Tax Experts Spar Over “Cap And Trade” Policy

By Learned Foote- Talk Radio News Service

The Senate Committee on Finance held a hearing to assess what impact the Obama administration’s carbon cap and trade program might have on tax legislation. 

The committee’s testimony dealt with a narrow set of questions such as whether or not carbon allocations should be distributed for free or auctioned off, and whether or not carbon allocations should be considered income or capital asset. In addition, the committee debated whether or not previous legislation governing the emission of sulfur dioxide can be used as an analogy to carbon taxes.

A panel of tax policy experts offered contradictory pieces of advice to the committee. 

“In considering the direction for the tax treatment of CO2 allowances, the most logical place to start is with the current treatment for SO2 [sulfur dioxide] and NOX [nitrous oxide] allowances. These allowances were established under Title IV of the Clean Air Act Amendments of 1990,” said Keith Butler, Senior Vice President of Tax at Duke Energy. “These allowances should be granted with zero-tax basis and they should not be taxed upon granting it, because that just creates an ultimate cost that I don’t think we need to create,” he said. 

“To use that distant stuff from the past for this new market which is so vast is, you know, I mean, why don’t we bring over the laws from Amsterdam and apply them in New York today,” said Gary Hufbauer of the Peterson Institute for International Economics. He added that carbon allocations should be treated as income rather than capital gains, and that following the precedent set by SO2 caps is “mind-boggling.” “What you’re gonna do is throw out a couple hundred billion dollars,” he said. 

According to committee chairman Senator Max Baucus (D-Mont.), the SO2 cap governed less than 120 facilities, whereas a carbon cap and trade program would affect over 7,000 entities if enacted. All of the panelists agreed that the analogous legislation would have to be revised if a carbon cap and trade proposal is enacted, and Hufbauer said that a “blank slate” would be most appropriate.

G.R.E.E.N. Spells Jobs

Coffee Brown, University of New Mexico, Talk Radio News

When blue collar unions and green environmentalists discussed how alternative energy is a path to new, high quality jobs, the Blue Green Alliance was born, according to Dave Foster, the Executive Director.


Foster notes that Sen. John McCain (R-AZ) and former Sen. John Warner (R-VA) have sponsored separate Cap-and-Trade bills, and, along with Sens. Olympia Snowe and Susan Collins (R-ME), still support some form of carbon tax.

Europe and Japan have far lower per capita energy usage, he said, which means “through efficiency, we can pay for an awful lot of of these global warming reductions.”


Still, "I find it a little odd that a certain section of the Republican party has chosen to wave the banner of anti-science,” Foster said.

America is already feeling the economic effects of climate change, Foster said, and gave the example of the loss of 4,000 jobs in the aluminum industry as decreased amounts of snow pack formed in the Cascade Mountains of the Pacific Northwest over the past 20 years. Hydroelectric dams depend on snow melt for power. As that diminished, electricity became prohibitively expensive.


“The cost of doing nothing about global warming will far, far exceed the cost of doing something," Foster said, while praising the thousands of steel-working jobs gained in manufacturing clean-energy wind turbines.


Foster said that alternative energy jobs tend to put skilled people back to work in familiar jobs.


“We’re not engaging in massive re-training, we’re engaging in a massive recall to work... On exactly the kinds of projects that they’ve been trained to do before,” he said.

“The Blue Green Alliance is a strategic national partnership between labor unions (the “blue” in “blue-collar”) and environmental organizations (the “green”) “ (http://www.bluegreenalliance.org/site/c.enKIITNpEiG/b.3416603/k.DD10/About_BGA.htm)

“Our World Would Be Unrecognizable”

Coffee Brown, University of New Mexico, Talk Radio News

Sen. John D. Rockefeller IV (D-W.Va.), Chair of the Committee on Commerce, Science and Transportation, opened the first of a planned series of hearings into practical responses to climate change with, “Dr. Killen, when does climate change become irreversible?”

Dr. Timothy Killen, National Science Foundation, replied that accommodation was becoming more important than prevention. Killen said that present models are imperfect, they show a range of possibilities for each question, but the possibilities are all about how much our world is changing, not whether it is. The overall pattern of warming and increasingly erratic and extreme weather is certain, with floods and droughts occurring back to back in the same places. One other thing the models have in common, is that the changes are already more severe and rapid than predicted, he said.

This is partly because methane gas wasn’t part of earlier models, Killen said. He confirmed that methane is 30-40 times more potent as a greenhouse gas than carbon dioxide. Methane is sequestered in huge amounts in permafrost. So far, only superficial permafrost is melting and releasing the gas but, if it all melted, “Our world would be unrecognizable,” he said.

Rockefeller said this is the 11th plague on man. “The science is overwhelming… The time for arguing whether carbon emission is a factor which affects the health of the earth, or whether our sea level is rising from global warming, is and must be over.”

Sen. Kay Bailey Hutchison (R-Texas), Ranking Member, asked about research into weather control. Killen indicated that we could begin such studies, with better tools than in the past.

No one among the senators or the panel questioned the reality or significance of climate change, the discussion was about what could be done.

Killen recommended specific areas of further research in order to improve computer modeling of the effects of any changes. He thought science would then yield better answers in “ten or so years.” In the meantime, we should plan for regional climate change, the local details of which were not yet predictable, rising and more acidic oceans, water scarcity, extreme weather, reduced biodiversity, crumbling ecosystems, and substantial impacts on human health.

Sean Dilweg, National Association of Insurance Commissions, recommended both insurers and government create incentives for people to drive less and use clean energy. Insurers are presently looking into other recommendations.

Sen. Mark Warner (D-Va.) suggested “something like EnergyStar on steroids.” A symbol that consumers could look for as a sign that their purchases were part of the solution.,

The Colorado River might carry 20 percent less water by 2050, Katherine Jacobs, Arizona Water Institute, said. There is a great need, she said, for the public and policy makers to be more aware of the science around climate, and to make that science part of important decisions.

Her recommendations also included plans to adapt to now-unavoidable changes, as well as defining the problems around users’ concerns, matching the timing and scale of information to decisions, and establishing credibility of sources in the minds of the public. She submitted several more technical recommendations to the committee as well.

By far the most pro-active panelist was Frank Alix, Powerspan Corporation. His company makes carbon scrubbing and sequestering equipment for coal plants. Still at the prototype stage, their equipment can remove 90 percent of the carbon from coal plant exhaust, pressurize it into liquefied form, and pump it into vast natural underground spaces, where it is expected to remain. Alix estimated that, with full implementation, total carbon emission could be reduced to about 5 percent of what it is now, for about $40 a ton.

Alix said the fastest path to adoption of the scrubbers would be a carbon tax.