With an extraordinary understanding among some 180 nations meeting in Paris that humanity can play a role in limiting the increase in global temperatures, there will be much talk about how to drive the necessary changes in national and individual behavior and in corporate decision-making.
Thanks to a couple of factors, the dominance that coal has had in power generation in this country is fading. Now, more energy comes from natural gas and oil than from coal.
First, a tax incentive for alternative fuels, then fracking, unleashed aggressive natural gas exploration in La Plata County and then Mesa County, and then in Pennsylvania. The U.S. began to produce so much natural gas that a price that was once briefly $9 a million BTUs, is now $2.
In addition, the burning of coal has steadily been discouraged by increasingly tough environmental restrictions and enforcement. And for good reason. Photos of contaminated air in cities in China and India show a far, far more severe problem than anything here, and they are a reminder of what burning coal is doing to other parts of the world.
While the declining mix of coal in energy production is moving in the right direction, there are hopes that the shift would move at a faster pace.
Enter a carbon tax.
The premise is that power companies would be assessed a tax on the harmful carbon that they release into the atmosphere as an incentive to use cleaner fuels in cleaner technical processes. As an incentive, the tax would be almost offset by reductions in other taxes that the company pays. Thus by moving toward producing less carbon, the company would have the ability to reduce its overall tax bill. It is expected that there would be further tax reductions, up front, to help pay for needed new equipment.
While for the energy industry as a whole the idea of a carbon tax is an undertaking full of uncertainties and to be avoided, there are indications that it might appeal to some exploration companies. Those companies are significant ones, such as BP and Royal Dutch Shell, and it is because they have more natural gas than oil in their business models. A carbon tax would encourage power companies to use even more of their natural gas.
There are plenty of politicians who see only the negatives in the establishment of a carbon tax, even if it is shaped to only slightly add to federal tax revenues. The tax would take some experimentation to be properly applied, which would create misery in corporate offices, and it would add to the federal bureaucracy. We agree with those concerns.
In the case of the federal mileage standards, which have been mandates, Detroit’s engineers (and Japan’s and Germany’s excluding Volkswagen) responded quickly and masterfully with fuel-saving vehicles that continue to be comfortable and safe. The mandate worked because all manufacturers have to comply, leveling the field; the auto industries are receiving no tax incentives to participate, but they could be.
A tax, no matter how logical, is a nonstarter with the Republican Party. But if major corporate leaders see an opportunity to strengthen their companies at the same time that their efforts make their countries and the world more livable, politicians will have to pay attention. Draft carbon tax proposals coming from the cleaner energy sector would have unusual credibility.
There are plenty of times that some corporate needs mesh with the world’s needs; perhaps a carbon tax is one of them.
