Can a carbon tax capture oil’s emissions?

One of the knottiest problems for people who want to reduce carbon emissions with cap-and-trade and command-and-control regulation is that it is impossible to include motor vehicles in these schemes.

The Obama administration is now concentrating on coal plants and other stationary sources. This affects coal and possibly gas plants, but the oil industry gets off scot-free. And cars and other moving sources constitute almost half the carbon we’re putting into the atmosphere.

The idea that keeps popping up, which would deal with these difficulties and perhaps make climate issues less partisan, is a flat tax on carbon products. The tax would fall on coal, gas and oil and be collected at the mine or wellhead. $20 per ton is the number most often mentioned. Coal would pay the largest share, oil second-most and natural gas the least, since they differ in carbon content. But everything else is equal across the board. It doesn’t matter what people do with the fuel once they’ve claimed it. If you conserve energy, you burn less fuel, if you switch from high-carbon coal to natural gas. And if you discover a true alternative that doesn’t rely on fossil fuels, you pay nothing.

In theory, it’s an ideal solution. Adele Morris of the Brookings Institution has calculated that a modest carbon tax of $20 per ton would allow us to lower the corporate tax to 25 percent, just below the world average, and still leave $199 billion for deficit reduction over the 10 years. Most important, though, is that a carbon tax would capture non-stationary sources, which is the Achilles’ heel of cap-and-trade. When it comes to mobile sources of carbon, regulators just throw up their hands. “You can’t measure emissions from individual vehicles,” they say. But a carbon tax captures everyone, including cars and trucks, which are impossible to monitor as individual vehicles. In the end, it is a much better system than that now being pursued by the EPA.

So what would this mean for alternative vehicles?

Corn ethanol would be a big winner. It is not derived from fossil fuels, and it’s already in 10 percent of gasoline that is dispensed at the pump. Morris estimates that a tax of $20 per ton on carbon would mean a 4-to-5 cents per gallon increase in gasoline. E85 now undersells gasoline in the Midwest by that same amount, and a carbon tax would make it even more attractive. Other parts of the country might start taking notes as well, since E85 can be sold anywhere; it just hasn’t caught on yet.

Methanol would not have the same advantages, since it is currently made from natural gas. But gas has only about two-thirds of the carbon content of oil, and a carbon tax would work in its favor. In addition, methanol can be derived from other sources: It’s the simplest alcohol and can be distilled from municipal waste, forest wastes and any number of the other sources that now go unused.

CNG and LNG do not stand up quite as well. Both would have to pay the carbon tax but would enjoy a small advantage over diesel, became the carbon content of gas is lower. Still, they would see their own price go up, because they are fossil fuels.

Electric cars, on the other hand, would be the big winner. Their cost advantage would widen, and they would have a leg up on gasoline and diesel. Of course, electricity must come from somewhere. It is now generated largely from coal and natural gas, and prices would rise. But the tax would encourage a shift from coal to gas, or non-fossil sources, and prices would eventually come down again. Morris calculates that revenues from the tax will eventually taper off from $160 billion to $60 billion by 2030 because of adjustments in the economy.

The carbon tax has a long and curious history. Conservatives often claim credit for it under Milton Friedman’s dictum, “I you want more of something, subsidize it. If you want less of something, tax it.” The Heritage Foundation actually backed a carbon tax in the early days, when the Obama administration was trying to impose cap-and-trade on the entire economy. But other factions of the conservative movement became convinced that the Democrats would just spend the money on renewable energy projects, so Heritage backed away.

Now the ball is being carried by a group of moderates who have a reputation for viewing things with a level head. The Brookings Institution has been at the forefront, arguing that a carbon tax promises to save billions. “By providing simple, transparent, but powerful market-based incentives to reduce damaging greenhouse gas (GHG) emissions, this levy could supersede the array of costly regulatory command-and-control approaches and expensive subsidies aimed at reducing dependence on fossil fuels and promoting clean energy,” writes Morris for Resources for the Future, another non-partisan group. Environmental Defense Fund, another moderate group that takes sensible positions, has said a carbon tax would bring everyone “simplicity and happiness.”

