HR 763 is a bill introduced in the House of Representatives in January 2019, with the title Energy Innovation and Carbon Dividend Act (EICDA). It is nearly identical to the first EICDA, HR 7173 that was introduced in November 2018.
The proposal below is to fill what I believe is a serious omission in the bill. It is an updated version of a proposal published here in late 2018. Notes below the proposal are responses to comments made by readers in 2018 and some later thoughts.
Bill Allen 05-26-20
Carbon Fee and Dividend and HR 763
The Citizens’ Climate Lobby (CCL) advocates for a system of carbon fee and dividend (CFD) in which a fee is imposed on each fossil fuel in proportion to the CO2 emitted when the fuel is burned. (Note 6) The fee will start low at $15 per metric ton of CO2 in Year 1 of the program and then rise by $10 per ton in each year thereafter for about 30 years. Fee revenue will be returned to the private sector via dividends to households. HR 763 incorporates this proposal. View the whole bill here.
The goal of CFD is to reduce the emission of CO2 and to slow global warming and the associated problems of climate change, sea level rise, and ocean acidification. The strategy is to raise fossil fuel prices and incentivize consumers to conserve energy and to transition to non-fossil energies—and thereby reduce our national carbon footprint— and also to encourage the business community to develop and market goods and services that will help consumers do this. Members of the business community are also consumers in many of their activities.
The fee schedule in HR 763 seems reasonable with what we know today. But no one really knows if the fee schedule will produce the desired results. The bill makes no provision for regular review of results and action to change the schedule, if experience and new information call for this.
The bill calls for a fee increase of $15 in a year following a year in which CO2 emissions did not decline to the target level for the year. There is no provision for a review to determine if this is the right cure for the problem. (See bill pages 9-10)
The bill directs the Secretary of the Dept of Energy (DOE) in ten years to authorize the National Academy of Sciences (NAS) to review results and write a report. The report will include findings and recommendations, be open to public comment, and be submitted to Congress. (See bill pages 36-38)
I see four critical flaws:
- Ten years is too long to wait for a review of the fee schedule.
- An automatic increase in the fee after a failure to meet a reduction target, without a determination of cause, may make the problem worse. (Note 5)
- NAS is a highly respected institution, but recommendations re the fee schedule should come from the people who are administering the program and are responsible for the results. They may, of course, get guidance from NAS and others.
- What Congress should do after receiving the NAS report is not spelled out.
I believe that most members of Congress (MOCs) will not be willing to commit to a long term program of this kind without provision for regular reviews and adjustments along the way, that they may review and approve. And their constituents will not want them to. I call these “real time adjustments” and describe one way to make them below.
Carbon Fee Schedule: Real Time Adjustments
In Brief
Every four or six years convene a panel of experts who will review the CFD program and write a report, which will include a recommendation to raise the fee schedule, to lower it, or to leave it unchanged. If the recommendation is to change the schedule, incorporate it in legislation that will be acted on by each house of Congress with a straight up or down vote with no amendments.
The Panel
The panel’s recommendations will be highly political—in the good sense of that word, not partisan. Members of the panel should be drawn from the national Administration, so that it may lead and take ownership of the issue.
CFD will reduce fossil fuel use. It and global warming will have many environmental, economic, and social consequences, domestic and global. The panel should include people with diverse perspectives and knowledge sets. For example, it should include representatives of the EPA and the Departments of Defense, Energy, Labor, State, and Treasury. (Note 1)
Timing
It will be appropriate for action on a carbon fee schedule to be debated in an election campaign. But the actual vote should be after the “silly season” and when new MOCs will have time to come up to speed. Therefore, CFD reviews should be scheduled to produce Congressional action in odd-numbered, non-election years. (Note 4)
A long term carbon fee schedule provides the basis for planning, and the more certainty in the schedule the better. The intervals between CFD reviews should be
- long enough to provide sufficient certainty, but
- not so long that problems become serious or opportunities are missed, and
- long enough for prior actions to take hold and results evaluated, but
- not so long that MOCs are unwilling to take the plunge and vote for HR 763 or something like it.
My gut says that the panel should conduct its first review and make a proposal that will be voted on by Congress in Year 4 or 5 of the program, whichever is the odd year, and that subsequent reviews be made every four or six years.
For reasons like those in cases below, there may be times when the panel will want to conduct a follow-up review in less than the regular number of years. Write the law to allow the panel to include this provision in its recommendation to Congress and be approved in the same up or down vote.
