GOV’T STUDY SAYS CURRENT TAX CODE HAS LITTLE EFFECT ON GHG EMISSIONS

National Research Council Report Says Direct Price on Carbon Needed to Spur Decreases

Tamar Hallerman
GHG Monitor
6/21/13

A new study released this week by the National Research Council says that energy provisions in the current tax code ultimately have little net impact on the nation’s greenhouse gas emissions. Instead, the report concludes that if policymakers want to decrease emissions, putting a direct price on carbon via a tax or cap-and-trade scheme would be the most efficient way of doing so. “Tax policy can make a substantial contribution to meeting the nation’s climate change objectives, but current approaches will not accomplish that. In order to meet ambitious climate change objectives, a different approach that targets GHG emissions directly through taxes or tradable allowances will be both necessary and more efficient,” the analysis concludes.

The NRC examined energy-related provisions in the tax code like transportation fuel taxes, oil and gas depletion allowances, subsidies for ethanol and credits for renewable energy, as well as other, broader provisions that could indirectly impact emissions like incentives for investments in machinery and owner-occupied housing. From there, the NRC assessed whether the provisions ultimately lead to a net increase or decrease in greenhouse gas emissions. The report concludes that the measures, when combined, have a “very small” effect on greenhouse gas emissions. “Current tax expenditures and subsidies are a poor tool for reducing greenhouse gases and achieving climate change objectives,” according to the analysis. “The committee has found that several existing provisions have perverse effects, while others yield little reduction in GHG emissions per dollar of revenue loss.” The report, which does not make any recommendations about specific tax code changes, says the effects of many of the reviewed tax provisions are further complicated by their interactions with regulations like renewable portfolio standards for electricity generation and corporate average fuel economy standards for vehicles.

Spotlight Returns to Climate in Washington

The report comes as the debate over climate change is expected to heat up in Washington. President Barack Obama is expected to announce a package of climate-related executive branch actions in the coming weeks that could include energy efficiency measures, renewable energy targets and greenhouse gas limits for new and existing power plants. Congress is also expected to get in on the action as the Senate Environment and Public Works Committee begins consideration of a carbon tax proposal next month. While that measure is not expected to receive any Republican support, the potential for bipartisan action on emissions reduction could occur in unlikely arenas: the House Ways and Means and Senate Finance committees. The two tax panels are expected to undertake a broader reform effort later this year, and some members have indicated that energy and environment matters are on the table.

House Ways and Means Committee member Earl Blumenauer (D-Ore.) said June 20 that the results of the NRC report could have an impact as lawmakers vet potential tax reform methods. “While it could prompt us to take some small steps, like ending ethanol subsidies, [the report] clearly shows that we are not going to be able to nickel and dime our way out of the looming climate catastrophe,” he said in a statement. “Instead, we need bold, aggressive action to recognize the damage that greenhouse gas emissions do to our planet and finally put a price on carbon.”