Tariffs in the Climate Bill

A number of people have written to ask why I haven’t commented on the climate bill. There are two reasons. First, the House and Senate versions are very different, so the final form may not resemble the version the House just passed. Second, I haven’t had the time to read through much of it.

There was one issue that I considered quite important, but I didn’t know whether it was in the bill. Jim Mulva was recently quoted as saying that the climate bill would impose higher taxes on domestic fuel versus imports. While we can agree that Mulva’s comments are self-serving, I also believe that most people would oppose a bill that shifts more of our fuel supply to imports.

While I know the goal here is to favor renewable energy, what happens if it can’t fill a void left if the new bill discourages domestic production? The void will be filled by imports. Prices will also rise, so some of the void will be filled by conservation. But in order to keep the playing field level, I really liked the idea proposed by Jeff Rubin: If you place a carbon tax on domestic production, you can place a carbon tariff on imports. This idea was discussed in my review of his book Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization.

I hadn’t heard any discussion of this until today. From Steven Mufson of the Washington Post:

Obama Praises Climate Bill’s Progress but Opposes Its Tariffs

President Obama yesterday said that the House took an “extraordinary first step” by passing a climate bill on Friday, adding that he hoped it will “prod” action by the Senate and predicting that the legislation could make renewable energy “a driver of economic growth.”

But he said he hopes that Congress will strip out a clause that would impose a tariff in 2020 on imports from countries without systems for pricing or limiting carbon dioxide emissions.

Obama went on to suggest that there were other protections built in that will keep the playing field level. I would like to know what those are. I can understand how tariffs would do it (although enforcement raises some sticky questions). But I have heard enough double-speak on energy policy that I want to see the fine details of how the playing field will be kept level.

Make no mistake: This bill is a tax increase. That’s the basis for the political opposition. But I have long advocated a tax increase on fossil fuels to slow the rate at which we are using them up (and to make renewables more competitive). So I don’t oppose the bill on the basis that it is a tax increase. On the other hand I can’t say that I endorse it, because I haven’t read it. I certainly believe there are more efficient ways of raising carbon taxes than this. I still think – perhaps naively – that my proposal to tilt the tax code toward higher fossil fuel taxes and lower income taxes would be more attractive than this.

30 thoughts on “Tariffs in the Climate Bill”

  1. I think this sort of thing has unintended consequences like making US exports more expensive. I also am assuming that cap and trade policy where people are grandfathered in prevent future competition and give an asset that can be sold (as a reward for past practices)That being said I offer no solutions. In fact I suspect other gases may be more important overall than co2 in gw (methane etc.

    An an aside the info in this link might be mined for a nice future post.


    Jim Takchess

  2. Mr. Mulva has followed up with a more definitive position: ConocoPhillips Statement on ACES Act of 2009

    (ACESA) contains many of the elements intended to balance greenhouse gas emissions reduction with economic growth and national security needs, we do not believe the bill passed June 26 achieves these aims.

    The fundamental issue is that refining accounts for about 30% of the stationary source GHGs, but received just 3% of the "free" allocations. The allocations were passed out to utilities and the agriculture sectors – in order to secure votes from Democratic congressmen from states like Virginia and Ohio. Passing out free allocations distorts the market and creates winners and losers – the sort of thing you hope to avoid. That is why most of the industry supported a straight carbon tax which phased in over a period of time.

  3. Cap and trade is perhaps the worst possible approach. Companies are motivated to lobby/bribe politicians for exemptions instead of reducing carbon emissions. Of course that's why politicians like it so much.

    A straight tax, imposed at the source and at the border, produces the least distortion. It also produces the fewest campaign contributions and most easily trackable economic pain, so don't hold your breath.

  4. FYI–oil demand going nowhere…

    The International Energy Agency, an adviser to oil-consuming nations, cut five-year forecasts for global crude demand because of the economic slump, predicting consumption won’t regain last year’s levels until 2012.

  5. I am a big fan of "Keep It Simple, Stupid." KISS.
    Sure, some topics are necessarily cmplex. Taxes and regulations should never be.
    Tax gasoline. Simple, everyone gets it, everyone knows the score.
    Cap-and-trade? Rife for abuse, and horrible regs, and rules, and bureacracies.

