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Climate Hustle

Climate and energy are becoming focal points in state political races

Posted on 28 September 2017 by John Abraham

As soon as Donald Trump won the presidential election, people in the US and around the world knew it was terrible news for the environment. Not wanting to believe that he would try to follow through on our worst fears, we held out hope

Those hopes for a sane US federal government were misplaced. But they are replaced by a new hope – an emerging climate leadership at the state level and a continuation of economic forces that favor clean/renewable energy over dirty fossil fuels. In fact, it appears that some states are relishing the national and international leadership roles that they have undertaken. Support for sensible climate and energy policies is now a topic to run on in elections.

This change has manifested itself in American politics. One such plan stems from my home state, but it exemplifies work in other regions. I live in the state of Minnesota where we are gearing up for a gubernatorial election, which is where this plan comes from.

My state is well known as somewhat progressive, both socially and economically. The progressive policies resulted in a very strong 2007 renewable energy standard, which helped to reduce carbon pollution and create 15,000 jobs. 

As an aside, it is really painful for me to have to describe sane energy policies as “progressive.” The fact that conservatives in the US have largely attacked clean energy and the science of climate change is deeply disappointing, but it is a reality nonetheless. 

Consequently, it is not surprising that one of the candidates for Governor, Rebecca Otto, has outlined what may become the trend among other states. She is not yet elected, but her clean energy proposal has many people talking. 

The proposal presents a two-part focus on clean energy-based economic development and climate-change mitigation. Basically, in my state (and in many other states), the clean energy economy is a major contributor to the creation of new, high-paying jobs. Here wind and solar power are king. If you drive through the farm fields of southern Minnesota, you will see wind farms that stretch as far as the eye can see. With solar, there are some large-scale solar farms but the real excitement is the small-scale commercial and residential solar generation that is complementing the large-scale wind turbines.

From an energy production standpoint, this makes sense. A diversified renewable energy portfolio is one that that includes large wind (which provides intermittent power) along with solar that also is intermittent but often generates power when the wind isn’t blowing (and vice versa). Also, the small-scale nature of solar makes it more reliable, less subject to local weather systems.

So the proposed clean energy plan would leverage the fast-growing and high-wage industries in energy. It also brings to bear perhaps the best financing mechanism to spur clean energy growth (the so-called “fee and dividend”). The way fee and dividend works is a fee is charged to companies that produce greenhouse gas emissions. No longer would society be subsidizing the costs from carbon pollution

The revenue from the fees would be returned to citizens so that it becomes a revenue-neutral tool. There is no net increase in cost or increase in income. What the fee and dividend method does, however, is reward people and companies for good choices. If you make choices that reduce your greenhouse gas contributions, you end up with extra money at the end of the year. On the other hand, if you make poor choices, you end up with less money. I think of this as a tax that advantages the smart over the, well, less smart.

What is also exciting about the plan is that a portion of the fees would go to fund clean-energy technology and tax credits. For instance, residents would get funds to offset the costs of energy purchases. So when residents insulate their house, buy solar panels, or install high-efficiency heat pumps, part of that cost is covered.

It will be interesting to see if similar plans emerge nationally. Most importantly, it will be interesting to see whether the climate change and energy topic becomes something that political candidates actively run on. In the past, this issue has been low on voter priorities lists. But, if proposing bold new plans can get votes, that may change – and quickly.

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Comments 1 to 50 out of 109:

  1. Fee and dividend is an absolute winner for me. It solves a whole range of problems, including getting right at the source of the problem, various practical issues, being fair to consumers, overcoming various political / ideological objections. The fact that just one idea solves so many different problems suggests the idea is inherently the right one, and certainly practical in real world terms. In contrast cap and trade seems to have some problems applied in the real world, and a patchy record where it has been used.

    The fee will possibly push up petrol prices (although this is not inevitable), and it will be a good incentive to buy less petrol. However if the dividend is purely cash in hand it will cancel this out, so it's important the dividend is largely some sort of voucher for buying home insulation, electric cars, and perhaps home appliances to try to at least minimise this leakage effect, and push things in the best direction. 

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  2. I also support the fee and dividend system with an escalating fee on fossil fuels at the source and a direct divident to energy consumers. This allows the energy sector to plan for the time when fossil fuels become non-competitive and gives consumers the resources they need to support alternatives.

    I live in southern British Columbia, Canada and have relatives just across the border in Washington State. The amount of wildfires here is unprecedented, BC still has massive wildfires burning, one over 1,000,000 acres, overall more than 2.5 million acres are or have burned here this season. Oregon, California, Washington State and Montana are all also experiencing the same catastrophic impacts due to the warmer drier summers already this will become an even more acute situation as the years progress. This is clearly a global phenomena as Australia, Siberis and other places are also experiencing record widlfires along with many other impacts globally.

    I also have family in Texas and know people in Florida who were impacted by some of the worst hurricanes ever recorded, considering that these massive storm systems gain their strength directly from warm ocean water, this is also something that southern US states will be combating for decades to come. Any sound policy on the state level must factor in the costs of not mitigating climate change impacts which are already significant. Harvey is estimated to have done alomst $200 billion in damage in Texas and Irma caused at least $10 billion in Florida and other nearby states. Not to mention the deaths which are in the hundreds from all the hurricanes across the Caribbean, Central America and US south this year.

    While it is unfortunate that the current US president has choosen to ignore the glaring reality on this in favor of a position that is clearly unsustainable and unsupported by evidence, it is good to see that other levels of US government are stepping up.

