Should Oil Spill Lead to Cap and Trade Energy Tax?

WASHINGTON, June 17, 2010— -- BP CEO Tony Hayward is sure to get a verbal flogging from lawmakers when he sits down at a Capitol Hill witness table today. But for all the outrage at the oil giant, there is very little agreement here about what Congress should do in reaction to the spill.

Hayward's testimony to a House Committee Thursday will be the 13th appearance by a BP executive before Congress, including a separate appearance Tuesday by BP America CEO Lamar McKay. There have been a score more oil-related hearings with administration officials.

The hours and hours of testimony have not led yet led to any legislation.

Democrats and President Obama have argued that the oil spill demonstrates a dire need for the United States to transition away from an oil-based economy.

"The tragedy unfolding on our coast is the most painful and powerful reminder yet that the time to embrace a clean-energy future is now," President Obama said in his address Tuesday night from the oval office. "Now is the moment for this generation to embark on a national mission to unleash America's innovation and seize control of our own destiny."

For most Democrats, that means passing some sort of "cap and trade?" legislation, envisioned as a way to achieve the twin goals of cutting down on the use oil and helping stem global climate change. Cap and trade proposals place a price on carbon emissions, capping how much industries can emit and encouraging them toward cleaner, more efficient fuel sources.

The House of Representatives passed a cap and trade bill late in 2009 and Senate Democrats have put forward a proposal by Sens. Joe Lieberman, I-Conn, and John Kerry, D-Mass.

A recent EPA estimate showed that Kerry and Lieberman's proposal would cost each American household less than a dollar per day.

"And is the American household willing to pay less than $1 a day so we don't have to buy oil from foreign countries, so we can create millions of new jobs, so we can clean up our environment? I think the answer is going to be yes," said Lieberman.

Republicans, on the other hand, have accused Democrats and President Obama of taking advantage of the oil spill to push a long-sought legislative agenda.

"In the midst of the worst environmental catastrophe in American history, they're talking about a new national energy tax to achieve their ideological goal of passing global warming legislation," said Sen. Mitch McConnell, the Republican leader, on the Senate floor Wednesday. "Americans are pleading with the administration to fix the immediate problem in the Gulf, and the White House want to give us a new national energy tax instead."

Don't look for any Republicans to sign on to Democrats proposal to place a price on carbon emissions and charge industries for emitting more than a government-mandated cap.

President Obama met Wednesday with moderate Sen. Scott Brown, R-Mass., but the two could not agree on an energy proposal. They did agree to play some basketball this summer.

In years past some Republicans have supported, and even sponsored proposals to price carbon. One of those was Sen. John McCain. But asked Wednesday about the president's call for climate change legislation, McCain took a pass, and walked out of a press conference without answering.

There are Republicans who want to pass legislation. Sen. Richard Lugar, R-Ind., has a proposal that focuses only on raising fuel efficiency standards, building codes and encouraging the retirement of old coal plants and development of new nuclear plants. Most Democrats say his approach is not comprehensive enough.

A bipartisan proposal has been floated by Sens. Susan Collins, R-Maine, and Maria Cantwell, D-Wash. It would place a less-inclusive price on some carbon emissions, but divert any proceeds back to taxpayers in the form of a dividend.

"I agree with the president's goal that we must expand and diversify American energy resources, but we have different means of achieving that goal," said Collins after Obama's speech Tuesday.

Beyond the political difficulties of passing cap and trade legislation, or any other sweeping energy bill, there is some question about whether it would work to reduce the amount of oil consumed by the United States.

The only way to truly move the U.S. away from oil is to place a tax on oil, according to Adele Morris, who is Policy Director for Climate and Energy Economics at Brookings.

"The most efficient policy to reduce oil consumption is to tax it, but of course many view that as political suicide," she said, arguing that only a tax would effectively work to change people's behavior with regard to oil.

Cap and trade proposals, she said, would do more to effect greenhouse gas emissions than cut down on the use of oil. Most large emitters, she pointed out, aren't using oil.

"So if you want to address climate change at the lowest cost, you're going to reduce pollution mostly from sources other than oil for the foreseeable future. If you want to do something about oil, you need a price signal to discourage in that's higher than a climate bill would impose," said Morris.