Navigant Research Blog

Carbon Tax Plan Proposed by Climate Leadership Council

— February 15, 2017

Climate change is a big area of political strife. It was during the election and remains so during the opening weeks of the new administration. While the major political parties generally disagree on the issue and the measures necessary for addressing it, climate change is not a partisan topic. On February 8, a group of Republicans proposed a tax on CO2 emissions in exchange for the repeal of other regulations on the industry. The proposal is led by James Baker III, former Secretary of State under President George H.W. Bush, and other members of the Climate Leadership Council. Founded by Ted Halstead, the Climate Leadership Council is an international research and advocacy organization with aims to organize global leaders around new climate solutions based on carbon dividends modified for each of the largest greenhouse gas (GHG) emitting regions.

The Proposal

The Carbon Dividends Plan is based on four main areas:

  • Gradually Increasing Carbon Tax: A $40 tax on every metric ton of CO2 would be imposed and increased steadily over time.
  • Carbon Dividends for All Americans: The estimated revenue of $200 to $300 billion per year generated from this carbon tax would be paid out to Americans through dividend checks, administered by the Social Security Administration. On average, a family of four would receive $2,000 under the plan.
  • Border Carbon Adjustments: The plan proposes border adjustments that would increase the costs of exports and imports to/from countries that do not have a comparable carbon tax.
  • Significant Regulatory Rollback: The majority of the Environmental Protection Agency’s (EPA’s) regulatory authority over CO2 emissions would be phased out, including an outright appeal of the Clean Power Plan (CPP).

The Importance

Many Republicans, including President Trump, are publicly opposed to actions on climate change. The Climate Leadership Council is made up of a number of prominent Republicans who are not only publicly in favor of action supporting the climate, but also have created a proposal to do so. Besides Baker and Halstead, authors of the proposal include Henry Paulson, Secretary of the Treasury under President George W. Bush; Martin Feldstein, Chairman of the President’s Council of Economic Advisers under President Ronald Reagan; George Shultz, Secretary of State under President Reagan; and N. Gregory Mankiw, Chairman of the President’s Council of Economic Advisers under President George W. Bush.

The Impacts

The plan would repeal the CPP put in place by President Obama to reduce carbon pollution and reduce the EPA’s influence on GHG emissions, and will likely see opposition. However, President Trump already plans to repeal the CPP, and while it is unclear if he will be successful, the Carbon Dividends Plan is not needed to assist in that repeal. While the dividends paid back to consumers help with the increased cost of energy, many can argue this would be better if used for increasing renewable energy. If the proposal is rejected and the CPP repealed without an alternative plan in place, it is unlikely actions on climate change will be taken at a federal level.

In June 2016, the House approved a non-binding resolution condemning the idea of a carbon tax. The measure passed 237-163 and was intended to make it more difficult for those that voted against a carbon tax to do so again. President Trump also opposes a carbon tax, believing that President Obama’s CPP was a regulatory overreach of power. It seems unlikely that the current administration and Republication-controlled Congress would vote in favor of such a proposal, although there is hope that some type of alternative could be offered in its place. No matter what the outcome of the Carbon Dividends Plan, there will be many arguing both for and against it.

 

Federal Carbon Regulation Likely Dissolves, but Some States Fill the Void

— January 13, 2017

Cyber Security MonitoringA version of this article was originally published on Energy Central.

After months of litigation, a decision by the DC Circuit Court on the future of the Clean Power Plan (CPP) is expected to be announced early this year. Congressional Republicans and incoming president Donald Trump were both critical of the CPP on the campaign trail during the 2016 election, so the outlook for the CPP is bleak. The demise of the plan seems likely, though it will not be quick, however, as states that support the rule have promised to fight to protect it. New York, California, and other states are stepping up to fill the CPP’s void and continue to work toward decarbonization.

States Stepping Up

Continued progress is expected in greenhouse gas emissions reductions in New York as the state has implemented the Clean Energy Standard (CES), Reforming the Energy Vision (REV), and other emissions-related initiatives. The CES targets the use of renewables for 50% of electricity consumption by 2030. Navigant’s 2017 outlook for New York shows significant increases in energy efficiency, wind, and solar over previous cases without the CES. Some of these additions are already happening around the state, and growth is expected to continue through at least 2030. Additional initiatives at the state level that put an emphasis on distributed energy lead us to forecast that nearly half of all the solar capacity added in the state through 2040 will be distributed solar. New York is a member of the Northeast’s Regional Greenhouse Gas Initiative (RGGI) along with states from New England and PJM. As New York increases its deployment of energy efficiency and renewables, CO2 prices on the RGGI market will be driven down and other states in the market will be affected. This would also otherwise affect energy efficiency and renewable development in other RGGI states, except that these are mostly driven by other state imperatives.

California has also been a leader in decarbonization efforts for many years, and it is not expected that leadership from California will taper off anytime soon. California’s cap-and-trade market for CO2 is linked to Quebec, with plans to link with other Canadian provinces in the near future. The state is also on track to meet its aggressive Renewable Portfolio Standard (RPS) targets of 33% by 2020 and 50% by 2030.

Higher Emissions

Even though state policies are expected to continue to push the grid toward decarbonization, without a federal regulation on carbon, overall emissions from the industry will be higher. Without the CPP in place, MISO and other areas are expected to see less coal capacity retire. However, the economics of some older coal plants and even a few nuclear plants make it unlikely they will continue to operate through 2040.

