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Misinformation: Senator Wyden's carbon tax proposal

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Richard Brooks's picture
Co-Founder and Lead Software Engineer Reliable Energy Analytics LLC

Dick Brooks is the inventor of patent 11,374,961: METHODS FOR VERIFICATION OF SOFTWARE OBJECT AUTHENTICITY AND INTEGRITY and the Software Assurance Guardian™ (SAG ™) Point Man™ (SAG-PM™) software...

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  • Sep 27, 2021

A recent Bloomberg article quotes Senator Wyden on his carbon tax proposal:

"It’s projected that making polluters pay -- when combined with clean energy tax credits -- would lower the cost of clean electricity for Americans,” Senate Finance Committee Chairman Ron Wyden said in a statement to Bloomberg News Friday. “I’ve worked on this for years, and have continued to develop the proposal as part of my menu of options for the caucus."

MISINFORMATION: Let's start with this claim "making polluters pay". Mr. Senator, electricity prices in wholesale markets don't make the "polluter pay" - let's be honest and clear - "carbon taxes make the consumer pay". Wholesale electricity prices are determined using a uniform clearing process that sets the price of electricity at the marginal unit's offer price (usually a fossil fueled generator), which in your design would result in higher electricity prices to all electricity consumers. The marginal generator, and all of the other owners of cleared units will thank for you for SIGNIFICANTLY raising their revenues at the SIGNIFICANT expense of your constituents and all other electricity consumers.

TRUTH: polluters don't pay, electricity consumers pay. Polluters will be incentivized to continue polluting because "it handsomely rewards all generator owners" to have a carbon tax while punishing those consumers that do reduce their carbon footprint with Electric Vehicles - they end up paying more for electricity when they do the "right thing". Talk about unintended consequences.

MISINFORMATION: "would lower the cost of clean electricity for Americans"

TRUTH: Empirical data from Alberta shows that electricity prices increased by 9% for all consumers when carbon tax policies were implemented. There is ample evidence available to refute your claim.

Bob Meinetz's picture
Bob Meinetz on Sep 27, 2021

Though I agree with your assessment of Wyden's proposal, Dick, all carbon pricing schemes are not the same. Wyden is going halfway to revenue-neutral - sending out some of collected funds as cash payments, to some low-income taxpayers as credits, but redirecting part of collected funds to social programs and other pork-barrel handouts.

No, no, no, no. And no. That is not the way to do revenue-neutral.

British Columbia is doing their revenue-neutral tax right. A price is assessed on all carbon entering the province: any oil, natural gas, or coal, extracted or imported, based on its carbon content - how much will end up in the air as CO2. After all money is collected each month, collected revenue - all of it -  is divided into equal amounts, one share for every adult resident. Then residents are all sent the same check.

If you use more than the average amount of carbon emitted by each BC resident, you will bear the burden in higher gasoline, natural gas, and electricity prices. If you use less, the check you receive will more than offset the higher price of gasoline, natural gas, and electricity. By using less carbon, you can actually make money.

BC's revenue-neutral tax is the ideal "carrot and stick" approach to lowering carbon emissions. The tax started out low, pennies on the dollar, then was gradually increased. Producers lost money because customers were consuming less of their product. Consumers only paid more if they use more than their "fair share" of carbon - in exact proportion to the impact it had on climate.

By any standard, it's been a rousing success.

Richard Brooks's picture
Richard Brooks on Sep 27, 2021

Bob, I don't believe that British Columbia has implemented wholesale market reforms, which has occurred in Alberta and Ontario, so I don't have a clear understanding how electricity prices are determined in BC.

Adding carbon taxes to electricity is a disincentive to electrify. IMO electricity is our only real hope to reduce CO2, but if you are increasing the cost of electricity, then you are hampering adoption. Zero emissions electricity generation should be the goal and success depends heavily on the adoption of nuclear and renewable generators.

Bob Meinetz's picture
Bob Meinetz on Sep 27, 2021

"I don't believe that British Columbia has implemented wholesale market reforms..."

It hasn't. BC's electricity is highly regulated, but with 95% of it coming from hydroelectric sources, clean, cheap, electricity is available in abundance. It's not an issue.

"Adding carbon taxes to electricity is a disincentive to electrify."

Revenue-neutral carbon taxes (RNCTs) aren't added to electricity, but to the fuel used to generate it. In competitive U.S. wholesale markets, that means natural gas and coal are less competitive with nuclear and renewables.

Though clean electricity for your EV might be slightly more expensive than the dirty kind, gasoline will be a lot more expensive - even more incentive to go electric.

BC's RNCT has been around since 2008. Initially it was attacked as "just another tax" by conservatives - until they got their first check in the mail, and began to realize their cost of energy was something they could control. Control is a big selling point with that group of people - to a fault, sometimes.

Richard Brooks's picture
Richard Brooks on Sep 28, 2021

Bob, I'm certain the folks in Texas would disagree with this statement "Though clean electricity for your EV might be slightly more expensive than the dirty kind". Electricity prices are highly volatile. People in the UK are also seeing the effects on electricity prices, when the wind stops blowing/producing electricity.

Bob Meinetz's picture
Bob Meinetz on Sep 28, 2021

Richard, Texas has made its own bed with ERCOT, a go-it-alone "non-profit" system administrator, guided by the invisible hand of big-stakes capitalism (California is close behind). Who is in charge of grid oversight in Texas? No one - Big Oil "foxes" are guarding the henhouse. In states with their own electrical grids and economies flush with sales of fossil fuel, it's an inherent problem.

The UK has made its own bed by allowing electricity to become dependent on two factors out of its control: 1) When the wind blows, and 2) access to imported fuel. Though it seems mind-numbingly obvious, I guess for some dots must be connected the hard way.

Matt Chester's picture
Matt Chester on Sep 27, 2021

Empirical data from Alberta shows that electricity prices increased by 9% for all consumers when carbon tax policies were implemented

It's definitely not a conversation that those pushing the policies want to highlight, but wouldn't the point be that really any policy that's looking to rapidly increase the market share of clean energy will come with additional costs? If they weren't more expensive (at least right now), then they would already be more widely pursued, but without the invisible hand there needs to be a carrot and/or a stick. I guess the crux though is a) minimizing those cost increases and b) finding where those costs should come from (e.g., customer rates vs. utility profits vs. otherwise). 

Richard Brooks's picture
Richard Brooks on Sep 27, 2021

I agree, Matt, there is a capital cost to increasing the number of solar and wind generating units, however their ongoing operational costs are much lower than fossil fueled generators because there are no fuel costs. Locations with high a high penetration of renewable generators, e.g. Ireland, are seeing more hours with negative electricity prices, which means that consumers are being compensated to use electricity during these times.

Richard Brooks's picture
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