    In the end I think that real change on this issue is going to come from the ground up, citizens demanding that their elected officials implement policies based on the best evidence not the worst.

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  3. I would caution against hyperbole.  There have been comparable or worse hurricanes, perhaps not recently.  The blackout-causing storm in South Australia a year ago was listed as "worst in 54 years", but soon came to be touted as "worst ever... sign that the sky is falling".

    I absolutely accept that climate damage is happening due to greenhouse gases and the oceans are being acidified and warmed and that these things herald trouble ahead, but if the current events are not really the worst ever, then suggesting that they are only invites swift rejoinders from those who aren't seeing the big picture.

    Hence, my personal concern that "renewables" are less important than CO2e emission reduction.  The discussion should centre on the way that reduced or zero emissions globally can be achieved affordably, rather than as at present rich countries in Europe, North America and Australia puffing out their chests with pride about how much money they have blown through in order to convert maybe 5% of their total emissions to so-called renewable electricity.

    What matters... the only thing that matters... is how soon the remaining sources are going to be stopped, including in the countries that are money poor and energy poor.  That will never be achieved by only WWS projects and mountains of money and progress toward this goal cannot be measured in terms of "X thousand notional households".

    Put bluntly, CO2 emissions will not stop because we continue to license or to tax emitters.  They must be cut to zero, avoided, banned and  outlawed to achieve the goal. 

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  4. Regarding the wildfires in Canada and the hurricanes mentioned, why not create areas of two seabreeze convergence (lake breeze convergence) near lakes, on the sea where hurricanes form, etc, to increase rainfall and cause more evaporation and rain to cool off Earth and reduce fires. https://www.sciencedaily.com/releases/2011/09/110914161729.htm explains that evaporation increases low level clouds which reflect solar energy back to space. In fact low level clouds in low latitudes are comparatively warm and radiate heat back to space better than other clouds. Some scientists used to believe that more evaporation could even warm Earth because water vapour is a greenhouse gas. When they fed extra evaporation into climate models it showed that evaporation cools Earth. Florida and other narrow land masses have sea breezes from both sides and there is an area of convergence where high pressure and rising air result where the two breezes meet. This is associated with high rainfall in areas such as Florida. One could heat areas by using biochar? The dark biochar soil will heat up more than the surrounding land and air above it will heat up and rise, increasing chances of convectional rain, especially because areas of convergence of sea breezes could be induced in the certain areas. One could also use solar air heaters instead of biochar. The sea might not be as hot as the sea round Florida, but areas on convergence also occur in New Zealand as shown in http://blog.metservice.com/SeaBreezes See also http://climate.ncsu.edu/edu/k12/.liftingmechanisms

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  5. #3 Singleton Engineer,

    You said, "They (CO2 emissions) must be cut to zero, avoided, banned and outlawed to achieve the goal."

    This is not precisely true. If this recently published study in Nature is to be believed, then AGW will increase for quite some time even at zero emissions from us, simply due to natural feedbacks we already triggered.

    Evolution of global temperature over the past two million years

    Earth 'Locked Into' Temperatures Not Seen in 2 Million Years

    Of course we really are not "locked into" that scenario if we also effectly start sequestering enough carbon to counter past emissions and start drawdown.

    CCS cant do it.

    BeCCS can't do it.

    But BCCS can most certainly be scaled up enough to at least offset enough if there are significant cuts in emissions.

    Can we reverse global warming?

    Executive summary:

    Yes we can reverse Global Warming.

    It does not require huge tax increases or expensive untested risky technologies. It does not even require 100% elimination of all fossil fuel use.

    It will require a three pronged approach worldwide.

    1. Reduce fossil fuel use by replacing energy needs with as many feasible renewables as current technology allows.
    2. Change Agricultural methods to high yielding regenerative models of production made possible by recent biological & agricultural science advancements.
    3. Large scale ecosystem recovery projects similar to the Loess Plateau project, National Parks like Yellowstone etc. where appropriate and applicable.

    What matters is balancing emissions against sequestration until we have a drawdown scenario. BCCS is potentially scale-able to be big enough to do that with significant cuts on the emissions side, but not necessarily needing to be 100%.

    Trying to be perfect is where the huge costs and technical difficulties come in. If all you need to do is balance plus a small amount more negative, it can actually be done at a net profit. Meaning no net cost at all. And even better it is doable right now without the need of unknown future technical advances.

    In fact eliminating billions and billions of dollars of subsidies for unsustainable energy and ag systems would save us taxparers so much and probably allow the free market to do all the heavy lifting straight away.

    Just a slightly different POV for your consideration.

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  6. Swayseeker @4

    With respect these comments have absolutely nothing to do with fee and dividend, literally nothing at all.

    "One could heat areas by using biochar? The dark biochar soil will heat up more than the surrounding land and air above it will heat up and rise, increasing chances of convectional rain, especially because areas of convergence of sea breezes could be induced in the certain areas. One could also use solar air heaters instead of biochar."

    This is just crazy stuff. Dark biochar soil has plants growing in it surely? And even if the biochar is exposed, it would not make that much difference, and would just be a waste of crop lands and would erode.

    What is a  solar air heater?

    "When they fed extra evaporation into climate models it showed that evaporation cools Earth."

    What study shows this nonsense?

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  7. Singleton Engineer @3, I agree cutting emissions is the main thing, but doing this will promote renewable energy anyway.  The beauty of fee and dividend is it pushes money into renewable energy. This process would be the same in rich and poor countries, just rates of construction of renewable energy are clearly very different. 

