Kate Mackenzie Oh, so that’s why you want to tax gasoline…

The weekend Washington Post report that Senators Kerry, Graham and Lieberman were now considering a three-part approach to a climate bill wasn’t surprising in some ways – it fits into the cap-and-trade is dead theme that has been talked about quite a lot lately. But it left a lot of questions unanswered.

Such as: why keep cap-and-trade just for the electricity sector? And why consider a carbon tax for transport sector – ie, oil? Surely talk of a new gasoline tax is political death.

Greenwire however reports that it was at the urging of the oil majors themselves that Kerry and co began to consider the carbon tax for transport.

A carbon tax has some advantages (it provides price certainty) and disadvantages (it doesn’t allow you to actually cap emissions) over a cap-and-trade system. We get that. And the oil refiners in particular were dismayed at the way the Waxman-Markey bill passed by the house provided for big allowance give-aways to coal and gas power generation, but not refining.

Why the big oil ethusiasm?

But will big oil really get behind this? When ExxonMobil’s Rex Tillerson early last year espoused the benefits of a tax over a cap-and-trade system, it was generally received with scepticism, and not just among the environmental movement: a carbon tax intuitively seems a harder sell. (Tillerson, incidentally, disagrees.)

Then again, perhaps it’s not so politically dicey. The new look Kerry/Graham/Lieberman efforts will apparently give the proceeds of a tax back to consumers: Democrats Senator Mary Landrieu told Greenwire she discussed with the three senators:

…a “linked-carbon fee” on transportation fuels, with revenues raised going back to consumers to help them deal with higher gas prices.

Which would certainly be more broadly appealing than the corporate giveaways that cap-and-trade proposals entailed, which mainly appealed to the senators from coal states. Although the story further down talks about

Look at these comments in the Greenwire story from API president Jack Gerrard:

“Clearly it softens the reaction and increases the likelihood that a number of people who’ve been forced to push back will be much more cooperative in the dialogue,” said Jack Gerard, president of the American Petroleum Institute.

Gerard said that the carbon fee approach would yield net environmental benefits, while giving consumers the most transparent signal they can get about what the costs are from the program. Unlike the House bill’s cap-and-trade system, oil companies would pass through the costs with signs at the gas pump letting people know they’re paying more because of U.S. efforts to deal with climate change.

“The effect is you alter consumer behavior,” Gerard said. “If consumers know they have choices between buying a more efficient car, riding a bike or buying an SUV, now they’re making an informed choice.”

He’s positive on the carbon tax idea, but the enthusiasm for the transparency of a carbon tax doesn’t preclude a big campaign along the lines of the ‘Energy Citizen’ efforts against the Waxman-Markey and Boxer-Kerry bills.

It’s also far from clear that the industry itself is united on the question. Big oil might prefer the simplicity of a tax but Charles Drevna, president of the National Petrochemical & Refining Association, tells Greenwire he’s sceptical that the taxes will go back to the people, and indeed the report itself is ambivalent on that subject – despite Landrieu’s comments, the reporter states that the revenues from a transport tax would go towards a range of ‘transportation projects’, including possibly highways.

How much is too much?

So the real question is: how big would a tax be? Would it be anywhere near the levels needed to make a significant dent on emissions? The Greenwire report also quotes Lindsey Graham, the Republican of the climate bill trio, as saying that the Waxman-Markey bill levied too great a cost on gasoline for the consumer to bear. Yet even the API’s calculations – which made the rather far-fetched assumption that absolutely zero international offsets would be utilised in meeting the cap proposed by Waxman-Markey – estimated a 77c/gallon increase by 2020.

A Harvard study we wrote about earlier this week said it would need to take gas prices to $7/gallon by 2020 to really have an effect – in addition to an economy-wide carbon price of $30 – $60 per tonne.

On the other hand, any carbon pricing measure that can win some degree of bipartisan support would represent progress. NRG Energy chief executive David Crane, a relatively pro-clean energy person, told Bloomberg that the compromise measures being discussed were clearly much more popular with Republicans:

“I was really encouraged at the number of people who are listening now,” Crane said after meeting with lawmakers in Washington. “The range of Republican senators who are listening now goes beyond the normal three or four suspects.”

He predicted the new bill, which senators expect to introduce in the coming weeks, won’t draw the “virulent opposition” that business lobbyists such as the U.S. Chamber of Commerce raised against the House cap-and-trade proposal.

Related links:

Waxman-Markey and the 77c gasoline increases (FT Energy Source)
A little bit of this… A multi-pronged approach to US climate bill (FT Energy Source)