Uncertainty in the industry will likely continue, and can make planning for the future difficult, particularly in a sector where planning is so important and highly regulated. Navigant’s 2017 Integrated Energy Market Outlook and Industry Trends webinar on January 25 will analyze how fundamental policy shifts are expected to impact coal retirements, energy, capacity, and prices as well as the potential impacts regarding supply and transmission expansion for gas and power over the next 25 years.

 

Presidential Candidates at Odds on Climate Change

— October 6, 2016

Oil RigOne year ago, my colleague Casey Talon published a blog on the energy and climate change policies of various presidential hopefuls. With the nominees now chosen and the first official presidential debates now over, the nation’s energy future should be clearer, but widely disparate policies have instead made it more nebulous than ever. Let’s take a look at how each nominee could affect US climate policy.

  • Democratic nominee Hillary Clinton’s plan for climate action involves a heavy focus on solar panels, increasing the installed base of solar power in the United States by 700% within her first term. Clinton’s plan also includes creating a White House transmission office, which would coordinate permitting for siting transmission lines on the state and federal levels. This plan would rely heavily on either a cap-and-trade system for carbon emissions or a carbon tax. Without increased pricing for emissions, natural gas is currently too cheap for renewable energy to be competitive in some applications. One item Clinton’s plan is relatively vague about is energy storage. In order to meet the solar energy goals set forth by the presidential nominee, a large amount of storage would have to be implemented, as solar and wind are both intermittent power sources that do not necessarily produce power at the time when electricity demand is greatest.
  • Republican nominee Donald Trump promises a return to coal-fired power plants, as well as other fossil fuels. The candidate’s America First energy plan involves a dissolution of the US Environmental Protection Agency’s (EPA’s) Clean Power Plan, as well as the EPA itself. Any move toward clean power would be entirely dependent on free market adoption. Shifting back to more coal power could be problematic from an emissions perspective, as 71% of 2015 carbon emissions from the electric power sector came from coal. Meanwhile, natural gas, the second largest fossil fuel energy source, represented only 28% of emissions. Increasing CO2 emissions would not only mean a faster rise in global temperatures, but also a deviation from international agreements on climate change. In addition, due to declining renewable energy prices and the increasing prevalence of natural gas fracking, coal is not as economically attractive an option as it once was. A lack of regulation surrounding the energy sector could either result in widespread adoption of renewables on the market or a sharp rise in carbon emissions.

Electricity demand is increasing in the United States, and carbon emissions have remained fairly consistent in the past several years. It is true that cleaner energy is needed in greater quantities, both to balance out the added demand from smart metering, electric vehicles, and increasingly connected cities and to reduce emissions. In the 2015 Paris Agreement, the United States promised to cut its carbon emissions 28% below 2005 levels by 2025. It’s currently not on track to reach that goal, and a reduction in the amount of clean power being utilized would hinder the nation’s ability to meet this pledge.

The future of America’s energy policy is uncertain. November’s election could bring some much needed clarity.

 

Key Takeaways from the CPP Oral Arguments

— September 30, 2016

AnalyticsOn Tuesday, September 27, the hottest ticket in Washington, DC was for a seat in the courtroom to hear oral arguments in the US Environmental Protection Agency’s (EPA’s) Clean Power Plan (CPP) appeals. Below are some key takeaways from the proceedings.

Oral arguments were thorough and the judges were well-prepared. The discussion took almost twice as long as scheduled; the court allotted 218 minutes for arguments, and the hearing lasted nearly 7 hours.

Transforming the Sector?

A key issue was whether or not the CPP rule is transformative to the electric sector. The EPA is walking a fine line here because it wants to tout the positive impacts the rule will have on climate change and air pollution without indicating that the CPP is transformative enough to warrant a clear directive statement from Congress. Questions included whether the Clean Air Act was intended for this purpose, and what to do when Congress fails to act. The fact that a number of utilities intervened in support of the EPA and spoke to the issue of the ongoing shift to low-carbon generation sources (e.g., natural gas and renewables) may weaken petitioners’ case that the EPA overstepped its authority, meaning congressional action is required for such a change.

At Navigant, we have been modeling regulations on CO2 from power plants since President Obama first announced that this kind of regulation would be a part of his Climate Action Plan in 2013. A number of factors, including continuing low gas prices and ever lower renewable costs, make emissions reduction actions more cost-effective. This is to say that the CPP is not as costly to achieve in our current future outlook than it appeared a few years ago. The court’s focus on this point indicates that the judges recognize the nature of the ongoing energy transformation may be in line with current trends.

Other challenges brought in front of the judges on Tuesday included whether a Best System of Emission Reduction (BSER) that extends beyond the fence line (i.e., outside of the regulated generation plant) is allowed under section 111(d) of the Clean Air Act. Based on feedback from attendees, this issue did not seem as contentious as originally expected. Discussions on differences between the House and Senate versions of the 1990 Clean Air Act amendments also seemed less contentious than originally thought.

Procedural Notice

The other challenge that I found interesting was the issue of procedural notice. Petitioners’ challenge that there are major differences between the proposed and final rules and contend that the EPA should have reissued the rule allowing for additional comments prior to finalizing it. If the judges agree, the court may not have to rule on the merits of the case and the CPP could be sent back to the EPA for additional comments. At that point, it would be up to the next president and administration to move the CPP forward. Under those circumstances, the reissued CPP would also likely see appeals through the DC Circuit and US Supreme Court, likely pushing back compliance.

The case was heard in front of 10 judges, 6 Democratic appointees, and 4 Republican appointees. Regardless of the DC Circuit’s decision (expected in early 2017), most agree that this case is likely to be appealed to the US Supreme Court. In its current makeup, the Supreme Court is largely assumed to be split 4‑4 on the issue.

 

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