The carbon tax does have its problems. It comes down particularly heavy on the poor, who pay a much larger portion of their income for things that require oil and gas. Morris suggests putting 20 percent of the tax aside and earmarking it for the poor. This undoes some of the benefits of the tax and, in practice, is very difficult to do, and it creates a new distribution problem. It also hurts the middle class and especially Middle America.

Carbon taxes have been tried in other countries, with mixed results. Australia tried to impose a blanket tax a few years ago, but by the time it stopped awarding special exemptions and dispensations, the program was such a mess that oil refineries and others were making out better than before. The tax fell particularly heavily on farmers, whose operations, it turns out, are heavily dependent on fossil fuels. On the other hand, a tax in the United States might push more of agriculture into ethanol, since E85 is already widely available in the Midwest and would substitute nicely for gasoline.

Special pleading by individual parties is always the problem. France tried a carbon tax a few years ago, but by the time they were through, the law was so loaded down with exceptions and exemptions that it was practically meaningless. Sweden, on the other hand, has a flat $200 per ton carbon tax – four times the highest rate being suggested by the U.S – and no one seems to mind. The Swedes eliminated all special exemptions and used the revenue to lower personal income and estate taxes. True, the Swedes pay a higher price for gasoline – close to $4 per gallon – but they are happy with the simplicity of the system and accept the higher price as a fact of life. Of course, Sweden is a much more egalitarian country, with few truly poor people, but the population is happy and no one complains.

And the main problem is that the amount of tax will really not introduce any behavioral change. Five cents a gallon is just a tax – it will not create any real incentive to change to alternative fuels. What is blocking off alternative fuels today is not price, as they are already cheaper. It is the monopolistic structure of the car and distribution market. Even if gas prices were a dollar higher, the market first needs to be opened to competition so people could actually choose a fuel.

A carbon tax would cross political lines and maybe prove to be one of those rare instances where we can all agree. Conservatives would show that they take climate change seriously, and liberals would have to give up on their complex regulatory schemes and admit that simplest sometimes works best. Most of all, it would show the public that things can get done in Washington. However, a prerequisite for any tax or other solution is to open the market for competition by other fuels. Otherwise, the consumer will not have any option, and it will be just a new government tax.

Hollander: Oil is a ‘burden for the American people’

Fuel Freedom co-founder and Chairman Yossie Hollander guided PUMP the movie to a successful weekend in Atlanta, hosting two Q&As after Friday night’s and Saturday night’s showings at the historic Plaza Theatre.

He also promoted the film and its message on radio, appearing on both WMLB-AM1690 (“The Voice of the Arts”) and its sister station, WCFO-AM1160 (“The Talk of the Town”). You can listen to the first interview below:

During the segment, Hollander was asked how he got involved with PUMP, a project more than two years in the making.

He answered: “We realized long ago that oil is one of the toughest problems we have. We are funding our enemies, but it’s mainly a burden for the American people. It’s the air we breathe. The brown cloud you see above Atlanta is not from coal, it’s from oil.

“And mostly it’s the burden on our pockets. Families really suffer, and we figured out this is the biggest problem that we can solve. If we can do it with cheaper American fuels, we can actually change America.”

Here’s the second interview, on WCFO, which aired Saturday and Sunday:

PUMP premiered in September and continues to play in theaters around the country. This week it debuts in Tucson, Anchorage and Brunswick, Maine. Visit for theaters and times, and to buy tickets.

Will U.S. take steps to keep the ‘Shale Revolution’ going?

At least one observer wonders whether it’s time to start protecting up the burgeoning U.S. oil industry. Chip Register, managing director of Sapient Global Markets, writes in Forbes:

“One possibility would be for the government to level the playing field with OPEC and others by introducing tariffs on cheap foreign oil imports, with the goal of driving separation between the North American energy economy and the chaos of the international markets. While this may seem extreme, it may be necessary to protect this young yet highly strategic industry from going extinct.”