    There's also value psychologically in promoting renewable energy in the public climate discussions, as its a positive solutions orientated sort of thing that takes peoples minds off endless cuts and the associated difficulties of making cuts.

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  8. Red Baron @ 5

    Maybe add item 4 :Resolve difficulty of cutting aviation and industrial emissions, by using agricultural, soil, and forestry related carbon sinks as offsets.

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  9. @nigelj,

     It is still all on the supply side of the carbon cycle, even the so called "cuts" are nothing more than a reduction of the increases of CO2. No where does that sort of tax and dividend fee actually promote sequestration and drawdown of CO2, revenue neutral or not. That type of plan is analogous to just shuffling the deck chairs on the Titanic. No one is patching the hole on the sinking ship.

    Now right here in Oklahoma we have the carbon program that actually has a chance to work. It is a pilot program and still just voluntary. BUT it is functional and it does actually have a chance to literally verifiably reduce atmospheric CO2 if scaled up. Unlike the tax and dividend scheme talked about in the OP. This is because the "dividend" goes only to VERIFIABLE increases in soil carbon. So we have a way to actually remove vast amounts of CO2 and control and verify the payments of the dividends to ONLY those farmers actually sequestering the carbon. It never can become an entitlement, it is paying carbon farmers for farming carbon! And the payments reflect the "crop" they are growing, fertile high carbon soil.

    Carbon Sequestration Certification Program

     

    It is voluntary now but should such a time come when federal plans are instituted it could easily be funded too.

    Now personally I am trying to raise the money to become a demonstration farm for the project. It will cost me about 14 k to do that including the proof of concept I need to run. 

    So far I have raised 10 dollars :P oops. Not much love out there on gofundme. And for some reason I did not get my federal grant. LOLZ But the principles are the same whether it is me personally doing the demonstrations or someone else.

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  10. Carbon fee and dividend, I think, forms the basis of effective public policy, but if that scheme is undertaken only by 1st World democracies, it won't do much to reduce emissions.  Since 2nd 3rd and 4th World countries, together, (whom are administratively very deficient in managing any public program), can torpedo this program, it's probably not going to be a big player in fostering emissions reductions or building renewables.  In the background, sequestration schemes large enough to really count either can't be done and made permanent (e.g. carbon capture) or done so slowly (e.g. soils regenerative) that significant positive effects can't be detected for generations.  It makes no sense to burn fossil fuels and then go 'round trying to scoop out the 0.04% of CO2 that's mixed into the atmosphere...we should just not burn fossil fuels in the first place.  However, the complete elimination of Animal Agriculture could drop, rapidly,  CO2 emissions by about 50%/year which would give us a good deal of breathing room while we turn down the CO2 portion of the greenhouse gases that human activity seems addicted to liberating.

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  11. @nigelj #8,

    Yes indeed. That's exactly the sort of thing I am talking about. Battery powered cars running off electricity from solar and wind is very doable. A semitruck, cargo ship, or jet plane run on renewable is not really technilogically feasible right now. We I guess in a pinch we could try and go back to three mast sailing ships, but certainly no where near the same capacity in tons of cargo. Maybe even nuclear powered cargo ships? Still a potential new set of problems. But if we have a sequestration sink that is verifiable like the LCP in agriculture BCCS systems, then we don't need eliminate fossil fuels 100%. Just offset what we don't have the technology to fix with BCCS for a drawdown scenario.

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  12. @10 swampfoxh,

    You are wrong about animal agriculture, but this is the wrong thread to discuss it. Please go to the proper thread. I will be happy to discuss it there with you. Maybe a mod can find a link.

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  13. Red Baron @9, yes the fee and dividend scheme as presented  is not perfect in its details. I pointed out one potential flaw, but didn't have time to think about other flaws.

    But fee and dividend is clearly a step in the right direction, and I believe right in principle, and needed some positive feedback. Its also not just a supply side concept, because of the dividend which can be applied flexibly to a whole range of things. This is what makes the idea powerful because it regulates emissions at source, (the best thing to do) and also subsidises a range of things and these can be anything we want. No other scheme does both within one scheme, and I think you must do both. 

    Perhaps they could implement fee and dividend scheme so the dividend does go partly to farmers who farm to increase soil sequestration. I can't see why it couldn't.

    And  subsidies have done enormous things to get renewable energy off the ground and could now be phased down slowly. The main thing is to subsidise car recharging networks to get this over the line. The point is you dont need a whole lot of give away subsidies, its just a known range of things that benefit. As you say if theye are targeted at farmers who do things a certin way and get results, they are not an entitlement of freebie.

    Cap and trade in theory as in a text book resolves every possible issue even in theory encouraging soil sequestration indirectly, but comes up against a whole lot of real world obstacles, policial skullduggery, and time frame problems, that make it a dubious idea. 

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  14. Swamp fox, there has now been huge success with feeding cows charcoal, 200to 400 mG/day, the charcoal helps the digestion, reduces infection and is turned into Biochar by the cow, then pooped out and buried by Dung Beetles, leading to healthier cows with higher stocking rates, and rebuilding the impoverished soil, - those farmers using that technique should get the dividend, twould perhaps pay for the charcoal.

    Much land in Australia is very difficult to farm except by running animals on it, and as very little charcoal is lost by this process, the farmer would know exactly how much charcoal he has put into the soil through his cows.

