Democrats Seek Feedback on Newly Proposed Carbon Fee for Emission Sources

A new draft carbon-pricing bill that solicits feedback on how much industrial sources burning fossil fuels should pay per ton of carbon dioxide emitted was released by a bicameral group of Democrats on Tuesday. The bill diverges from a previously introduced measure to levy carbon taxes at the point of production or sale of a fossil fuel and applies instead at the “point of emissions”—which includes coal, oil, and natural gas generators.

The discussion draft essentially requires covered entities to pay an undetermined fee of $15, $25, or $30 per ton of carbon dioxide emissions as reported under the Environmental Protection Agency’s (EPA’s) greenhouse gas (GHG) emissions rule, starting in 2014. The fee would be paid to the Treasury Secretary, who would then issue one carbon pollution permit to the entity for each ton of carbon emitted. The fee would increase at an undecided rate of between 2% and 8% annually, the draft proposes.

As outlined by Sen. Sheldon Whitehouse (D-R.I.), House Energy and Commerce ranking member Rep. Henry Waxman (D-Calif.), Rep. Earl Blumenauer (D-Ore.), and Sen. Brian Schatz (D-Hawaii) on Tuesday, the bill’s tenets differ from those in a legislative packet introduced in February by Sens. Bernie Sanders (I-Vt.) and Barbara Boxer (D-Calif.), which levies a tax at the point of production or first sale of a fossil fuel—but does not apply to "downstream" energy producers such as power generators.

The new approach in Tuesday’s draft bill instead applies at the "point of emissions" from coal, oil, and gas power plants as well as cement kilns, oil and gas producers, and landfills. Power plants using carbon capture and storage or reuse would only pay a tax for carbon dioxide emitted into the air. In addition to carbon dioxide emissions, the draft includes emissions of methane, nitrous oxides, and fluorinated gases. Under the draft proposal, about 7,000 facilities would pay a fee, covering 85% to 90% of total U.S. emissions.

Advantages of the new approach compared to a tax on fossil fuel production include "more complete coverage of emissions; lower compliance burden for sources; lower administrative burden for the government; and appropriate deployment of agency expertise," its authors said in documents accompanying the bill’s release.

The proposed fee on reported emissions would also "better address" challenges of taxing emissions from natural gas rather than taxing carbon just at the point of production, the authors argue, because the "CO2 and methane emissions that occur upstream of the point of first sale might be in the range of 5% or more of the emissions from natural gas."

The bill proposes to "minimize the compliance burden" by minimizing the number of covered sources (about 7,000, fewer than the 514,647 natural gas wells and 15,000 oil and gas producers that would have been affected under the previous approach of a point-of-production tax), minimizing new requirements, and using information that is already collected.

The proposed approach based on the EPA’s reporting rule calls on the Treasury Department to make each agency responsible for its area of expertise. This means that the Internal Revenue Service (IRS) would enforce and collect the taxes. The EPA could continue to be responsible for establishing and enforcing requirements for sources to estimate their GHG emissions.

The Senate and House lawmakers on Tuesday requested specific feedback (to be sent by e-mail to cutcarbon@mail.house.gov by April 12, 2013) on questions such as, "What is the appropriate price per ton for polluters to pay?" and "How much should the price per ton increase on an annual basis?" It also asks, "What are the best ways to return the revenue to the American people?" and "How should the carbon fee program interact with state programs that address carbon pollution?"

Some experts suggest the bill may not progress to vote in the GOP-dominant House and may also be possibly blocked by centrist Democrats in the Senate. Republicans on the Senate Environment and Public Works (EPW) Committee are, meanwhile, attempting to expose complicity between Gina McCarthy, Obama’s nominee for EPA chief, and former EPA Region 6 Administrator Dr. Al Armendariz. Dr. Armendariz resigned his position in April 2012 following a controversial statement that the "general philosophy" of EPA’s enforcement policy should be to "crucify" oil and natural gas companies.

On Tuesday, EPW Republicans released an e-mail from Dr. Armendariz that called Gina McCarthy’s air rules "icing on the cake" of measures to "clean up the oil/gas sector."

Sources: POWERnews, Sen. Whitehouse, EPW

Sonal Patel, Senior Writer (@POWERmagazine, @Sonalcpatel)

Note: This story was originally published on Wednesday, March 13, 2013.