WSJ: Democrats Rethink Climate Measures, Consider Carbon Tax

Criticism from Democrats has focused on the clean electricity performance program, a centerpiece of the package’s climate provisions. House Democrats unveiled a $150 billion plan that would provide grants to utilities that increase the amount of clean electricity by at least 4% each year, while penalizing utilities that don’t meet that standard.

Sen. Joe Manchin (D., W.Va.), who represents a top coal-producing state and is the chairman of the Senate Energy and Natural Resources Committee, has lambasted the proposal. He argued that market forces are already moving electricity suppliers away from fossil fuels.

“Why should we be paying utilities to do what they’re already doing? We’re transitioning,” Mr. Manchin said.

Mr. Manchin’s concerns have pushed other Democrats to review the design of the program. Sen. Tina Smith (D., Minn.), who has led efforts to craft the clean electricity performance program in the Senate, said she is in talks with Mr. Manchin, with an aim toward broadening the program to better incorporate carbon-capture technology. Sufficient carbon-capture technology, which involves pulling emissions out of the air, could allow states with large fossil-fuel industries—like West Virginia—to rely on the same energy mix and avoid penalties for utilities.

“If you take energy, and you make it clean through carbon capture, then that counts as clean, I think, in my book and in Sen. Manchin’s book,” she said.

Mr. Manchin isn’t alone in his criticism of the plan. Some Democrats questioned whether the plan would disadvantage states that have already transitioned away from fossil fuels, while other colleagues echoed Mr. Manchin’s concerns about supplanting market forces.

“The transition away from coal is already happening, market forces and consumer demand are bringing more solar and wind resources online daily,” said Rep. Tom O’Halleran (D., Ariz.). “We don’t need blunt penalties that are impossible for energy producers to avoid.”

Republicans have railed against the climate efforts as well as the rest of the $3.5 trillion plan. Democrats are using a procedure called reconciliation, which requires just a simple majority in the Senate rather than the 60 votes required of most bills, to try to advance the package without GOP votes. Doing so will require achieving unanimous Democratic support in the 50-50 Senate, along with near unanimity in the House, while also complying with a series of special parliamentary rules associated with reconciliation.

Democrats crafted the clean electricity payment program, an adaptation of a clean electricity standard, in an effort to comply with reconciliation’s rules, though that push could still ultimately come up short, if the Senate parliamentarian finds it inconsistent with the chamber’s standards.

As talks continue on the clean electricity effort, Senate Democrats have reviewed with fresh interest an alternative for cutting emissions: a carbon tax, according to a Senate Democratic aide. Senate Democrats and staff are discussing a carbon tax that would charge between $10 and $20 per ton of carbon emissions, a lower price than that of some other public proposals, and exempt gasoline, according to the aide.

Depending on the specifics of the tax, it could raise more than $500 billion, and Democrats are discussing whether those funds would be put toward covering the cost of the $3.5 trillion bill or as rebates for consumers, the aide said. Because it is a tax, a carbon price would likely fit within reconciliation’s mandate that measures deal directly with the budget.

Revenue-raising options circulated this month among Senate Finance Committee Democratic staff included a carbon price, laying out the possibility of charging $15 per ton of carbon emissions from fossil fuels, a tax per ton of carbon emissions from industrial emitters and a per-barrel tax on crude oil.

The emerging carbon tax proposal could face some of the same political headwinds as the clean electricity program has from moderate Democrats. The aide said conversations with White House officials about the idea have focused on how to craft the tax so it is consistent with President Biden’s pledge to not raise taxes on people making less than $400,000.

Carbon pricing has lost its luster among some Democrats and climate activists after the failure of the 2009 cap-and-trade effort, which sought to require companies to buy permits to emit carbon dioxide and other greenhouse gases. But others view a carbon tax as the best tool for reducing emissions.

“I continue to maintain that a technology-neutral, economywide price on carbon is a more efficient and effective way to incentivize the movement away from fuels that drive climate change,” said Rep. Scott Peters (D., Calif.).

Including large-scale efforts on climate change in the package is a priority for progressive Democrats, who have advocated for the bill to be as large and ambitious as possible. Some progressives have also demanded that the bill scale back tax subsidies for fossil-fuel companies, a measure that lawmakers didn’t include in the House Ways and Means Committee’s tax plans.

“It’s got to remain the biggest climate change legislation ever passed, by a mile, and there’s a number of different provisions in there. You can get into which ones will stay and go, but a lot of it has to stay,” said Rep. Andy Levin (D., Mich.).

Some moderate Democrats have also singled out climate change as a priority, suggesting that having spending in the bill fully financed with tax increases and new savings doesn’t apply to spending related to climate change.

“The provisions in the bill that increase deficits should be offset, with the possible exception of measures to combat climate change,” Reps. Stephanie Murphy (D., Fla.) and Henry Cuellar (D., Texas) wrote to House leadership this month.