The global price of oil is off about 25 percent since June, and it’s already having an impact on U.S. drilling operations. As Real Clear Energy’s Nick Cunningham noted in a post Wednesday, there are now 1,590 active oil rigs in the country, the lowest level in six weeks.

Drilling in shale-oil formations, largely using hydraulic fracturing, helped the U.S. reach 8.95 million barrels of oil per day this month, the highest level in 29 years. But as a story in Bloomberg points out, that growth trajectory is difficult to maintain:

“Oil production from shale drilling, which bores horizontally through hard rock, declines more than 80 percent in four years, more than three times faster than conventional, vertical wells, according to the IEA [International Energy Agency].”

Shale-oil production is relatively expensive compared with imported oil, so it won’t take much of a drop in global prices to make some domestic operations unprofitable. The Bloomberg story quotes Philip Verleger (an economic adviser to President Ford and director of energy policy for President Carter), who says that if oil falls to $70 a barrel, production in the Bakken shale formation could plummet 28 percent to 800,000 barrels a day; in July the production level was 1.1 million barrels a day.

The notion Register raised isn’t new: In early October, Ed Hirs, a lecturer in energy economics at the University of Houston, touted a paper he’d written suggesting that the U.S. government intervene to restrict oil imports and protect U.S. producers.

“We need to act in our own best interest,” Hirs said at an energy symposium, according to Forbes. America’s oil growth is so strong “that we can de-link from the global market.”

LAT: Chevron spending big to sway election in Richmond, Calif.

Los Angeles Times consumer-affairs columnist Michael Hiltzik writes about the lengths to which Chevron is going to influence city elections in the city of Richmond, Calif. And it seems that only a student-run newspaper is reporting on Chevron’s spending. ” … leaving coverage of the election to Chevron’s PR organ, the Richmond Standard, could be disastrous for Richmond’s residents. For example, you won’t find a peep about Chevron’s political spending in the Richmond Standard. That’s par for the course: The website’s entire staff, an employee of Chevron’s PR firm named Mike Aldax, told me last month that ‘if you’re looking for a story that’s critical of Chevron, you’re not going to find it in the Richmond Standard.’ “

How Big Oil could grease invisible hand

The U.S. energy problem is very much due to a breakdown of the free market, contends the new documentary, “Pump.” Married co-directors Josh Tickell and Rebecca Harrell Tickell show how Big Oil’s monopoly on transportation fuels hurts Americans more than they realize. If drivers had options when filling up their tanks, both country and consumers would benefit.

Read more at: Reuters [Blog]



What Mexico’s Energy Reform Means for Big Oil

Mexico’s Congress have given final approval to a far-reaching energy reform bill that will open up the oil and gas sector to private investment for the first time in 75 years. The historic opening, a central piece of Mexican President Enrique Pena Nieto’s agenda, will end the monopoly of state-owned oil company Pemex.

When California had 15,000 methanol cars

Do you realize that California once had 15,000 cars on the road burning methanol? And that those drivers loved their performance? But that whole experiment came to an end ten years ago because – get this – natural gas was too scarce and expensive.

In an era when natural gas is cheap and plentiful – when people in the industry are warning that wells may soon be shutting down because there isn’t enough demand for the product – it may be worth going back and taking a second look at what happened in the Golden State from 1988 to 2004.

California, of course, has never been shy about pushing new technologies. At various times the state has pioneered renewable energy, mandated zero-emissions vehicles (electric cars) and tried to establish a “hydrogen highway” for fuel-cell vehicles. Not all these efforts have succeeded, and a few have been notable failures. But the methanol experiment, oddly enough, was fairly successful. Now, at a time when it could be seen as prescient, it is largely forgotten.

The project began way back in 1988, when memories of the 1970s energy crisis were still fresh, and various senators were looking for ways to plug their state economies. The impetus came from a joint effort by Sen. Jay Rockefeller of West Virginia and Sen. Tom Daschle of South Dakota. Rockefeller was looking for a way to promote his coal economy, while Daschle had his eye on farm wastes.