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  15. OOPS should have said GRAMS Swamp fox, there has now been huge success with feeding cows charcoal, 200 to 400 GRAMS/day, (mixed with their molasses) the charcoal helps the digestion, reduces infection and is turned into Biochar (actually enlivened biochar) by the cow, then pooped out and buried by Dung Beetles, leading to healthier cows with higher stocking rates, and rebuilding the impoverished soil, or vastly improving good soil - those farmers using that technique should get the dividend, twould perhaps pay for the charcoal, a dividend would be appropriate as farmers are traditionally conservative and hesitant to spend money

    Much land in Australia is very difficult to farm except by running animals on it, and as very little charcoal is lost by this process, the farmer would know exactly how much charcoal he has put into the soil through his cows.

    Threre are 28.5 Million cows in Australia, more than people, if they each get app 1/3rd of a kilo that is 9.5 million kilos per day, 3467.5 million Kgs per year, - in America there are 98.4 million, - between 1,3 and 1.5 Billion cows on the Earth, - do the sums, and charcoal/carbon is traditionally taken by humans for flatulence, - virtually removes methane farting from cows too.

    an institute in Germany has done some good research, - the Ithaka foundation, http://www.ithaka-institut.org/en/ct/95-Biochar-Feed-Additives, and not just on cows but all sorts of animals, and below this is a utube of the experience of an East Coast of Australia farmer doing just what I suggested above, feeding his cows charcoal,  it is a very inspiring and concise video, be prepared to be shocked if you have not come across this good information before.

    Again you see the changes coming up from individuals and groups, not imposed by politicians who typically lead by watching where every one is running and then pretending to be at the front.

    https://www.youtube.com/watch?v=_JPoItRWYSQ&feature=youtu.be

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  16. More to the subject of federal/state political actions, Perry just announced nearly 4 billion in subsidies to a nuclear plant in Georgia. This is in addition to many more billions this plant has already gotten.

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  17. . The way fee and dividend works is a fee is charged to companies that produce greenhouse gas emissions. No longer would society be subsidizing the costs from carbon pollution.

    The revenue from the fees would be returned to citizens so that it becomes a revenue-neutral tool. There is no net increase in cost or increase in income. What the fee and dividend method does, however, is reward people and companies for good choices.


    In other words - its a surtax - with a subsidy for renewables and a wealth transfer program.

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  18. @18 Tom13,

    Exactly Tom. Like shuffling the deck chairs on the Titanic. This is my main problem with Liberal mitigation plans. But if the dividends were paid to the people sequestering carbon long term, then it would be paying for a goods/service that benefits society. That's a market rather than a wealth redistribution plan. Sure in some ways all economies are wealth redistribution, but that would redistribute to a producer! That's a good thing.

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  19. 18 - Red - Its a surtax, subsidy and a wealth transfer program precisely because the receiver of the subsidy is less efficient than the one being charged the surtax.  Simple economics 101

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  20. Tom13 seems to want to ignore the wealth transfer that occurs when the producers and consumers of fossil fuel energy avoid the externalized costs of that use and force that cost on to the taxpayers that pay for disaster relief, longer term health and environmental costs, etc. Taxpayers that include people that are not using those fossil fuels in large quantiities.

    If I made and sold pencils, and I could find a way that the cost of the wood and graphite I consume was paid for by someone else (e.g. government), then I'd be the richest pencil maker around. Tom13 might think that having me pay for the wood is a "wealth transfer program", but other may differ.

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  21. @19 Tom13,

    Please be more specific. Are we talking about my States plan which pays a farmer to sequester carbon based on verifiable increases of soil carbon? That's entirely different than fee revenue being returned to the citizens ... whether they are producing a goods or service or not. 

    We collect taxes all the time to pay contractors to build roads, schools etc..pay police and military etc... Those people providing for a public goods or service. So collecting a surtax to pay people sequestering carbon in the soil long term is well within our already established capitalist societies priciples and economic structures. It can be instituted very conservatively without negatively disrupting the economy at all. In fact by circulating more money that eventually will in the long run circulate through very depressed rural economies, it will be a big boost to economic developement. A win win for everyone.

    But if we are just charging a surtax then paying revenue neutral dividends to every citizen regardless of any goods or services that citizen my produce...? That's just a wealth distribution program guaranteed to fail. The shuffling chair analogy applies.

    So please be precise.

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  22. #20 - Bob

    If I made and sold pencils, and I could find a way that the cost of the wood and graphite I consume was paid for by someone else (e.g. government), then I'd be the richest pencil maker around.

    That would be a subsidy, 

     

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  23. Yes, Tom13, I can accept that you call that a subsidy. And with that definition it would be a subsidy when we do that for fossil fuels, too.

    For pencil wood, if producer A has to grow trees or buy them from someone who grows them and pays all the environmetal costs associated with growing them, they'll pay the costs. When producer B gets government-owned trees free for the taking, where government pays for replanting seedlings, all the envrionmental costs, etc., then company benefits from a subsidy. Company B nenefits from a transfer of wealth form government to its shareholders.

    That you think ending such subsidies for the fossil fuel industry represents creating a transfer of wealth and subsidies tells me all I need to know abouthow well you understand Economics 101.

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  24. Tom13 @19

    "Its a surtax, subsidy and a wealth transfer program precisely because the receiver of the subsidy is less efficient than the one being charged the surtax. Simple economics 101"

    Yes its a surtax and a subsidy and wealth transfer if you like.

    Its also revenue neutral, well justified, sensible, practical, and well targeted.

    There is nothing wrong in principle with subsidies, and  even orthodox economics recognises they have their place to encourage new industries of clear value that would otherwise struggle due to adverse conditions. All subsidies are a form of wealth transfer, just as the very concept of government itself and all its parts is ultimately funded by a wealth transfer of some sort.

