low interest rates to make the transition. Using revenues to provide capital and otherwise incentivize efficiency (e.g., state rebate programs, insulation for low income homes and apartments, etc.) would both help the users reduce energy costs and reduce demand for energy, thus helping in the transition toward greater reliance on renewables that would be encouraged by the higher cost of fossil-fuel carbon fuels.

The second use of the revenues should be to help deal with disaster relief and resilience enhancement, so providing funding for recovery from flooding, retreat from the sea coast, thinning of forests, fighting of wildfires, etc. With use of the fossil fuels changing the climate and destabilizing the weather, additional sources of funds are needed for dealing with climate change impacts.


Category of the action

Mitigation - Helping U.S. enact carbon price legislation


What actions do you propose?

The proposal is very simple: Impose the social cost of carbon on the extraction of all fossil fuels being taken from public lands. While this does not impose a tax on all carbon, the higher cost of the fuels from public lands will lead to adjustments in the market that will raise the price for all sources of fossil fuels. While this will likely lead to some market distortions relating to the differential reliance of different regions and industries on fuels coming from public and private lands, the increasing level of price competition from renewables and the deregulated electric sector would seem likely to be able to moderate any significant distortions, especially if the application of the social cost of carbon is phased in over a few years so that adjustments can be planned by the various energy wholesalers and retailers.

The eventual goal should be to phase out extraction of carbon from public lands--in terms of what is occurring to the climate, the moral justification for sustaining such extractions has evaporated given the building and prospective harm from GHG emissions and the increasing potential for energy efficiency and alternative sources of energy. While a market-wide carbon tax (with some sort of feebate and support of energy efficiency and disaster relief distribution of the revenues) would make the most sense, imposing the fee on just the carbon coming from public  lands has the potential of avoiding the potential problem of having to compensate owners of carbon on private lands for the effective banning of its use--indeed, their carbon may now be of even greater value (although there will likely be continuing, and even intensifying, difficulty in working through the approval processes of its extraction as a result of the many environmental, health, and safety problems that are necessarily being addressed through tightening regulations).

I would also note that there may well also be a need to devote some of the incoming revenue to recompense some of those who currently rely on fees for extraction of fossil fuel resources from public lands, including state and tribal governments, although I would suggest that such recompense should be limited and eventually offset by revenues provided by the placement of renewable energy sources on public lands in the various states and tribal land holdings.


Who will take these actions?

The main action required would be by the US Government, primarily by the Executive Branch. The EPA Endangerment Finding makes clear the damage and costs of continued use of fossil fuels, and this finding should be the basis for updating the environmental impact statements that are being used to underpin the decisions to make fossil fuels on public lands available for extraction. It would seem quite reasonable that the conclusions of an updated NEPA process would be that the impacts to the environment of fossil fuel extraction need to be offset by the social cost of carbon. There are already court cases in progress where it would make sense were this to be the outcome. Thus, the imposition of the social cost of carbon on extraction could well be, even should well be, the outcome of ongoing legal and regulatory processes without requiring major new legislation. Right now, the Administration, through the resistance of the DOI and actions of the Department of Justice, is resisting this movement--what is needed is for the Administration to encourage movement to this approach.


Where will these actions be taken?

In Washington, DC, particularly in the Oval Office, is where the decision to act needs to take place.


How much will emissions be reduced or sequestered vs. business as usual levels?

A full analysis of the proposal is needed, but many studies indicate that an increase in the cost of carbon is the most economically efficient and effective and easy to manage approach to phasing down the emissions of carbon dioxide. Also, basic economic theory suggests that a cost imposed anywhere will filter through the economy to have an effect everywhere. What appears to be the great benefit of the proposed approach is that imposition of the cost should be able to be implemented readily and through enforcement of existing laws (namely NEPA). Allocation of incoming revenues would then be the responsibility of the Executive and Legislative branches of government, and the potential for resolution of how to expend available revenues would seem likely to be greater than resolving how (and whether) to impose an economy wide carbon tax.


What are other key benefits?

Raising the price of fossil fuels has many clear benefits: incentivizing energy efficiency, reducing the emission of air pollutants and mercury, reducing the emission of greenhouse gases, reducing the despoiling of public lands, increasing the relative competitiveness of alternative sources of energy, etc.


What are the proposal’s costs?

If the imposition of the cost can be phased in, there should be very modest, economy-wide cost impacts. Basically, the imposition of the social cost of carbon will encourage a more rapid movement away from fossil fuel carbon in what is recognized as a relatively efficient manner as it will behave much like a tax. The encouraged incentive to increase energy efficiency and movement toward renewable energy sources would be expected to generate more jobs than the likely loss by reducing extraction of fossil fuels from public lands.

The imposition of the social cost of carbon could, however, have some localized impacts that may well need to be addressed. For example, my understanding is that state imposed fees on extraction of fossil fuel resources do provide vital income for some state and tribal activities that may merit compensation out of the revenues, such that less would be available for incentives for efficiency, disaster relief, and enhancement of resiliency.


Time line

The proposed action would seem to be able to be initiated in the very short-term--so perhaps begun within a year or two. Making it clear that it would be a policy action that would be ramped up over time would set a framework that would allow industry and the public to also take early steps to position themselves for the changes, thus likely reducing the economic costs and creating the potential for opportunities to benefit. That there is so much potential energy inefficiency in the economy and that renewables as an alternative to fossil fuels are so nearly cost competitive now would suggest that the economy could likely readily adjust to such a policy action were it to be phased in over, for example, five years.


Related proposals

A similar proposal is offered under the category of US Government Actions.


References