The ethanol-from-corn effort was already up and running, but both Rockefeller and Daschle recognized that methanol might work just as well, and that their home states could benefit. Methanol, after all, can be derived from coal, biomass or natural gas. The result was the Alternative Motor Fuel Act, signed into law by President Reagan in 1988, which provided a waiver of EPA regulations to allow methanol to be used in cars. A year later, President George H.W. Bush became an enthusiast, promising to put 500,000 methanol cars on the road by 1996 and a million by 1998.

Such presidential promises are often wildly exaggerated, but Ford Motor Co. took up the challenge and produced a Taurus model that could run on 85 percent mixes of both ethanol and methanol. This came at a time when gasoline had become cheap again, however, and there wasn’t much interest around the country in alternative fuels. But California took the initiative.

Mike Jackson, who was the lead technical advisor for the California Energy Commission and now works for Fuel Freedom, recalls the experience:

“The original justification was petroleum displacement in response to the 1973-74 crisis, but you learned fairly quickly that that wasn’t sustainable. But we realized there were air quality benefits, so we shifted in that direction.”

The state partnered with Ford and Volkswagen, agreeing to set up a string of fueling stations if they would bring out cars capable of running on methanol. Then the state started buying methanol vehicles for its various fleets. ”

“It was a technical success, but an emotional failure,” Jackson said. “The biggest problem was range anxiety. There were only 10 fueling stations at that time, and it just wasn’t enough. There were times when people abandoned the cars on the freeway because they were afraid they were going to run out of gas.”

Then Roberta Nichols, head of the research and development effort at Ford, came up with an idea: Ford would produce a flex-fuel vehicle (FFV) that could run interchangeably on a variety of fuels. The car could handle blends of 85 percent ethanol or methanol but could switch to gasoline if necessary. Ford produced a Taurus FFV, and the program once again went into high gear. The clean air benefits were adding up, and the state started to consider ratcheting down the NOx requirement to the point where the oil companies would have to add methanol or ethanol in order to meet them.

Suddenly, the oil companies stunned the state by announcing that they would be able to meet the standard by producing a new “blended” fuel.

“Everybody’s jaw dropped,” Jackson said. “Why hadn’t they mentioned this before? But they said they could achieve the same thing by adding MTBE, which is methanol-based, so that was it.”

The MTBE additive created a new problem for methanol. Since methanol was one of the feedstocks for the production of MTBE, supplies began to be diverted, and it became more expensive to use as a substitute fuel. However, MTBE eventually came under pressure because it was getting into drinking water. California and New York banned it in 2004, and most states quickly followed suit.

By that time, ethanol was going strong, with more and more of the corn crop diverted into its production, and the 10-percent ethanol blend became the substitute for oxygenating fuel and reducing NOx emissions.

“We ended up with cleaner gasoline technology,” Jackson said. “But we lost sight of the idea of methanol as an oil substitute.”

By this time, the country had fallen into the “Fuel of the Year” syndrome. Hydrogen had a big run in the late 1990s. Then, after the turn of the century, it was the electric car. Somehow methanol got lost in the shuffle. California’s program limped along until 2004, when the state finally abandoned it. With natural gas selling at $7 per mBTUs and peaking as high as $11, it didn’t seem to have any future.

Now, with natural gas supplies flowing in surplus, the California experiment suddenly seems far ahead of its time. Methanol made from natural gas at $3.25 per mBTU could sell at nearly half the price of gasoline made from $100-a-barrel oil. Methanol from coal could revive the flagging fortunes of the coal industry. Methanol reformed in the field could solve the problem of flaring in the Bakken Shale, which now wastes the equivalent of one-quarter of U.S. gas consumption every year.

Yet the methanol initiative is now largely forgotten. And of course, there’s always the problem that EPA regulations do not allow it to be used in automobiles. With natural-gas surpluses now at the point where a national oversupply is being predicted for 2017, however, it may be time to go back and give the California experience a second look.

The oil industry and API, at it again. When will they ever learn?

