Dominion Announces Support for Carbon Tax

Dominion Energy has joined a coalition of 13 corporations and four leading environmental groups in support of a carbon tax and other measures designed to reduce CO2 emissions. The group, known as the CEO Climate Dialogue, has set a goal of achieving economy-wide reductions of 80% or more by 2050, with aggressive near- and mid-term emission reductions commensurate with that goal.

The group “aims to build bipartisan support for climate policies that will increase regulatory and business certainty, reduce climate risk, and spur investment and innovation needed to meet science-based emissions reduction targets,” according to a press release issued yesterday.

The CEO Dialogue listed six principles to guide federal legislation:

  • Significantly reduce U.S. greenhouse gas emissions so that the U.S. is “demonstrably a leader on global efforts to effective limit climate change.”
  • Allow capital-intensive industries to adjust in “an economically rational manner.” Policies should focus on emissions outcomes, not dictate specific resources or technologies.
  • Use the market to achieve carbon reduction “at the least cost to the economy and households.” Markets will “spur innovation and create and preserve quality jobs in a growing low-carbon economy.”
  • Policies should be adaptive as technology and scientific understanding of climate change evolves.
  • Policies should do no harm to the competitiveness of the U.S. economy.
  • Policies should be transparent, promote affordability, and include mechanisms that blunt the impact on disadvantaged communities.

Dominion, which relies heavily on nuclear power and is rapidly expanding its solar portfolio, is jumping onto the climate change bandwagon along with other energy giants like BP, Shell, BG&E, DTE Energy, and Exelon. CEO Thomas F. Farrell provided the following quote for the press release:

For more than a decade, Dominion Energy has embraced the opportunity to deliver cleaner, affordable and reliable energy. Our CO2 emissions have declined by more than 50%, and over 85% of our generation comes from low or no carbon sources. The CEO Climate Dialogue will work to build bipartisan solutions that promote innovation and achieve meaningful economy-wide emission reductions while ensuring technological leadership and continued economic growth.

Bacon’s bottom line: If you’ve got to address global warming by targeting CO2 emissions, then I suppose a carbon tax is the way to go. The market can allocate resources far more efficiently than the political system can. A tax would limit the opportunities for favor seeking, special pleading, regulatory capture, graft, and, above all, waste and inefficiencies that inevitably would occur in an energy sector governed by such deep thinkers as Rep. Alexandria Ocasio-Cortez, D-New York.

I see two broad questions arising from the carbon tax. First, at what level do we set the tax? And what do we do with the revenue?

In a recent post, Don Rippert laid the groundwork for how to think about a carbon tax. The moral justification for a tax is that climate change imposes costs on society — which economists refer to as externalities — and those who generate the externalities should compensate society. It follows logically (implied, but not stated explicitly by Rippert) that the tax should be set at a level equal to the externalities. And what do we do with the revenues? Rippert contends that the money should be returned to the citizens rather than be given to government to squander, an argument I would agree with.

The principle difficulty I foresee is putting a price tag on CO2 externalities in order to set an appropriate tax. While there is widespread (not universal) agreement that CO2 contributes to climate change, there is no agreement how how much it contributes: The International Panel on Climate Change allows for a wide range of outcomes in its forecast of temperature increases by 2010. Furthermore, there is a wide disparity of views about the economic costs of higher temperatures. Most studies have focused almost exclusively on costs while giving no weight to the benefits of higher CO2 concentrations and warmer temperatures. For example: CO2 accelerates plant growth and makes plants more drought resistant. More people die of exposure to cold than heat. Setting a price tag on externalities inevitably will be driven by politically motivated efforts to decide what gets counted and what does not in order to favor one view or the other.

The idea of a carbon tax is simpler and more elegant in theory than the current approach of passing laws, writing regulations, and filing lawsuits on everything under the sun. But I’m not optimistic. Experience shows that the political battleground will simply shift to a new set of controversies.

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11 responses to “Dominion Announces Support for Carbon Tax

  1. Without restrictions on building or rebuilding structures in floodplains and the imposition of some additional tax on building owners who will receive government assistance for protection and other mitigation efforts, this tax is going to be a big transfer of wealth from the working and middle classes to the wealthy. Goodness sakes, the WaPo editorial staff will be orgasmic for months.

    And yes, if we address some externalities, we need to address all of them. Otherwise, the plan would not be economically sound. Why include some but not all externalities from an economic perspective?

    And finally, I’d trust MS-13 before I’d trust federal, state or local governments with additional tax revenues.

    • I heartily agree with your consistent advocacy of restrictions or taxes on building in floodplains or beach fronts (this from someone who is getting ready to leave for a week’s vacation in an ocean front house in Sandbridge). This issue is not brought up much and it should be.

