Thursday, July 25, was a remarkable day for efforts to advance climate policy in Washington, DC. Members of Congress proposed four new carbon tax bills, reports circulated that two House members will soon release their own carbon tax bills, and presidential candidate Kirsten Gillibrand issued her climate plan, which includes a carbon tax among several provisions. Noah Kaufman, a climate policy expert at Columbia University took to Twitter to declare it Super Thursday. Maybe there was something in the water in Washington – or something stirred up in the water by the near 100-degree heat over much of the previous week. More likely it was a last set of items on the to-do list before Congress goes on summer recess.
On the same day, at their Newark, NJ headquarters about 220 miles north of Washington, one of the nation’s oldest electric utilities, PSEG, announced it is on track to reduce its carbon emissions for power generation 80 percent below 2005 levels by 2046 and outlined its plans to achieve net-zero carbon emissions by 2050. With this announcement, PSEG become one of several high profile electric utilities of late – Minnesota-based Xcel being another – to announce carbon-free generation plans by mid-century.
This blend of top-down effort from Washington to establish national climate policy direction and bottom-up action from states and the private sector that actually bring it to life is emblematic of the nature of energy governance in the US that both complicates and enables low-carbon experimentation.
Straight Out of Washington
Four of the carbon tax proposals released on Thursday stemmed from two separate Congressional partnerships. Companion bills introduced by Chris Coons (D-DE) and Dianne Feinstein (D-CA) in the Senate and Jimmy Panetta (D-CA) in the House, called the Climate Action Rebate Act of 2019 (S. 2284), targets U.S. carbon emission reductions of 55% below 2017 levels by 2030 and 100% below by 2050, with a rising fee (i.e, tax) on most greenhouse gas (GHG) emissions. Most of the fee revenues would be rebated to low and middle income Americans in the form of a monthly dividend check; the rest would be spent on low-carbon infrastructure, energy R&D, and transitional assistance for communities and households disproportionately affected by the fee. The bill also has provisions for a border adjustment that equalizes the effects of the fee on imports and exports to address potential negative effects on US competitiveness and induce trading partners to enact similar measures. Though details in the press release were limited, the fee is reported to start at $15 per metric ton of CO2 equivalent and escalate from there over time.
The other Congressional partnership involves House Representatives Francis Rooney (R-FL) and Daniel Lipinski (D-IL), who offered separate alternate versions of a carbon tax. One called the Stemming Warming and Augmenting Pay (SWAP) Act (H.R. 4058) would establish an initial carbon tax at $30 per ton, rising 5 percent per year. 70 percent of the revenues would go toward reducing payroll taxes – hence the acronym “SWAP”. The remainder goes toward a carbon trust fund used for R&D, low-carbon technology deployment, and climate adaptation – Rep. Rooney is from Florida, a state considered most vulnerable to climate change risks. The SWAP Act would also preclude the federal government from using the Clean Air Act to issue climate change regulations for at least 12 years, a provision designed to attract the regulatory reform crowd in Congress.
As an alternative to the SWAP Act, Representatives Lipinski and Rooney also introduced the Raise Wages, Cut Carbon Act of 2019 (H.R. 3966), which would start taxing carbon at $40 per ton but would raise the rate at a slower pace than the SWAP Act. The primary use of the funds would still be to cut payroll taxes. The idea of issuing multiple bill proposals is to test the waters to find out which features attract the most support.
Senator and presidential candidate Gillibrand’s climate plan establishes goals of net-zero carbon emissions, an increase in “green” jobs, and funds to protect frontline communities affected by climate change. Her carbon price starts at $52 per metric ton and the revenues would be used to create a Climate Change Mitigation Trust fund to generate $100 billion annually for mitigation projects.
Reportedly other bipartisan carbon tax proposals are in the works. Axios reports Rep. Brian Fitzpatrick (R-PA-1) plans to introduce a carbon tax bill in September. Fitzpatrick has a history of working with former Republican Representative Carlos Curbelo of Florida in advocating for carbon pricing. Rep. John Larson (D-CT-1) is also expected to release a carbon tax proposal this fall.
