A Linked-Fee for Carbon Reduction?

Shifting gears on the cap-and-trade debate is the latest proposed approach for reducing greenhouse gas emissions in the U.S. by decoupling the major emitters: utilities, industry, and transportation. The latter would be addressed through a “linked-carbon fee” on transportation fuels. That is, a gasoline carbon tax, but also on aviation fuel and diesel.

While details are still forthcoming, on the surface there’s a lot to like. The transportation sector is one the largest contributors of GHGs in the U.S. today so any strategy to reduce emissions will have to start there. Taxing gasoline sends a strong signal to consumers and to the market about how to price these externalities associated with burning fossil fuels. This is important. The most important barrier to the development of the green economy is the lack of these signals and the political commitment to low carbon. While there is still not broad agreement on a low carbon policy and there is no political process for transition, my colleague David Burwell points out, the ‘link’ is the alignment of the new fee with the price of carbon on the carbon market.

Plus, there are revenues. Some proponents of this approach propose directing the funds into a ‘low carbon transportation fund’ ostensibly to support clean transportation options. The Clean, Low-Emission, Affordable, New Transportation Efficiency Act (CLEAN-TEA) lays some of these out: transit, intercity rail, bike and pedestrian projects, freight rail, demand reduction programs (carpool, pricing, telecommuting strategies), and others.

And since the proposal supported by the major oil companies (ConocoPhillips, BP America, and Exxon Mobil), what’s not to like?

Well, the idea is still in its embryonic stages and many questions remain–such as, what to do with the revenues? One option sends the revenues created by the linked fee back to consumers to offset the increase at the pump. There are also suggestions to funnel the money from the low carbon trust fund into the existing highway trust fund which is running a perilous deficit. Others (like Mark Muro) have suggested targeting revenues to early-stage transportation technology innovation and its commercialization to help accelerate the deployment of existing clean technologies. Any deal would ultimately be a mix of these ideas.

Stay tuned.