Why We Need a Carbon Tax III. Natural Gas Is Not a Real Solution

 

Most people agree that global warming is for real and that it is caused by a buildup of greenhouse gases in the atmosphere, mostly from carbon dioxide.  We need to respond to this existential threat and the U.S. should lead the way.  The Environmental Protection Agency’s new regulations call for a 30% reduction in carbon emissions, from 2005 levels, by 2030.  Since fracking has led to a natural gas boom in the U.S. and the burning of natural gas only emits half as much carbon as the burning of coal, it is very likely that the new EPA rules will lead to a major replacement of coal by natural gas in U.S. energy production.
CaptureBut there is a downside to this approach as pointed out in yesterday’s New York Times, “The Potential Downside of Natural Gas,” as follows:

  • Natural gas is starting to replace nuclear power which has no carbon footprint. Last year five reactors announced that they would close because of the low cost of natural gas. This will increase CO2 in the atmosphere.
  • Fracking for oil produces natural gas as a side product which may not be easily marketable. This excess natural gas is either burned off or escapes unburned releasing methane which causes even more damage than CO2.
  • The low cost of natural gas is also slowing down the development of renewable energy sources such as wind and solar power.

A far more efficient system of reducing carbon dioxide in the atmosphere would be to tax its emission from any fuel source.  The most commonly mentioned amount is $20 per ton which would raise the price of gasoline by about 10 cents per gallon.   This way the use of all forms of fuel, including coal, oil and gas, would be taxed equally based on how much carbon they emit.  This would create a huge economic incentive for developing carbon capture in fuel combustion, which is the ultimate solution to eliminating CO2 emissions.
In other words, we have a huge problem on our hands which needs an effective solution.  Half measures will not get the job done and will just cause lots of confusion and political controversy in the meantime.  It’s time for some real leadership!

Global Warming Is For Real. What Should We Do About It?

Although the threat of global warming is vastly overhyped, it is happening nonetheless.  Perhaps the best single indication of this is the shrinking of the north-pole ice cap.  The New York Times reported just a few days ago, “Large Companies Prepared to Pay Price on Carbon”, that at least 29 major companies “are incorporating a price on carbon into their long-range financial plans.”  This includes five big oil companies ExxonMobil, ConocoPhillips, Chevron, BP and Shell.  Specifically, these major companies have all come to accept the reality of global warming and are preparing for a carbon tax to be levied before long.
The Congressional Budget Office has recently released a report “Effects of a Carbon Tax on the Economy and the Environment”, which concludes that a tax of $20 to emit a ton of CO2 would raise a total of $1.2 trillion over a decade.  Such a tax would, for example, raise the price of gasoline by 10 to 15 cents per gallon.
Once we admit that global warming is for real, and that we need to address it in a serious way, a carbon tax is almost certainly the most efficient, and least economically harmful, way to do it.  A tax on carbon output would do many things.  It would give a big boost to renewable energy (solar and wind) with, or without, special subsidies for renewables.  It would speed up the transformation from the use of coal to natural gas, since natural gas only contains half as much carbon as coal does.  And it would create an economic incentive to speed up the development of carbon capture in order to make the burning of coal more cost competitive.
Of course, a new $120 billion per year carbon tax will affect the economy.  But it will do the least damage if the proceeds are used entirely for deficit reduction.  So we can address a serious environmental problem which effects life on earth and can do so in a way which also addresses a very serious fiscal problem.
I believe that the American people are up to making a sacrifice like this if the consequences of inaction are clearly explained to them.