Jersey Sure
In a conversation I had with PSEG CEO Ralph Izzo last week, he asserts the company has set their zero net carbon goal as a fulfillment of its public service mission. It also aligns with New Jersey Governor Phil Murphy’s Energy Master Plan, announced in June, which sets a statewide goal of 100 percent carbon-neutral electricity generation by 2050.
According to a recent independent study, PSEG has the third lowest carbon emissions intensity of the 20 largest publicly owned utilities in the US. While this reflects some early adoption of solar power and fairly rapid replacement of coal plants and less efficient natural gas plants with new efficient natural gas units, the main part of the story is that PSEG’s nuclear three nuclear plants – two at Salem and one at Hope Creek – account for more than 60 percent of PSEG’s generation and about 90 percent of New Jersey’s carbon free electricity.
Yet PSEG’s emissions rose in 2018, after declining the three previous years. This mirrored a national pattern in which US power sector carbon emissions ticked up in 2018 after several years of decline. PSEG’s decarbonization goal, then, will require quickly reversing course and returning to its previous emissions decline.
The company’s strategy for doing this starts with keeping their nuclear plants open. The New Jersey Board of Public Utilities recently made this job easier by granting up to $300 million of annual subsidies to sustain those nuclear plants, which are now facing competitive pressure from cost declines in natural gas and renewables generation. This mirrors nuclear subsidy efforts in other states such as New York, Illinois, and Connecticut. Just last week, Ohio Governor Mike DeWine signed a sweeping energy law that will provide nuclear subsidies, but it will also subsidize coal and roll back renewables standards, so that move can hardly be described as a decarbonization play.
PSEG is also pursuing other dimensions to their carbon-free strategy. They recently took a financial position with Orsted to develop Ocean Wind, a wind facility off the South New Jersey coast large enough to power a half million homes. This will be the state’s first offshore wind project and only the country’s second. PSEG is also seeking approval from state regulators to invest up to $2.8 billion in energy efficiency to lessen the demand for new load-serving generation and to better integrate renewables into the grid.
There is a certain irony in PSEG’s actions, as it charts a fossil fuel-free electric generation pathway for a company whose other main business is marketing natural gas. PSEG’s Izzo argues that there has to be a steady transition, given that natural gas generation is now so inexpensive and shareholder value would be harmed by too rapid a movement away from gas. Their plan for now is to continue to build high efficiency natural gas plants in the short term to replace coal and less efficient gas units, and to effectively phase out all gas plants by mid-century. Izzo argues that public policies will be necessary to make this happen and asserts PSEG’s support for a national economywide carbon price to provide the right signals to steer the transition, presumably something stronger than the carbon price PSEG will soon face as New Jersey rejoins the 9-state Regional Greenhouse Gas Initiative.
Which brings us back to the start of the story.
A Harmonious Cacophony
The decarbonization of the electric power sector over the last decade, a period when federal climate policy has languished, might suggest that such policy does not matter. But that would misread the role of policy in energy innovation and the institutional nature of the electricity sector. Power generation is a large but relatively localized industry. The federal government regulates interstate transmission and wholesale markets for electricity, but the rules for generation largely occur at the state level, through legislatures and utility commissions. So 29 states and Washington, DC can establish renewable portfolio standards that require a certain percentage of electricity come from renewable sources and producers are obligated to comply. Likewise, the northeast RGGI states can declare and enforce emission targets for the power sector. This decentralized public policy effort is partly why most of the US GHG emission reductions have occurred in electric power – the other key part being cheap natural gas displacing coal as a generation source.
New Jersey now joins several other states stepping forward with aggressive mid-century carbon-free electricity targets. It seems unlikely that those states can meet these targets with state action alone, nor do they have as much influence on emissions from other sectors. Rather they seem to be betting that a groundswell of state action will force the federal government’s hand to establish more comprehensive climate and energy policy that will level the playing field across states and sectors and thereby provide a more efficient means to achieve economy-wide decarbonization. The federal carbon tax bills now being proposed in Washington, DC fill that prescription, but will a deeply divided Congress administer the medicine?
[Will Niver of the Duke University Energy Initiative provided research assistance for this article.]
Follow me on Twitter @murraybrianc