    And as has been pointed out, if renewable energy subsidies go along with cancelling fossil fuel subsidies, then things balance out nicely. There is no net wealth transfer.

    Regarding efficiency, we are not transfering wealth to economically inefficient energy sources because wind power is now profitable even without the subsidy. This has been pointed out to you a dozen times, with numerous studies on costs but you still dont get it, - or wont get it.

    If you are talking solar power maybe this is not yet quite profitable as a stand alone thing yet. But how do we really measure economic efficiency? We have to look ultimately at full costs and benefits much longer term, including environmental costs  and health costs. In that sense renewable energy is more efficient.

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  25. 24 - Nigelj

    Its also revenue neutral, well justified, sensible, practical, and well targeted.

    No its not revenue neutral - wealth transfers are never a zero sum game, especially with the transfer is from efficient sectors of the economy to less efficient secotrs - basic  economics 101. 

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  26. Tom13 @25,

    "No its not revenue neutral - wealth transfers are never a zero sum game, especially with the transfer is from efficient sectors of the economy to less efficient secotrs - basic economics 101."

    I think you are mostly  wrong about that.

    "Revenue Neutral Law and Legal Definition. The term Revenue Neutral implies changes in the tax laws that result in no change in the amount of revenue coming into the government's coffers. In other words, a tax proposal is revenue neutral if it neither increases nor decreases tax revenues when compared to existing law."

    definitions.uslegal.com/r/revenue-neutral/

    The tax and divedend idea does not increasing tax or decreasing tax by this definition. The claim that the fee and dividend idea somehow allegedly  sends a subsidy to allegedly less efficient energy producers is therefore clearly irrelevant and another issue entirely.

    Certainly the sheme is revenue neutral enough and nit picking about the issue  becomes foolish. It should be acceptable to fiscal conservatives etc.

    And as I pointed out you are incorrect to claim wind power is less economically efficient or that electric cars are less economically efficient, in fact electric cars are more economically efficient after about 5 years of ownership. And as I pointed out your definition of economic efficiency is far too narrow as it fails to consider long term environmental costs. So your assertion fails these tests as well.

    There is also the point that if the subsidy on renewables could be funded by removing a subsidy on fossil fuels. This should alleviate concerns some people have about additional subsidies, and is also obviously revenue neutral in the sense that funding simply swithches from one thing to another that we want more of,  which is renewable energy.

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  27. Tom13 - to test "economic efficiency", are you prepared to support complete removal of all tax-payer subsidies from the fossil fuel industry? Starting with direct producer subsidies.

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  28. The "tragedy of the commons", which is what is at base here w.r.t. the harm fossil fuels cause the globe, is a clear example of market failure. I'm not sure it's useful to talk about this failure in terms of "subsidies" and "wealth transfers", however.

    A small group can exploit a large resource with impunity. However once the exploitation is at a level that all are affected negatively while at the same time there is no clear market feedback to those exploiting the resource, a crash is a typical outcome.

    The fossil fuel age is presently exploiting the atmosphere beyond its abillity to stay in a safe range. If there are no market feedbacks that producers and users directly feel w.r.t. staying in that range, a crash of some sort is pretty much inevitable. Hopefully one that can be accommodated to a great degree.

    We don't want a crash to occur with the climate, really, any more than we want collapses of any critical common resource. Even our most libertarian-spouting commenters should realize that. (There is a libertarian literature on this point, but freshmen libertarians tend not to be aware of it.)

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  29. #26 - Nigelj 

    Armed with the knowledge of the tax policy definition of "revenue neutral", it should now be apparant why a wealth transfer from an efficient producer to an inefficient producer is not revenue neutral - If the receiver of the subsidy was efficient, it would not need a subsidy.

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  30. #27 - A 103 page report and virtually no info on what the actual subsidies the fossil fuel companies receive.

    Page 68 mentions the reduction of the severance tax on oil & gas produced in Alaska -  Severance tax is a tax that only the owners of the oil and gas properties (and other mineral and mining interests) incur. No other industries are subject to this tax.  A reduction in a tax that is only imposed on a few is not a subsidy, but instead a reduction of a wealth transfer.

    P 82 - The article calls the tax deduction for the cost of operations a subsidy.  All industries receive tax deductions for the cost of operations - so by that articles definition, every industry receives subsidies.

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  31. Tom13,

    I went to the linked report.  It has appendices that contain all the specific data for the subsidies.  You have simply not read the part of the report that you claim is missing.  Here are the first 6 lines of over 119 from an Excell spreadsheet that document USA domestic direct subsidies. (to access the data go to the report, click on the appendices and then direct subsidies for the USA)