Never a dull moment! The API is at it again. Just a few days ago, it dramatically issued a survey indicating that close to 70% of all consumers were worried that E15 (a blend of 15% ethanol and 85% gasoline) would damage their cars. While the survey was done apparently by a reputable firm, it was not attached to the press release, preventing independent experts or advocate group experts from commenting or verifying the questions and the sample. More importantly, the survey was preceded by an expensive oil industry media blitz that illustrated or talked about the so-called evils of ethanol. The survey and media show reflected an attempt by the oil industry to eliminate or weaken the renewable fuel mandates and lessen competition from alternative transitional fuels.

Americans are usually not Pavlovian in demeanor or behavior; we do ask for second and even third opinions from our doctors. But when only one group, in this case, the oil industry, has put out a continuous flashy very expensive multimedia message, the API’s survey results were almost preordained to reflect the published results. Whatever the industry wanted it got! If you tell a misleading partial story to create fear and uncertainty, long enough, it will likely influence many. In this case, the API, if it had a nose, its nose, similar to Pinocchio’s, would be growing and growing and growing.

Let’s look at the facts — never acknowledged by the API in its “Fuel for Thought” campaign.

  1. DOE effectively demolished the API-supported study many months ago indicating that the sampling approach was wrong and the analysis was faulty. DOE’s study used a much larger number of vehicles and was far more rigorous concerning methodology. (Just to let you know, API is an oil industry funded group.)
  2. Many countries around the world have used E15 and higher ethanol blends as a fuel without significant problems. They are seen as a way to reduce environmental problems. They are cheaper than gasoline and they reduce the need, at times, for oil imports. Put another way, they improve quality of life, lower costs to the consumer, and are good for the economy and security.
  3. Although oil company franchise agreements with gas stations have limited the number of stations able to sell E15, several states (mostly in the Midwest) with multi-fuel stations, have demonstrated the merits of E15. Early data appears to discount engine problems.

Hell, Henry Ford’s initial car was designed to run on pure ethanol until the temperance movement supported by Standard Oil banned the use of manufactured alcohol. I know Standard Oil was very concerned that Americans would drink ethanol at their favorite bars or in front of their favorite fire place with their favorite significant other. Praise be to Standard Oil for salvation!

The law (RFS) requires a 10% ethanol blend with gasoline. More than a year ago, EPA OK’d the sale of E15 (for most cars particularly those produced after 2001). In June, the Supreme Court refused to hear the appeal by the oil industry of EPA’s standards.

API’s media campaign raises the food versus fuel fight canard because ethanol is produced mostly from corn as the feedstock. But the narratives neglect to raise the fact that the evidence concerning the negative impact on food is disputed by reputable analysts who indicate that, for the most part, the corn used for ethanol production is not your friendly grocery counter corn. Put another way, most of the corn to ethanol conversion comes from corn not able to be used for food. Yes, there still maybe some impacts on corn production and prices because of the growers reallocation of land, in light of the differential between corn and ethanol prices, to ethanol. However, many studies suggest that if a negative food impact exists, it is relatively minor. It is a worthy debate.

It appears, that API, conveniently, forgets to mention that ethanol can be produced efficiently and effectively from natural gas and that cellulosic based ethanol is now being manufactured or will soon be manufactured in large volumes by several companies. Further, Clean Energy Fuels announced this week that it will start selling fuel made from methane in landfills and other waste sources in over 40 stations in California. Success of these initiatives, likely, will mean the end of the fuel versus food issue. If success is combined with the inexpensive conversion of existing cars to flex fuel cars permitting them to use alternative fuels, America will be blessed with a much cleaner, environmentally safe, and cheaper alternatives to gasoline- assuming the oil industry doesn’t block their sale at fuel stations.

Clearly, the oil industry does not want competition at the pump from ethanol…whether corn, cellulosic, garbage or natural gas. The American public should be wary of misleading guerilla marketing through industry funded surveys or not so benign expensive media blasts by captive organizations like API. Hopefully, the American consumer will not be confused for long. Paraphrasing a song by Peter, Paul and Mary about war and peace and a statement by President Lincoln, when will the oil companies ever learn?, and, if they don’t learn, when will they recognize “they can fool all the people some of the time and some of the people all the time but they cannot fool all the people all the time.”