Climate Change

Daniel Day Lewis just won an Oscar for his performance the embodiment of greed in There Will Be Blood. His character, Daniel Plainview, is a ruthless, scheming, tooth sucking, over-the-top wanna-be oil tycoon who kills to turn the dry hills of California into his personal bank account. He is exactly the kind of greedy oil baron Americans have loved to hate since John D. Rockefeller first landed in the Pennsylvania oil fields in the 1860’s. Everyone who sees the movie leaves the theatre convinced that what'’s wrong with us is greed, and oil is a metaphor for that.

I loved this movie (particularly the way it shows crude oil rocketing out of the ground) but I don’t think greed is the problem— -- it’'s the answer.

American voters and politicians buy into the greed and oil myth, but with a twist: We'’re happiest when we’re condemning the greed and taking the oil. Everyone from Pelosi to Huckabee has trotted out the “"G-word"” when discussing high gas prices. (In 2006, Bush coyly referred to “illegal manipulation or cheating.) But I think the tycoon story is pretty much dead. If we’'re going to deal with the current problems of oil— -- high prices, smog, greenhouse gases, geopolitical problems, traffic jams -- we’re going to need to ditch the oil and embrace the greed.

Congressman Dingell (D-Mich) has released more of the details of his proposed carbon tax (see earlier entry). The package includes:

• $50/ton of carbon from coal, oil and natural gas. The tax would be transitioned in over a 5 year period and the tax would be adjusted for inflation
• 50 cent/gallon increase in the gasoline excise tax, also phased in over 5 years and adjusted for inflation
• Reduced mortgage interest deduction for home over 3,000 square feet, with some exceptions, such as for LEED certified homes or for owners who purchase carbon offsets

Dingell would use the new revenue for:

• Increasing the earned income tax credit
• Highway trust fund
• Social Security and Medicare
• Children's health coverage
• Conservation
• R&D on renewable energy
• Energy assistance for low-income households

Dingell is soliciting comments on the proposal at his website.

What do you think?

This post was originally published at http://21stcenturytaxation.blogspot.com.

Congressman Dingell has certainly caught attention with his call for addressing global warming by increasing the gas tax and denying a home mortgage deduction for homes larger than 3000 square feet (referred to by some in the press as "McMansions"). There are articles in the LA Times (8-30-07) and Washington Post.

Are these crazy ideas?

Not really, although it sounds like some refinement is needed. And Dingell's bill has not yet been introduced so details are still to come. A few observations:

1. Polluter pay approaches to taxes or fees make economic sense. If you cause pollution and don't have to pay for it, the costs of it and its eventual cleanup are borne by everyone. The challenge is in designing the tax or fee to address the polluting behavior. Denying a mortgage interest deduction for a home greater than 3000 square feet isn't targeted and so is problematic:

a. the home may be completely powered with renewable energy that doesn't emit greenhouse gases
b. it may be built tall rather than all on ground level so isn't taking 3000+ square feet of land that could be used for something else, like planting trees
c. the number of occupants of any size house may be another measure of energy use

H.R. 2776 passed by the House on 8/4/07 would provide a variety of incentives for alternative energy, paid for with reduced tax breaks for the oil industry. It also calls for a "carbon audit of the tax code."

Treasury would work with the National Academy of Sciences to conduct a "comprehensive" review of the tax law to "identify the types of and specific tax provisions that have the largest effects on carbon and other greenhouse gas emissions and to estimate the magnitude of those effects." They would have 2 years to complete the report.

Should this provision become law or someone decides to do such a report anyway, what might they find? Here are some possibilities:

1. Allowance of mileage for business travel. Almost all of this is likely done in vehicles that produce carbon emissions. Perhaps deductions should only be allowed for travel in vehicles that use alternative energy sources that produce little or no carbon emissions. Or perhaps travel deductions should be reduced by a specified percentage if done in vehicles that emit CO2.

2. Expenses of air travel. This produces lots of CO2 and nitrous oxide. These expenses could be disallowed or only partially allowed so the tax law doesn't encourage air travel.

3. Favorable provisions for the oil industry such as percentage depletion. These could be eliminated to reduce GHG emissions.

And there are certainly many more.

What do you think?

While global warming has been a problem for quite some time, it is getting heightened attention today, particularly in California which now has a goal to reduce greenhouse gas (GHG) emissions by 25% by 2020. That's ambitious. How can that goal be acheived?

There are a few different techniques for resolving environmental problems.