Review by Panel
In conducting its review the panel may invite experts from inside or outside of the government (including the NAS) to write reports or to testify in open or closed hearings, and it may deliberate in open or closed meetings. It will write its report with its recommendation, approve it by an affirmative vote of a simple majority, and submit it to Congress. (Note 3)
Progress to reduce our national carbon footprint will be most rapid, I believe, if the economy is healthy and the public enthusiastically supports and participates in the effort. The optimum fee schedule will be one that drives this reduction, while sustaining and reinforcing these conditions.
The carbon fee schedule proposed today by CCL is a good place to start, but it may not be optimum. After several years of results the panel may decide that an overall adjustment up or down is appropriate. Fee schedule stability is important. The panel should be reluctant to change the schedule, and should do this only when there is good justification.
Review by Congress
Congress may use regular procedures and submit the panel’s report with recommendation to one or more committees for their reviews. These committees may hold hearings and call witnesses and then report their recommendations.
At the end of this process, and if the panel’s recommendation is to change the fee schedule, each house will call for a straight up or down vote on the panel’s recommendation without amendments. With an affirmative vote of a simple majority in each house, the carbon fee schedule will be revised in accord with the recommendation. Without these two affirmative votes, the schedule will remain unchanged. (Note 2)
Some Possibilities
Case 1: Economic down-turns over the next 30 years are inevitable. (We face one now.) Suppose a review is made in the first or second year of a deep one and the panel determines that the carbon fee is a significant drag on the economy. It would be appropriate to reduce the fee schedule for a few years and conduct a new review at the end of this period.
Case 2: Suppose the economy is going strong and the panel finds that rising fossil fuel prices are being absorbed easily and not producing much incentive to reduce fuel use. It would be appropriate to raise fees for a limited period and schedule a new review at the end of it. The panel might then decide that the higher schedule of fees should be made permanent.
Case 3: Suppose that
- the opponents of nuclear energy learn that the risks of CO2 emitted from fossil fuel in the next few decades are greater than that of the radiation emitted from nuclear waste in the next millennium,
- they withdraw their opposition to use of nuclear energy,
- there is rebirth and rapid growth of nuclear power for electricity generation using smaller, safer, and lower cost designs, and
- these are available and wholly adequate to replace natural gas powered generators.
It would be appropriate to raise the carbon fee schedule and drive down use of natural gas more rapidly, so long as this does not adversely affect other parts of the economy.
Case 4: Suppose that
- evidence mounts that we must act more aggressively to phase out fossil fuels,
- this is judged to be feasible, and
- the public supports this action.
It would be appropriate for the panel to recommend a higher carbon fee schedule.
Case 5: CCL commissioned a report called the Household Impacts Study (HIS) in 2016. It projects the impacts for five income quintiles of households in Year 1 of the program. In this year the average households in the lower three quintiles receive more in dividends than the amounts of the price increases for the goods and services they purchase. The study does not extend to later years.
Suppose that the panel’s report in a later year shows that lower income households are faring much worse than the HIS projected and that they need help. A change in fee schedule alone would not solve the problem. Other action by Congress would be required. The report could stimulate Congressional action.
Case 6: Suppose a progressive administration and Congress adopt and implement EICDA with the carbon fee adjustment mechanism described here, and that a subsequent administration, that opposes action to slow global warming, tries to roll back the fee schedule or eliminate it entirely. It would not be able to do this if progressives retain control of one house of Congress.
Bill Allen 12-05-18 new 05-26-20 revised Case 6 added 08-24-20
Note 1: The departments to be represented on the panel will be specified in the bill. The individuals who will represent the departments will be appointed by the heads of the departments. (01-09-19)
Note 2: The process recommended here follows that for Base Realignment and Closure (BRAC). It is used to make military installations more efficient and sometimes close them. A commission makes a recommendation and Congress votes it up or down with no amendments. (01-09-19)
Note 3: The panel may and should use analyses and reports already available, to the extent that they deal with the outcomes being examined by the panel. (01-09-19)
Note 4: “Silly season” is a term TV journalist David Brinkley used to use for political campaigns. Most observers of Congress agree that odd-numbered non-campaign years are more productive than even-numbered campaign years. (01-09-19)
Note 5: There is evidence that whipping a horse near the end of a race will not increase its speed, but may trigger an accident. (05-28-20)
Note 6: The bill also consideres other greenhouse gases, such as methane, and converts them to CO2 equivalents. (See pages 7-8) For simplicity, I write only about CO2 here. (05-30-20)