Making Fossil Fuels Pay for Their Damage

A carbon tax doesn’t seem to be in the cards. Maybe a clean-up tax would fare better.

Production and combustion of fossil fuels imposes enormous costs on society, which the industry doesn’t pay for.  I want to talk about some options for using the tax system to change that.  One option, a tax on carbon dioxide emissions, gets the most attention but seems politically impossible.  The closest we’ve ever come to a carbon tax is a limited fee on methane emissions under the new IRA law. A more promising alternative might be a clean-up tax on the fossil fuel industry.

If a carbon tax were politically feasible, there would be a lot to be said in its favor. Economists like carbon taxes better than regulations, and environmental justice advocates like them better than cap and trade.  A carbon tax could cover the economy without the need for scores of regulations tailored to each industry. It wouldn’t require placing bets on what zero carbon technologies will win out.  It would provide an incentive for cutting carbon emissions, with the byproduct of cutting air pollution everywhere. Unlike emission trading system, they don’t require designing and operating new markets. It could be designed to avoid regressive impacts on the poor.

The problem is that a carbon tax seems out of the question politically. Americans just don’t buy the idea.  Promises to return the money to the public (“tax and dividend”) or use it to offset other taxes don’t seem to be effective in changing people’s minds.  Maybe people just don’t trust those promises.  It’s possible this anti-tax reflex will abate, but politicians don’t seem to think that’s likely.

If we can’t make the fossil fuel industry pay for all its harm to the climate, maybe we can at least make it pay for some of the other harm it does to the environment. Just as chemical production led to the creation of scores of hazardous waste sites, fossil fuel production has left its own bitter legacy. Oil and gas production has left thousands of uncapped, leaking wells. Abandoned coal mines leach pollutants into surface and ground water, while also leaking methane into the air. State law and federal bonding requirements have not proved equal to the task of clean up.

The coal mine part of the problem was addressed in part by a 1977 law, which imposes a fee on coal production to help pay for clean-ups. But the tax is hopelessly inadequate, merely pennies per ton of coal. It produces only about $700 million per year. Yet Congress had to appropriate $11 billion for cleaning up old mines in the Infrastructure bill, and there’s no reason to think that will be enough to solve the problem.  The industry should be paying a much higher share of those costs.

There’s also a tax on oil to pay for environmental harm — but it’s limited to oil spills.  The IRA adds a small tax on oil to help support Superfund cleanups. Neither takes does anything to pay for abandoned wells. The infrastructure bill allocated $4 billion to pay for this problem. That won’t be enough, not by an order of magnitude. And besides, why should taxpayers rather than the industry cover the cost?  To do this, we would need a new tax on oil and gas production to pay for capping abandoned wells.  Considering the amount of money they’re making right now, this seems only fair.

Yes, I realize that Joe Manchin won’t vote for any of this, making it a nonstarter this year. And the GOP is likely to be able to block such a bill until the 2024 elections. But depending on how things go in 2024, it might be well worth considering.

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Reader Comments

6 Replies to “Making Fossil Fuels Pay for Their Damage”

  1. Dan, considering that this is 2022, and the first Earth Day was in 1970, your 2024 Hope and Prayer type of conclusion to this post is most discouraging because we can no longer wait for any more years to go by for something that history has proven most likely will not happen by politicians (especially with politicians who follow Trump) in time to save us from increasingly out of control climate change disasters that will make the future for our descendants far, far more unacceptable than our climate change challenged lives already are today.

    Again, the Durants concluded civilizations die if political or intellectual leaders cannot meet challenges like climate change that we are not meeting today, plus Eisenhower said in his Farewell Address “The prospect of domination of the nation’s scholars by Federal employment, project allocations, and the power of money is ever present and is gravely to be regarded” and Hofstadter’s Theory of Academic Purity documents the fact of life that academics really cannot figure out how to communicate with the public even to save us from the death of our civilization.

    Anyway, I still Hope and Pray that UC academics like you can make the right things happen for the sake of my grandchildren’s generation and all future generations, so Please Try Harder, Much, Much, Much Harder.

    1. Dan: Something we must educate and practice much, much more seriously than ever before in this new world of declining resources:

      Explainer: the greater good and why it matters more than ever

      Plato imagined an ideal state in which private goods and nuclear families would be relinquished for the sake of the greater good of a harmonious society. Aristotle defined it in terms of a communally shared happiness, whose key constituents were wisdom, virtue and pleasure.

  2. The oil industry has always been ahead of the curve on proposed environmental legislation. Excluded oil spills from CERCLA, “sold” USTs to gas station owners for $1 before the UST regulations went into effect (“do we have a deal for you”!), etc.

    However, the problem with mining and gas is not so much the low extraction tax but failure of states to ensure adequate reclamation/closure funds for abandoned oil wells and mines.

  3. You state:

    “The problem is that a carbon tax seems out of the question politically. Americans just don’t buy the idea. Promises to return the money to the public (“tax and dividend”) or use it to offset other taxes don’t seem to be effective in changing people’s minds.”

    We are in a brief period when “the carbon tax is dead” will fill a good bit of pundit space conveniently ignoring polls (Yale), the growing support around the world, the success in Canada and putting in place a fee and dividend of 90% of revenues in the face of conservative and oil industry opposition etc. The announcement of Senator Whitehouse at COP 26 that he had the support of 49 senators for the Senate Finance Committee carbon tax bill gets little attention by those with regulatory and subsidy inclinations. Most important is the growing bipartisan support for the third leg of sound carbon tax policy: a border carbon adjustment.

    Your statement that a tax and dividend don’t seem to change people’s minds is unsupported. The problem is not the “people” but the liberal/progressive politicians who want to spend the revenues (see Washington State experience with I 732). If you have Mildenberger’s recent research (to head off the fee and dividend policy), it is fundamentally flawed, comparing apples and oranges.

    I hope you will examine closely the ultimate need for a policy of a carbon fee for comprehensive impact, a dividend for equity and a border carbon adjustment to maintain U.S. competitiveness and to incentivize non-pricing countries to join in.

  4. Dan, how is the new leadership and structure implementation of your initiative coming along, to solve the problems you described?:

    “Where Berkeley falls short, in my view, is that there’s little leadership from the top and little structure at the campus level to organize climate efforts.”

    Will you be able to save us from the extreme heat threats in the following Grist Report, by protecting the environment for our newest generations?:

    “The results will be dire”: Extreme heat to impact a quarter of US by midcentury”

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About Dan

Dan Farber has written and taught on environmental and constitutional law as well as about contracts, jurisprudence and legislation. Currently at Berkeley Law, he has al…

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