    Corporate Tax Exemption for Master Limited Partnerships Federal Tax expenditure Oil & Gas Cross-cutting 3931 3931 3931 OCI [WOULD BE 1.2 billion if we used JCT estimates for FY14 in JCX-97-14.pdf - vs. 3.9 billion estimate for 2012 (most recent year) from OCI/EarthTrack report. Differentiated tax treatment of distribution streams, incorporating dividend rates, tax deferrals on return of capital
    Lost Royalties on Offshore Drilling (Outer Continental Shelf
    Deep Water Royalty Relief Act) Federal Tax expenditure Oil & Gas Relief on royalties 576.2 2120 1348.1 GAO Used GAO high estimate since it is closer to the 2013 and 2014 U.S. oil and gas market (high production and $100 per barrel) of $53 billion of foregone revenues over the remaining life of the leases (~25 years in 2008) - NOTE THAT THIS MAY NEED TO BE REVISED FOR FUTURE YEARS (post-2014) if oil prices are at a lower sustained level
    Intangible Drilling Oil & Gas Deduction Federal Tax expenditure Oil & Gas Exploration and field development 3490 1663 2576.5 OMB Used the budget estimate for repealing the deduction from the relevant FY budget (ie. consulted FY14 budget for 2014 figures, FY15 budget for 2015 figures, etc.,) rather than using projections from one earlier budget
    Powder River Basin not designated as a Coal-Producing Region Federal Tax expenditure Coal Relief on royalties 1046.5 1046.5 1046.5 Institute for Energy Economics & Financial Analysis 2012 was latest estimate (from IEEFA). This allows coal companies to get leases of land in this region for a low cost - used Figure 3 data to arrive at this number
    Domestic Manufacturing Deduction Federal Tax expenditure Oil & Gas Cross-cutting 574 1119 846.5 OMB Used the budget estimate for repealing the deduction from the relevant FY budget (ie. consulted FY13 budget for 2013 figures, FY14 budget for 2014 figures, etc.,) rather than using projections from one earlier budget
    Excess of Percentage Over Cost Depletion Federal Tax expenditure Oil & Gas Extraction 1100 1000 1050 JCT Used JCT figures from S-1-13 and JCX-97-14. Alternative method building on OECD methodology could be taking FY14 expected income tax expenditures for excess of percentage over cost depletion from FY16 budget (see LINK) = 660. Apportion 660 to the ratio of oil, gas and coal production used by OECD for 2011 figures (did not revisit IEA source data for production) - this was 36.6% gas, 24.7% oil, and 38.7% coal. 660*0.366 = 241.56 for gas, 660*0.247 = 163.02 for oil, and 660*0.387 = 255.42 for coal
    Last-In, First-Out Accounting for Fossil Fuel Companies Federal Tax expenditure Oil & Gas Cross-cutting 857.3 1152.69 1004.995 OMB, Friends of the Earth (FOE), Green Scissors Calculated share of subsidy for oil & gas (33%) based on FOE Green Scissors report. Used the respective FY year budget (ie 2013 estimate is from FY13 budget; 2014 estimate is from FY14 budget)
    Temporary Expensing of Equipment for Refining Federal Tax expenditure Oil Refining 610 0 305 OMB Appears to have expired Dec. 31, 2013 according to JCX-100-14 - https://www.jct.gov/publications.html?func=startdown&id=4667

    The formatting was lost in the transition.  It is your responsibility to read the reports cited.  When you claim that the report does not contain information it actually contains, that makes your argument weaker.  In the report they sumarize the data because the data take up too much space to repeat everywhere. 

    Your claim "I do not believe this report" is simply false, you have not done your homework.  You often do not do your homework before you make wild claims.

     

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  32. Michael - Thanks for the link.


    www.odi.org/publications/10086-g20-subsidies-oil-gas-coal-production-united-states


    The errors in the computation and logic of the data provided are easy to stop - at least for those with knowledge of oil and gas taxation. Lets start from the top

    1) corporate tax exemption for MLP's - A) the income tax is being paid at the individual partner level, instead of the corporate level, net result is a small reduction in tax paid. B) The $ amount of tax subsidy is show as $3,931 for 2013, 2014 and 2015. Using the same $ amount for the three years belies reality. With declining oil prices, most of the MLPs are lost money, especially in 2016.

    2) IDC - intangible drilling costs - this is a deduction for the cost of production, Secondly, it is only a timing difference. In year 1, there is a tax deduction, year 2-year 10, there is no deduction, in other words, after a few years, the deduction/benefit becomes a wash, so no net "tax subsidy.

    3) domestic manufacturing deduction - Every manufacturer receives this deduction, - it is not unique to oil and gas.

    4) Lifo inventory - Lifo only saves tax money in an economy when prices rise. Oil prices are by their nature volatile. Quite frankly absurd that lifo is treated as a subsidy, more absurd is the computation.

    5) Percentage depletion in excess of basis - granted this is the only true subsidy - however, it only applied to royalty owners and independent producers. The computation of the amount is obviously incorrect. They have computed the same $ amount for all years even though prices have dropped which would reflect lower depletion allowable.

    I just pointed out the first 5 obvious errors.  

    0 0
    Moderator Response:

    [DB] Inflammatory snipped.

  33. tom13,

    You are apparently an expert on everything since you always rely on your own intpretation and never cite expert opinion.

    You should be forced to cite experts for your claims since this is a scientific blog.  You are only a denier who is too ignorant to understand expert evaluations and think you know better than everyone else.

    Hopefully all the other readers here will dismiss your claims since you obviously do not know what you are talking about.

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    Moderator Response:

    [JH] Inflamatory tone snipped. Please keep it civil.

  34. Michael - Try to actually refute the points I made.  As I previously stated, the errors in the report are obvious for anyone with knowledge of oil and gas taxation.  I have limited my comments to US oil and gas taxation which is where my area of professional expertise. 

    Just two examples of the errors is the first line listing MLPS and a tax subsidy of $3.931B.   Its difficult to claim a tax subsidy in an enviroment where the MLPs have been showing net losses, the majority of which have in both 2015 and 2016. 

    The second example is the LIFO being claimed as a subsidy.  Lifo reduces the tax liability in an inflationary market, but results in greater tax in a deflationary market.  2014 was the year of the drop in oil prices from $100 per bbl down to the $40's, yet the report shows an increase in the tax subsidy from $857m to $1.152b.  That is mathematically impossible.

