Sanders/Boxer carbon tax

Official Portrait
Sen. Barbara Boxer

Sens. Bernie Sanders and Barbara Boxer released today a pair of bills meant to increase the price of carbon in the United States.  (Bill summary; carbon tax bill; fuel subsidies bill)

The “Climate Protection Act of 2013” would impose a fee of $20 per ton (carbon or methane equivalent) on coal, petroleum, natural gas and other fossil fuels. In other words, it would impose the fee on upstream producers (coal mines, oil refineries, etc.).  The fee would increase 5.6% per year for 10 years and then remain in place indefinitely.

The Act attempts to equalize treatment of imports and domestic goods.  It charges the fee on all imported fuels.  It also imposes a “carbon equivalency fee” on all carbon-intensive goods.  This fee is set at the cost that domestic producers of comparable goods incur as a result of the carbon fee or other carbon equivalency fees.  This is meant to prevent cheaper, untaxed  imported carbon-intensive goods from flooding the domestic market.  If the importing country has a similar carbon fee, then those imports would not be “double-taxed.”

It would be interesting to see what the World Trade Organization thinks of the carbon equivalency import tariff. I am definitely not an expert, however, on international trade tariffs, so if anyone has thoughts on this, please feel free to share in the comments.

According to the Congressional Budget Office, this carbon tax would reach 85% of U.S. greenhouse gas emissions by covering 2869 fossil fuel companies. It would raise $1.2 trillion over 10 years and reduce emissions by approximately 20% from 2005 levels by 2025.  Remember, however, that a carbon tax does not guarantee any level of emission reduction.

Revenues from the carbon tax would go to several areas.  Three-fifths would be given back to U.S. residents in the form of monthly rebates.  Weatherizing homes, ARPA-E energy research, renewables investment financing, energy efficiency and worker training are the other major projects to be funded by this bill.

Sen. Sanders also introduced a companion bill, the “Sustainable Energy Act.” This bill basically walks through the U.S. Code, eliminating a variety of fossil fuel subsidies.  The bill itself is an interesting look at the breadth of fossil fuel subsidies in the U.S.  I would guess that such a bill has almost no chance of passage, but parts of it could be used in a broader tax reform agreement.

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Reader Comments

10 Replies to “Sanders/Boxer carbon tax”

  1. Though I have not looked at the specific language creating the “carbon equivalency fee” and a lot would depend on its implementation, the WTO provides space for such fees on imported goods. And, this type of fee/tax is more likely to survive a challenge than the requiring importers to purchase allowances under a cap and trade regime. Allowances don’t fit neatly into the WTO’s bifurcated world of “direct” and “indirect” taxes. There is certainly more to say than I can explain below, but the basic principles and framework are here.

    GATT Article III set’s out the cornerstone principle of National Treatment (NT), which is the most likely source of a challenge here. Paragraph I sets out the general rule: “The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.” Basically, the rule is treat everybody the same and no protectionism. The “Ad Note” to Article III reads “[a]ny internal tax or other internal charge, or any law, regulation or requirements of the kind referred to in paragraph 1 which applies to an imported product and to the like domestic product and is collected or enforced in the case of the imported product at the time or point of importation, is nevertheless to be regarded as an internal tax or other internal charge, or a law, regulation or requirement…” Paragraph 2 provides the NT rule specific to taxation (paragraph 4 for regulations): “The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products.” So, if the tax is non-discriminatory and applies equally to domestically produced and imported goods, then it stands a good chance of surviving challenge (w/out having to resort to the enviro exceptions of Article XX).

  2. Though I have not looked at the specific language creating the “carbon equivalency fee” and a lot would depend on its implementation, the WTO provides space for such fees on imported goods. And, this type of fee/tax is more likely to survive a challenge than the requiring importers to purchase allowances under a cap and trade regime. Allowances don’t fit neatly into the WTO’s bifurcated world of “direct” and “indirect” taxes. There is certainly more to say than I can explain below, but the basic principles and framework are here.

    GATT Article III set’s out the cornerstone principle of National Treatment (NT), which is the most likely source of a challenge here. Paragraph I sets out the general rule: “The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.” Basically, the rule is treat everybody the same and no protectionism. The “Ad Note” to Article III reads “[a]ny internal tax or other internal charge, or any law, regulation or requirements of the kind referred to in paragraph 1 which applies to an imported product and to the like domestic product and is collected or enforced in the case of the imported product at the time or point of importation, is nevertheless to be regarded as an internal tax or other internal charge, or a law, regulation or requirement…” Paragraph 2 provides the NT rule specific to taxation (paragraph 4 for regulations): “The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products.” So, if the tax is non-discriminatory and applies equally to domestically produced and imported goods, then it stands a good chance of surviving challenge (w/out having to resort to the enviro exceptions of Article XX).