  6. I am a big fan of "Keep It Simple, Stupid." KISS.
    Sure, some topics are necessarily cmplex. Taxes and regulations should never be.
    Tax gasoline. Simple, everyone gets it, everyone knows the score.
    Cap-and-trade? Rife for abuse, and horrible regs, and rules, and bureacracies.

  7. not quite RR's alma mater, but close….

    After a year of trying, University of Texas at Arlington researchers say they have succeeded in producing Texas intermediate-quality crude oil out of lignite.

    In a few years, the researchers predict, their discovery could lead to oil that costs $35 a barrel instead of the current $65 to $70.

    This could translate into a Lone Star bonanza. Texas sits on a 200-year supply of lignite that's easily accessible because it lies near the earth's surface. Lignite, one of the lowest and cheapest grades of coal, is now used to fuel steam-electric power generation.

  8. Ben;

    I'm gonna get rich. I'm gonna get rich.

    Every time I dig in my flower beds I dig up some coal.

    Plus, I just live a few hundred yards from the last oil well they dug here where I live.

    I'm gonna get rich, I'm gonna get rich.

    I'll send you some money.


  9. John-

    The story is in the Dallas News. Microrefineries making oil from lignite at $35 a barrel. We have lignite everywhere, Texas, the Dakotas.
    Even in your backyard.
    It is an effing amazing story. I plan to follow. Stay tuned.

  10. "On the other hand I can't say that I endorse it, because I haven't read it."

    You haven't read it, RR. Neither have the buffoons who voted for it. The bill itself is apparently missing in action — approved, but not yet quite in existence.

    Energy is important — but not quite as important as constitutional government. We have technical solutions to the real problems we face, but will not be able to apply those solutions in a lawless world. This "Cap on Trade" travesty has really crossed the line.

    The good thing is that the US government will collapse before this kind of nonsense ever comes into effect. Obama & his lads in Congress are spending money they don't have, ignoring their already unsustainable Social Security Ponzi scheme, and assuming that the Chinese are going to continue bailing them out.

    Tears before bedtime, I'm afraid.

  11. If the tariffs do not apply until 2020, then it hardly matters until then whether they are kept in, or left out, of the bill. The thing can be modified in the interim, if necessary.

    Until they are applied, tariffs look like a threat to potentially recalcitrant countries, like China or Japan or Canada, to come closer to the United States' opinion of what their domestic climate policy should be.

    Jeff Frankel, an economist, has noted the potential usefulness of carbon tariffs. But he notes that it would be preferable if countries came to mutual agreements on how to apply then, through organisation like the WTO.

    At this early stage, where countries are just beginning the process of reducing carbon dioxide, it might be a bit early to have a USA bill with too many "sticks". If would be bad if these American "sticks" simply antagonize China and India (and Canada), resulting in a poorer than necessary climate deal in Copenhagen.

    I think there is time to deal with trade.

    Maybe the bill would be better if specific tariff threats were kept in reserve, with a statement that the trade distorting effects of "dumping" carbon dioxide can exist, but the United States first prefers to deal with the climate effects of trade through a multinational agreement on trade, to be negotiated before 2020?

  12. Kin is right. You can't find a clean copy of the bill, it doesn't exist. We tried all day yesterday. By the rules of the house there should have been a copy of the real bill sitting on the speakers desk. There wasn't. The bill existed partly on paper, partly on websites. The problem is that without "THE" copy, staff, members of congress, whoever, could insert things into the legislation during the process of integrating the various versions and amendments.

    What the Dems will say is that the house version isn't a real law because the Sentate has to pass their version then it has to be marked up in a conference committee. Then a final version has to go to the president to sign. President Obama says he will wait 5 days after final laws are posted before signing (a pledge he hasn't even come close to keeping). That is hardly an excuse for the House. The Dems and the President promised us more transparency – not 3am lawmaking and bending parlimentary rules.

  13. I thought after that excreta from the rotten bowels of the R-Party–President Bush–left office, things might get better. But maybe not.

  14. "excreta from the rotten bowels of the R-Party–President Bush"

    That's unbecoming, Benny. You can do better.