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  35. Tom13,

    I do not claim expertise at tax accounting, I rely on experts to provide summaries like the one referenced . 

    You have demonstrated your level of expertise by being unable to locate the data in the appendix of the report and claiming that it was "A 103 page report and virtually no info on what the actual subsidies the fossil fuel companies receive."  The appendix was cited several times in the report as containing the data.  Please provide a citation of an expert to support your wild claims.

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  36. Tom13 @29

    "Armed with the knowledge of the tax policy definition of "revenue neutral", it should now be apparant why a wealth transfer from an efficient producer to an inefficient producer is not revenue neutral - If the receiver of the subsidy was efficient, it would not need a subsidy."

    With respect you clearly dont understand the legal definition of revenue neutral. The only thing that counts is whether theres a significant change in government revenue, nothing to do with "efficiency". This is clearly the view of the politiicans involved in the matter from the discourse I have read. None of them are talking about efficiency in the way you are in relation to the fee and dividend idea.

    You also continue to fail to understand the recepient is not inefficient.

    You also fail to understand the reasons for subsidies. Efficiency is not the criteria on which subsidies are properly based. Subsidies are properly used wheren there is some public benefit and / or to encourage new enterprises to get started, when the enterprise is desirable, but faces market difficulties. Therefore it is legitimate to subsidise inefficient industries in their formation period. This includes some elements of  renewable energy notwithstanding some of these are efficient, and some less efficient at this stage.

    It is not sensible to subsidise ongoing profitable companies because they dont need help, and it would not be possible to subsidise all such companies even if you wanted. This is why its doubtful that its sensible to subsidise fossil fuel companies. And they currently receive all sorts of subsidies. The only possible reason might be a subsidy for the risks of exploration, but given how profitable the companies are, even this doesn't make much sense. And given climate change, there is now no reason to subsidise fossil fuel companies left at all. Its complete madness to continue to subsidise fossil fuels on the one hand while for example having renewable energy subsidies and cap and trade on the other.

    The following link will give you some brief indication of how subsidies have been used historically, and when they are properly used for good purposes, especially helping new companies get started:

    www.investopedia.com/terms/s/subsidy.asp 

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  37. #35- Michael - 

    A) you cited an article from an advocacy website, even individuals without expertise should be able to recognize the bias.

    B)  The errors are readily apparant to anyone with a basic level of taxation

    C) my explanations, coupled with a basic knowledge of accounting, should be sufficient for most individuals to quickly grasp the errors.  

    You state that you rely on experts, though it should be pointed out, that experts wouldnt make such glaring errors.  

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  38. Tom13 @32

    I respect you may have some  expertise on fossil fuel financing, but I can't help but think you are missing the point on fossil fuel subsidies. Fossil fuels are subsidised. The exact level is hard to be sure of, but doesn't matter.  None of the subsidies make much sense in terms of genuine economic justification. They certainly dont make sense in the era of climate change. End of story.

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  39. Michael - to assist you with some general information 

    Lifo

    www.diffen.com/difference/FIFO_vs_LIFO

    returns on mlp's

    performance.morningstar.com/funds/etf/total-returns.action?t=amlp

    Note there is not a good single source for the taxable income flowing through mlps - though this report should give you a sense of the income of the mlps over the last few years.

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  40. #38 - The broader point on the fossil fuel subsidies - is that most of what is labeled as subsidies by various advocacy groups, etc are simply not subsidies by any economic definition.  Many of the so-called "tax subsidies" are tax deductions for the cost of doing business.  Additionally many of the so-called "tax subsidies" are deductions which are allowable to all industries and are not subsidies carved out to benefit the fossil fuel industries.

    There being two exceptions - percentage depletion in excess of basis which only applies to royalty owners and independent producers. (US title 26 section 613A). Second , the deduction for IDC which that subsidy reverses itself in subsequent years and becomes a negative subsidy and which after a period of years becomes an net wash.  See for example most any of the majors annual report, where the annual DDA generally exceeds the net oil & gas properties current year additions. (the majors will use either successfull efforts or full cost accounting whereby the idc is capitalized for GAAP purposes, and amortized over the life of the properties).  

    In summary, most of what the advocates characterize as subsidies are non existent or greatly stretch the true economic definition of a subsidy.

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  41. Recommended supplemental reading:

    Forget the Paris agreement. The real solution to climate change is in the U.S. tax code. by Tim McDonnell, Wonkblog, Washington Post, Oct 2, 2017

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  42. “Energy subsidies are projected at US$5.3 trillion in 2015, or 6.5 percent of global GDP, according to a recent IMF study. Most of this arises from countries setting energy taxes below levels that fully reflect the environmental damage associated with energy consumption. “
    http://www.imf.org/external/pubs/ft/survey/so/2015/NEW070215A.htm

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  43. 41 - John 

    From the citation you provided

    Item 1 - IDC - The current year expenses vs capitalization and recovery via cost depletion - Repeal of section 263c is only a timing issue, the so colled subsidy reverses itself in the subsequent years, ie a negative subsidy.  

    Item 2 percentage depletion in excess of costs basis - this is an actual subsidy which only applies to royalty owners and independent producers, It does no apply to the majors 

    Item 3 Domestic production deduction - This deduction applies to all manufacturing.  It is not unique to the oil and gas industry

    Item 4 - 2year amortization of geological and geophysical costs - this like IDC is only  a timing issue, It only accellerates the collection of tax, it does not increase or decrease the total tax.