  3. To whom it may concern;
    We will never submit to a carbon tax of any kind whatsoever. A carbon tax, like carbon credits, is a hoax because it has no climate mitigation benefit. There is no solid proof nor reasonable evidence that a carbon tax would have any measurable effect in reducing global atmospheric temperature, and therefore such a tax has zero climate mitigation value. This is why and how any carbon tax proposal shall be defeated both now and forever. Put that in your pipe and smoke it.

  4. To whom it may concern;
    We will never submit to a carbon tax of any kind whatsoever. A carbon tax, like carbon credits, is a hoax because it has no climate mitigation benefit. There is no solid proof nor reasonable evidence that a carbon tax would have any measurable effect in reducing global atmospheric temperature, and therefore such a tax has zero climate mitigation value. This is why and how any carbon tax proposal shall be defeated both now and forever. Put that in your pipe and smoke it.

  5. Finally, folks on Capitol hill are beginning to think seriously about a rational climate policy. It would be much better if the tax were rebated 100 percent, both to reduce the potential for rent-seeking and the regressive effects of the tax.

    Now if only they’d reconsider our approach to funding R&D too . . .

  6. Finally, folks on Capitol hill are beginning to think seriously about a rational climate policy. It would be much better if the tax were rebated 100 percent, both to reduce the potential for rent-seeking and the regressive effects of the tax.

    Now if only they’d reconsider our approach to funding R&D too . . .

  7. Jesse Colorado,

    I appreciate your analysis but it is incomplete. GATT/WTO rules generally do not uphold transborder charges that are based on the manner in which a product is produced. But the carbon tax, as proposed in the Boxer-Sanders bill, does just that. For this and other reasons, it is not at all clear to me that the proposed carbon tax will withstand a GATT/WTO or NAFTA challenge.

    If the Obama administration was serious about addressing climate change its representatives would propose simpler product standards that treat domestic production and imports equally, and which do not breach world trade rules. For example, a regulation could stipulate that any entity that sells any form of energy (solid fuels, liquid fuels or electricity) must comply with fossil carbon content limits per petajoule-equivalent of energy sold. (This regulation could be similar to rules that limit sulfur content per litre of diesel sold.) The suppliers could comply on a sales portfolio average basis. Such a regulation would bring alternative and renewable energy into the core business description of the major fossil fuel suppliers.

    The proposed carbon tax does not look like it is intended to reduce GHGs relative to the Business as Usual forecast. It is about generating new government revenues, more than 50% are to be collected from foreign suppliers of carbon-intensive goods and services. This realitty ensures that an CTax that might be implemented will be quickly challenged, and the challenge is likely to be successful.

    Our governments did not tax lead levels down in gasoline, or sulfur levels down in diesel. The tax is a bad idea. We know how to do this. Product standards that limit fossil carebon content per unit of energy sold over time, leaving it to the market to compete on price and through innovation to deliver new energy services to consumers.

  8. Jesse Colorado,

    I appreciate your analysis but it is incomplete. GATT/WTO rules generally do not uphold transborder charges that are based on the manner in which a product is produced. But the carbon tax, as proposed in the Boxer-Sanders bill, does just that. For this and other reasons, it is not at all clear to me that the proposed carbon tax will withstand a GATT/WTO or NAFTA challenge.

    If the Obama administration was serious about addressing climate change its representatives would propose simpler product standards that treat domestic production and imports equally, and which do not breach world trade rules. For example, a regulation could stipulate that any entity that sells any form of energy (solid fuels, liquid fuels or electricity) must comply with fossil carbon content limits per petajoule-equivalent of energy sold. (This regulation could be similar to rules that limit sulfur content per litre of diesel sold.) The suppliers could comply on a sales portfolio average basis. Such a regulation would bring alternative and renewable energy into the core business description of the major fossil fuel suppliers.

    The proposed carbon tax does not look like it is intended to reduce GHGs relative to the Business as Usual forecast. It is about generating new government revenues, more than 50% are to be collected from foreign suppliers of carbon-intensive goods and services. This realitty ensures that an CTax that might be implemented will be quickly challenged, and the challenge is likely to be successful.

    Our governments did not tax lead levels down in gasoline, or sulfur levels down in diesel. The tax is a bad idea. We know how to do this. Product standards that limit fossil carebon content per unit of energy sold over time, leaving it to the market to compete on price and through innovation to deliver new energy services to consumers.

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