Manchin Zaps De-Facto “Clean” Energy Mandate, Carbon Tax

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The Hill reported yesterday that Sens. Joe Manchin (D-WV) and John Tester (D-MT) “poured cold water” on Democratic colleagues’ attempt to include a carbon tax in the $3.5 trillion reconciliation bill. Sen. Manchin may just have foiled President Biden’s ambition to enact a major climate initiative in 2021 and make a big splash at the COP26 climate summit that convenes in Glasgow on October 31.

And this just in: E&E News reports that when “a group of progressive lawmakers emerged from a meeting at the White House yesterday afternoon—an outline of a scaled-down reconciliation package in hand—it looked increasingly likely that Democratic policymakers would settle for the only two climate policies the country has ever known: tax credits and regulations.”

A quick recap of how we got here. On Earth Day, April 22, President Biden pledged to the United Nations that the U.S. would reduce greenhouse gas emissions 50-52 percent below 2005 levels by 2030. In mid-September, the administration and congressional allies unveiled their flagship climate policy—a $150 billion initiative called the Clean Electricity Performance Program (CEPP). A de-facto “clean” energy mandate, the CEPP would pay utilities to increase electric generation from non-fossil sources by 4 percent annually and penalize utilities that fail to do so. The goal was to expand the market share of non-emitting electric power—nuclear, hydro, wind and solar—from roughly 40 percent today to 80 percent by 2030.

However, Manchin has said for weeks that he opposes subsidizing an electric sector transition that is already occurring. On October 16, The New York Times and NBC News reported that Senate leaders were likely to drop the CEPP from the reconciliation package due to Manchin’s opposition. Why was his support critical?

Unlike ordinary legislation, a reconciliation bill cannot be filibustered, requiring only a simple majority of Senators to pass. Because Republicans hold 50 seats, and all oppose spending another $3.5 trillion on top of the $4.8 trillion the U.S. government already spent in fiscal year 2021, Democrats cannot pass the reconciliation Spendulus without Manchin’s vote.

When Manchin refused to back down on CEPP, Democratic leaders tried to sell him on a carbon tax. His negative response was predictable, and not only because he “raised a red flag” over colleagues’ push for a carbon tax in September.

Politically, the core function of a carbon tax is to make fossil fuels unaffordable, beginning with coal. West Virginia is the nation’s second largest coal producer, and coal-fired generation accounts for 91 percent of the state’s net electric generation. If Sen. Manchin deemed the “carrots and sticks” CEPP to be unacceptably damaging to West Virginia’s economy, there was no way he would support a carbon tax.

Democratic colleagues are reportedly fuming, but Manchin may have saved their political bacon. Earlier iterations of carbon pricing schemes—Al Gore’s Btu tax on carbon-based energy in 1993 and the Waxman-Markey cap-and-trade bill in 2009—contributed to the Democrats’ loss of their majorities in the House.

The larger point is that the green movement’s NetZero agenda is unaffordable, and therefore unsustainable. That is the case even if NetZero is achieved via a carbon tax—allegedly the most efficient (least-cost) greenhouse gas reduction strategy. Bjorn Lomborg explains why in a recent Wall Street Journal op-ed and series of Twitter posts.

Lomborg unpacks a recent Nature Climate Change study beguilingly titled, “The surprisingly inexpensive cost of state-driven emission-control policies.” You might assume the study finds that state-level climate policies are inexpensive. What it actually finds is that state-level climate policies are not substantially more expensive than a uniform nationwide carbon tax. But in either case, the costs of NetZero are ruinous.

The Nature study estimates that to almost achieve NetZero by 2050—a 95 percent reduction in U.S. energy-related CO2 emissions—a carbon tax would have to increase beyond $1,500 per ton. For perspective, that is about 18 times higher than the Biden administration’s social cost of carbon dioxide estimate for 2050 (see Table ES-1). By mid-century, the tax would cost the economy $4 trillion annually—about 12 percent of U.S. GDP and $11,300 per person. Such a policy is not sustainable either economically or politically.

Lomborg comments:

US going net-zero will cost more than $11,300 per person per year in 2050 according to new Nature study. That is almost 500x as much as average American willing to pay. That won’t end well.

The stock rejoinder is that “inaction” is the costliest policy of all, and we must do whatever it takes to hold global warming below 1.5°C. The United Nations Intergovernmental Panel on Climate Change (IPCC) is usually invoked as scientific authority for that viewpoint.

However, the IPCC’s Special Report on Global Warming of 1.5°C did not affirm or imply that climate change is an “existential threat.” The IPCC estimated—using overheated models and an inflated emissions baseline scenario—that, in a world with no climate policies whatsoever, global average annual temperature will rise by 3.66°C in 2100. That results in a projected global GDP loss of 2.6 percent (Chapter 3, p. 256).

A 2.6 percent reduction in GDP is undesirable but far from “existential,” especially if the decrease is not from current GDP but from the much higher levels of GDP expected after another eight decades of global growth. Consider that in the IPCC’s five socioeconomic development scenarios, global GDP in the 21st century is projected to grow between 600 and 1,800 percent.

History suggests that market-driven innovations, if not sabotaged or blocked by central planning and other political interference, will keep improving the state of the world, regardless of climate change. In contrast, carbon taxes—to say nothing of less efficient climate policies—are likely to do more harm than good, imposing substantial costs for undetectably small benefits. The NetZero agenda is the path to poverty, misery, and disunity, which is why even the first steps on the path are beyond the political strength of the president and his congressional allies.