Evergreen Energy Inc EEE

Markets: Cap & Trade:

[no1coalking]

MARKETS: Carbon tax scores, but cap-and-trade usually wins (03/12/2008) Debra Kahn, ClimateWire reporter North America's first-ever tax on personal carbon emissions is likely to remain the first for some time, according to officials in British Columbia and market observers. The Canadian province's consumer-based tax on virtually all fossil fuels, announced late last month, will begin July 1 at $10 per ton of carbon, rising to $30 per ton by 2012. The tax on gasoline will start at 2.4 cents per liter (9 cents per gallon), reaching 8.3 cents per liter by 2012. The tax alone is expected to reduce the province's emissions about 5 percent by 2020. It is accompanied by more than C$1 billion in incentives for energy efficient appliances, vehicles and home improvements, as well as clean technology, biodiesel production and emissions-reduction efforts at ports and commercial truck stops. The revenue generated by the tax is expected to be C$1.85 billion (roughly equal to the current U.S. dollar value) by 2012. The money will be returned to citizens in the form of tax credits, rebates and lowered income tax rates. British Columbia's overall emissions reduction goal is 33 percent below current levels, or 10 percent below 1990 levels, by 2020. Hand-wringing over the 'T-word' Opinions of B.C. carbon tax The survey was conducted by Compas Inc. for the Vancouver Sun, with a sample size of 1,300 British Columbians and a margin of error of plus or minus 2.8 percent. According to a senior official with British Columbia's Ministry of Finance, some other provinces are interested, "but they're not going to say so publicly at this point" for political reasons. "Even if you do it on a revenue neutral basis like B.C. has done, people see tax increases -- they rarely see tax reductions," the official added. "If your personal income tax goes down, you don't notice that every day." British Columbia's move coincides with a report from the U.S. Congressional Budget Office that concludes a carbon tax is more efficient in gathering and distributing revenue than a cap-and-trade system, under almost all conditions. "Tax is not necessarily a dirty word all around the world," the senior finance official said. "It hadn't been considered politically acceptable in Canada until even this year," when Quebec introduced a gas tax on petroleum companies of 0.8 cents per liter last October. That said, the federal government and other provinces have said they are not interested in more carbon taxes, according to British Columbia. And British Columbia is also a participant in the Western Climate Initiative, which has pledged to reduce regionwide emissions 15 percent below 2005 levels by 2020. British Columbia Premier Gordon Campbell signaled some sort of tax-related action in his throne speech a year ago, when he said he believed that "our tax system should encourage responsible actions and individual choices. The cost of climate change is directly related to our consumption." But the announcement still took carbon traders by surprise, according to Ian Carter, North American coordinator for the International Emissions Trading Association. "As an unexpected departure and the first of its kind in North America, there were, I think, overreactions to it," Carter said. "It's important to recall, the B.C. government is very, very actively pursuing the Western Climate Initiative and in fact is leading the charge on offsets." The public does not seem to have warmed to the tax, either. According to a poll taken Feb. 26-March 5 by Compas Inc., 59 percent of British Columbians oppose the plan, either because carbon-based fuels are already taxed too heavily or because the federal and provincial governments should work together. Another 2 percent don't think carbon fuels contribute to climate change or pollution. Double-counting fears "There are going to be some tricky questions downstream about how to draw the boundaries," Carter said. "It's very hard to see how you'll mesh the carbon tax with that [cap-and-trade system] because you will get double-counting fairly readily." The conventional wisdom that Americans will reject anything with the word "tax" in it still holds, according to some. Economists cite former President Clinton's failed attempt to tax fuels based on their heat content, which oil companies, manufacturers and farmers called regressive. But that is not readily apparent to George Givens, general counsel for the North Carolina Legislature. North Carolina passed an excise tax of $2 per ton on all municipal solid waste and construction and demolition debris, he pointed out at a recent panel on state-federal climate policy. Givens said he thought Congress ought to take "a good hard look" at a tax's potential. "A tax will probably prove to be most instructive," he said, because "folks will be years negotiating the details of a cap-and-trade program at the federal level." Billy Pizer of Resources for the Future, whose research made up the backbone of the CBO report, said British Columbia's $10-per-ton tax was on the low end of prices needed to encourage investment in alternatives to emitting. The difference between a tax and a market-based system is much less when the market contains a price ceiling, often some form of "safety valve" that allows participants to purchase offsets or credits from other markets. At the moment, given the interest in finding a cap-and-trade solution at the federal and regional levels -- at least 30 states are in the process of implementing some form of cap-and-trade program or are observers to the process -- carbon taxes appear to be destined to be a curiosity of a time of transition. As regulators further refine cap-and-trade systems, adding auctions, safety valves and other revenue-generating options, the case for a tax becomes less clear-cut, Pizer said. Also, the interest groups "leading the charge on regulations" have been environmentalists, who mostly favor a hard cap on emissions, rather than price, further solidifying opinion in favor of cap and trade.