John McClaughry: The invisible carbon tax alternative

Editor’s note: This commentary is by John McClaughry, the vice president of the Ethan Allen Institute. 

[G]ubernatorial candidate Sue Minter, a Democrat, is an ardent believer in the idea that human-caused emissions of carbon dioxide will ultimately cause catastrophic “climate change” – “historic drought, fires, storm surge and sea level rise.” Accordingly she promises that her government will drive down CO2 emissions (“carbon pollution”), and make Vermonters rely on 90 percent renewable energy by 2050, no matter what.

The most straightforward way of doing that is to get the Legislature to levy increasingly burdensome taxes on all fossil fuels, until people can’t afford them anymore and switch to something else (or move away). That is the promise of the carbon tax, and it’s urgently advocated by a coalition named Energy Independent Vermont, shepherded by the Vermont Public Interest Research Group (VPIRG).

But Minter rationally recognizes that a carbon tax levied by one little state like Vermont would not only have no detectable effect on the planet’s climate, but it would also cripple Vermont’s economy to the advantage of its neighbors. She has an alternative: a new Regional Greenhouse Gas Initiative (RGGI) to drive up the price of transportation fuels throughout the entire northeastern region.

RGGI is a program that the Legislature and the Douglas administration had Vermont join in 2006. The RGGI board sets caps on the amount of fossil fuel electricity generation allowed in each participating state. Then it distributes “CO2 allowances” to the nine state governments.

If a coal, gas or oil burning utility emits CO2 in excess of the cap, it can switch to non-fossil sources (hydro, wind, solar, nuclear, biomass), or keep on burning fossil fuels by purchasing CO2 allowances from states that don’t need them. Both of these alternatives produce higher prices to consumers, just like a carbon tax.

Vermont has no significant fossil fuel electric generation. All of Vermont’s CO2 allowances are thus available for sale out of state. The net effect for Vermont is that RGGI sucks in money from electricity ratepayers in other states and ships it here, where the Public Service Board uses it to subsidize energy efficiency, renewable energy installation, and similar programs.

So why not the Minter plan, a RGGI cap and trade plan for gasoline and diesel fuel?

Former Environmental Conservation Commissioner Jeffrey Wennberg, who negotiated RGGI in 2006, says it could work where there are a few players (electric utilities) with strong legal, technical, economic and financial expertise. It worked just swell for Vermont, which pockets around $3 million a year by selling the allowances that RGGI allowed it to create for free.

But, Wennberg says, it won’t work for motor fuels, where there are millions of individual consumers who won’t want to, or be able to, sort out the complex incentives. He says, “the [motor fuel] cap and trade system is nothing more than a complex bureaucratic tax by another name.” At least two other states – Maryland and Minnesota — abandoned this idea for just that reason.

Unlike the power plant RGGI system, a motor fuel RGGI would require thousands of Vermont motorists, tourists, schools, farms, and businesses to face higher gasoline and diesel prices to keep their cars, trucks, buses, locomotives, tractors, RVs, snowmobiles and construction equipment on the road or on the job.

And what would they get back? If the revenues from selling the CO2 allowances were assigned to subsidizing wind, solar and weatherization projects to fight “climate change,” a few would benefit, but the great majority would not.

If the revenues were assigned to the transportation fund, everyone who drives or rides would get better maintained roads and bridges. But why go through creating and managing the very complex multi-state organization, when just raising the motor fuel taxes would achieve the same result (without paying for RGGI)?

The (somewhat unsatisfactory) answer to transportation RGGI skeptics is that Vermont has to show leadership in fighting the menace of climate change, reducing CO2 emissions, and proceeding to 90 percent renewable energy by 2050, no matter what the effects are on individual Vermonters.

Hardly anyone would comprehend a complicated new RGGI to drive up motor fuel prices. People would just wonder, and grumble about, why they are paying more at the pump.

The RGGI scheme would let climate change warrior candidates claim to be doing something, however useless, to battle climate change. It would also let them produce essentially the same result as a carbon tax – higher motor fuel prices at the pump – without having to openly advocate the universal carbon tax that voters might not welcome.

Don’t be fooled.