EPA pushed to allow state carbon taxes

A prominent scholar says the Environmental Protection Agency should let states impose a carbon tax to meet new emissions guidelines for power plants.

Brookings Institution scholar Adele Morris plans to urge EPA to consider the idea at Thursday’s public hearing on planned carbon rules for existing power plants.

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“In my comments I am going to suggest that EPA consider an approach that would allow states to price carbon,” Morris told E2-Wire in a preview of her comments at the “listening session” EPA will host Thursday in Washington, D.C.

The EPA plans to create federal carbon emissions guidelines for existing plants, and states will be required to create programs to meet them. The agency intends to propose draft rules in 2014 and complete them the following year.

Morris, an economist and climate expert, argues the Clean Air Action section that the EPA is using to craft the rules — 111(d) — gives the agency broad leeway in how it allows states to meet the federal requirements.

The options for states include what Morris has long favored: taxing carbon emissions from fossil fuels, while possibly lowering other state taxes at the same time.

“EPA can provide more than one example to states [as to how to comply with the power plant rules] and suggest to states that EPA views these approaches as effectively equivalent,” Morris said, noting options include a performance standard, a state-based cap-and-trade program or a carbon tax.

“EPA could ... say, ‘well, states, if you want to do an excise tax on carbon, here’s the price point that EPA views as equivalent to those other measures,’ ” she said of her proposal to tax the carbon in fuels used at power plants.

It’s a version of the “tax swap” that some advocates of a federal carbon tax have promoted, which would involve taxing emissions from petroleum and coal while lowering personal or payroll taxes.

Put another way, advocates’ rallying cry is “tax what you burn, not what you earn.”

Morris has a catchphrase for her idea: a “SIP swap.” SIPs are “state implementation plans” that states provide the EPA to show how they will meet or maintain various air quality standards.

Federal carbon tax bills face overwhelming resistance on Capitol Hill, and the White House has flatly ruled out proposing a federal carbon tax.

But a loose, ad-hoc coalition of advocates and scholars, including Morris, is trying to gain political traction for the idea.

They are holding their latest meeting in Washington, D.C. on Thursday afternoon, according to a source familiar with the effort.

Carbon tax advocates call taxing emissions a straightforward, less complicated way to help tackle climate change.

But Morris notes that under her plan, it would also be necessary to have the carbon price signals among states using different approaches “harmonized” to avoid “carbon leakage,” or the movement of industries to areas with more lax requirements.

She said having the EPA give states the tax option to meet carbon rules would have several advantages.

One would be helping the U.S. in international climate talks.

Morris, who served as a climate negotiator in the Clinton administration, said enabling a clear price on emissions would provide clarity to other countries about U.S. climate policy.

“It would be very useful ... diplomatically to have a story you can tell about the economic ambition of your regulatory policy,” she said.

And on Capitol Hill, it would provide a signal to lawmakers if, as carbon tax advocates hope, a political window opens.

“It is extremely helpful for the Obama administration to signal to Congress what it thinks is a reasonable price on carbon,” she said.