  2. The political issue I see is a carbon tax, for example, that still possibly favors natural gas as the cheapest option for elec power. In addition to carbon tax, Virginia environmentalists want an immediate policy ban and phase out fossil fuels. The extreme punitive treatment of fossil fuels tends to favor going forward instead with nuclear, if we continue on this approach. Some environmental groups are starting to say yes, we must elevate carbon to super-enormous threat to human life, yes therefore requiring a possible fallback to nuclear as the lesser of two evils. Not sure that is correct for mankind, but is one emerging path of least resistance.

    If you are a utility, electrification is what the environmentlaists are demanding American rapidly shifts to, so it is not all that bad as a future prospect.

  3. Here are key words of initiative:

    “Policies should focus on emissions outcomes, not dictate specific resources or technologies.

    Use the market to achieve carbon reduction “at the least cost to the economy and households.”

    If these words are honored, a big if, the initiative has merit.

  4. Damn it Bacon … you type faster than I do. Write better too. Your take on this was published a few minutes before mine. We make similar points. You’re the blogmaster. If you think they are too overlapping – feel free to delete mine.

  5. I’m perplexed that those who say GW is a hoax would not also – outright oppose a carbon tax and other anti-GW policies like RGGI.

    You would expect a skeptic like Jim to have a wholly different commentary on a carbon tax than say DJ – who does believe.

    So how can folks who are “skeptics” just not outright oppose things like carbon taxes ?

  6. My concern about this is the bait and switch methodology used by the corporations involved with this proposal. The principles lead off with a commitment to “Significantly reduce U.S. greenhouse gas emissions”, then go on to address only CO2.

    Total greenhouse gases is the appropriate issue. Shifting to addressing only CO2 artificially favors gas as a lower carbon source, which it is, but ignores the equally large greenhouse gas contribution from the methane leaks.

    Approaching the issue in this fashion creates a public perception that emissions of potentially climate altering substances are being reduced, when that is not the case.

    The energy industry is trying very hard to portray gas a “clean” fuel. This is just one more attempt to expand the use of fossil fuels for decades to come.

    We will have the majority of our electricity generated using gas for quite some time. It does not make sense, environmentally or economically, to continue to add gas-fired generation and the associated greenhouse gas emissions that are similar to coal plants.

    Much of the discussion in Virginia has been based on carbon-intensity, rather than total carbon emissions. A new gas-fired power plant can release less carbon per MWh compared to an old coal plant. But a gas plant running more than 80% of the time can release more total carbon than an old coal plant that runs less than 10% of the time.

    Nuclear units might not be helped by this. Experts estimate that a carbon tax in excess of $200/ton would be necessary to make current nuclear plants cost competitive. This is an order of magnitude higher than any carbon taxes under consideration. Refurbished nuclear units extended for only 20 more years would require even larger subsidies to compete in the wholesale energy market.

    The data center owners, including Apple, Amazon Web Services, Microsoft and seven others, wrote a letter to the SCC on May 8, 2019 chiding Dominion for failing “to fully take into account the energy preferences of the data center industry – by limiting the amount of competitively-procured solar energy . . . and continuing to plan for the development of additional natural gas infrastructure.”

    Don made a compelling argument about using market forces to deal with energy choices and climate issues. We should make sure that someone is not putting their thumb on the scale to favor their special interest by using misleading information to influence public policy.

    • “Don made a compelling argument about using market forces to deal with energy choices and climate issues. We should make sure that someone is not putting their thumb on the scale to favor their special interest by using misleading information to influence public policy.”

      Thank you. Unfortunately, the “thumb on the scale” problem is guaranteed to happen. A rigorous media might be able to call “foul” on the thumb pressing but I fear we don’t really have a rigorous media anymore. Too much Twitter, too little effective national and local media. Politicians and special interests are getting away with murder.

  7. I spent all today learning about 1) PJM capacity markets and state subsidy issues, 2) EV cars and their impact on the power business and 3) grid mod in other states…..tomorrow a key note from the new FERC commissioner and then a panel discussion on CO2 regulation which might add some data worth sharing – but once comment strings have gotten this long, I don’t see the point….no readers this far downstream but the usual suspects.

    Where? A national energy regulation conference sponsored by the SCC, W&M Law School, and the energy bar….(“a kangaroo walked into an energy bar….”)

    Sorry, grandkid event tonight so no story from today’s program yet….watch early in the week.

    Dominion was for carbon regulation before it was against carbon regulation and now it’s for it again. Through it all, its for Dominion profits. We should all be against dumb carbon regulation.

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