    The stupidity of the current Congress and President is not a partisan matter. It is an American matter. A human rights matter.

    Whatever you think of the last guys (and personally I was profoundly underimpressed), that does not excuse the reckless behavior of the current occupants.

    If JFK came back today, he would not recognize the self-serving immorality of today's Democrats. And you know that is the truth.

  15. Actually, I stole that line…very close to how Stephen Douglas described Abraham Lincoln, or more probably, a Douglas ally. I can't remember anymore–but we are hardly the first generation to play hardball, or hold office-holders in contempt.
    Partisan? I said maybe Obama will do worse (in energy policy matters). Time will tell.
    I am not impressed with Obama's energy policies so far.
    A simple gasoline tax would accomplish more, and be easier to understand and administrate.
    But Obama hasn' the resolve to even suggest it.

  16. About mid-morning today the final printed version of HR 2454 came out, all 1,428 pages of it. I've got the behemoth sitting on my desk.

    Links are here: HR 2454 – Enrolled Version

    I especially like the parts where Obama tells you what color roof you must have and where he rewrites your homeowner association rules. Then there is the part where he tells cities and counties they have to hire extra inspectors. Obama figures you are too stupid to manage your own energy needs, so he wants the gov. to do it for you.

  17. King-

    1428 pages. It sounds like a nightmare.
    The wisest words ever spoken (besides the golden rule): "Keep It Simple, Stupid" or KISS.
    Sounds like Obama doesn't know KISS.

  18. Ben,

    There are nat gas wells springing up every-where around here. This is not make-believe.


  19. Ben,

    My next door neighbor was a roughneck for a nat gas company, We went up to the lumber yard together today and he pointed out a lots of places where his company had brought in nat gas wells.


  20. Ben,

    Large concentration of shale formations around Dallas-Ft.Worth

    I've heard rumors that they might even try going into downtown areas of DFW to drill.

    It's the Barnett shale formation. I live not too far from DFW but I think we are just a bit south of the actual formation.

    Still lots of nat gas here.

    There's is a pretty good map on USGS website of shale gas in U.S. all the different known formations, etc.



  21. I must agree with RR, there is no point in reading the bill until the final version is going to the president. I will be totally amazed if there is anything in it that is effective at ensuring an adequate supply of energy while at the same time reducing ghg emissions.

    It will be interesting to compare the 2005 energy bill to the present legislation. I suspect there will be nothing of importance that is new. A large part of the cost of energy is taxes. Increasing taxes on energy is not new.

    This time around the justification is to protect the environment. If the idea is to collect more taxes on fossil fuel, then reducing the use of fossil fuels would be counterproductive. This is why the legislation will be ineffective.

    I will be reading this legislation to count the number of ways it reduces personal freedom and increases dependence on the government.

  22. "About mid-morning today the final printed version of HR 2454 came out, all 1,428 pages of it. … Links are here:"

    Absolutely unbelievable! 2.18 MB; 264,306 words of it. And not one of the bozos who voted for it has a clue about what all is hidden in there.

    Some day, maybe sooner than we think, ordinary Democrats are going to start getting very angry about what the Pelosi-Reid-Obama elitist axis has done to their party.

  23. I'd like to see a map of which congressmen voted for this monstrosity. My guess is that you will see most of the votes doming from the Left Coast and the New England states.

    It will be a lot tougher sledding in the Senate (Byrd, Rockefeller in WV, Landrieu in LA, both Montana senators).

  24. Ben,

    I wouldn't count out nat gas just yet…….

    "Dallas-based BAF Technologies has begun converting 600 AT&T Ford E-Series vans to dedicated CNG technology in 2009. This is part of AT&T’s plan to invest up to $565 million to deploy more than 15,000 alternative-fuel vehicles over the next 10 years."


  25. Ben,

    It's the price signal. That's what these ding dongs just don't understand,

    When oil and oil derivatives become more expensive than alternatives, then it will …

    Truly, ABSOLUTELY, and finally, and with utter certitude, be all over for oil, regardless of how much crude is still left in the ground.

    Peak Oil has nothing to do with how much oil will be left unused when the oil age is finally over.

    It is an economic phenomenon,

    Right now the economics favor the fossil fuels, but it will not allways be so.


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