    Item 5 6 7  dont work in that area, so I cant comment

    Item 8 expensing tertiary costs - This is an operating cost, - calling it a subsidy is absurd.

    Item 9 Passive loss limitation - Again - this is only a timing issue.  It does not increase or decrease the total tax revenue

    Item 10 & 11 are not applicable in the current economic enviroment

    Item  12 as previously noted, MLP's have as a rule been losing money since 2014. Due to operating losses, the lost tax revenue is zero.

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  44. Tom13 @40

    Thanks for the details.

    " The broader point on the fossil fuel subsidies - is that most of what is labeled as subsidies by various advocacy groups, etc are simply not subsidies by any economic definition. "

    No thats not the broader point, that is a narrow point of how subsidies are made up. The broader point is fossil fuels are subsidised, and that it doesn't make much sense economically, and / or in relation to climate change.

    "Many of the so-called "tax subsidies" are tax deductions for the cost of doing business. Additionally many of the so-called "tax subsidies" are deductions which are allowable to all industries and are not subsidies carved out to benefit the fossil fuel industries."

    So what tom? Some are not, so we are left with tax subsidies specific to the fossil fuel industry at some level.

    But fair comment that some of the tax deducations apply to many industries. Its not sensible to include those particular ones.

    "There being two exceptions.... "

    Thanks for the detail, but I would need to see full souce material to be aure its only two exceptions.

    "In summary, most of what the advocates characterize as subsidies are non existent or greatly stretch the true economic definition of a subsidy."

    Remember some of the comments made above by various people refer to America which you are describing, and some are considering the global picture. And granted it can be confusing. However I know for a fact some developing countries have big subsidies by any definition of a subsidy, and also some European countries. You appear to be referring to America, and the subsidies in America are complicated to untangle. Thanks for trying to clairfy it. And I agree its absurd to include business tax deductions all business receive.

    However a simple search on the internet and in America fossil fuels are subsidised with a combination of essentially direct cash grants and also tax subsidies specific to the fossil fuel industry (as opposed to general business deductions) as follows:

    "A 2011 study by the consulting firm Management Information Services, Inc. (MISI)[28] estimated the total historical federal subsidies for various energy sources over the years 1950–2010. The study found that oil, natural gas, and coal received $369 billion, $121 billion, and $104 billion (2010 dollars)"

    Subsidies and tax concessions specific to fossil fuels (not just general business deductions) are certainly around 4 billion each year from the source material.

    en.wikipedia.org/wiki/Energy_subsidies

    Anyway the wider point is the use of subsidies in principle, and  not nit picking too much about the exact figure. A bad subsidy is a bad subsidy, regardless of the ammount.

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  45. All of this discussion of what is and is not a subsidy under any particular country's tax law ignores Tom13's unwillingness to acknowledge that a carbon tax corrects for the failure of the economic system to account for externalities.

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  46. Another recent article about fossil fuel subsidies...

    European countries spend billions a year on fossil fuel subsidies, survey shows by Fiona Harvey, Guardian, Sep 28, 2017

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  47. Bob makes a good case. Perhaps Tom13 could clarify his position by answering:

    1/ Does he accept that burning FF creates externalities not included in current price? (ie moving your infrastructure because of sealevel rise is a cost FF is not currently paying). Ie if Tom13 is full on AGW-denier then this discussion is moot.

    2/ Does he accept that relative economic efficiency of FF versus renewables could be better assessed if no government subsidies were in play for either?

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  48. Must reading for everyone participating in this discussion of fossil fuel subsidies... 

    Explainer: The challenge of defining fossil fuel subsidies by Jocelyn Timperley, Carbon Brief, Jun 12, 2017

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  49. Because the Trump Administration and the US Congress are now discussing possible revisions to the US Tax Code, the isue of fossil fuel subsidies is now a very hot topic. Two more articles of interest were posted today:

    Dirty Energy Dominance: Dependent on Denial – How the U.S. Fossil Fuel Industry Depends on Subsidies and Climate Denial by Janet Redman, Oil Change International, Oct 3, 2017

    High Oil Subsidies Ensure Profit for Nearly Half New U.S. Investments, Study Shows by Neela Banarjee, InsideClimate News, Oct 3, 2017

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  50. A fee and dividend plan would indeed be unpopular. And undeniably it alone will not bring about the required rapid termination of excess CO2 creation. But it is undeniably a helpful action.

    My MBA training in the 1980s, and life experience as a Professional Engineer, leads me to understand that people trying to be the biggest winners in the competition to benefit from the burning of fossil fuels have developed a massive mistaken perception about burning fossil fuels, incuding the mistaken claims of 'efficiency' based on 'measures of profitability', and including mistaken perceptions of personal prosperity and opportunity.

    The future of humanity requires a correction of human activity so thta all of it is truly justifiably sustainable. The 2015 Sustainable Development Goals are undeniably what needs to be achieved for humanity to have a better future.

    Fossil fuels are a finite resource that will only get more difficult to decently benefit from. And ultimately it will not be practical for anyone to benefit from the activity.

    A new understanding that solidified in the 1960s, and has strengthened since then (with the 2015 SDGs being the latest compilation of the developed awareness and understanding), is that competitions for popularity and profit can be damagingly successfully, being won/misdirected in many ways including through the abuse of deliberately deceptive marketing that exploits triggering anxiety and knowing that many people will 'believe an unjustified claim they emotionally/anxiously respond to' more readily than they will 'accept a better understanding that is contrary to their developed desires/interests'.

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