As Congress began debating the Bush-era tax cuts prior to Christmas and exploring ideas for raising revenue, the proposition of a federal carbon tax resurfaced. From a legislative perspective, though, the topic initially caught fire on Capitol Hill not long afterPresident Barack Obama was first elected and, subsequently, the U.S. House stood alone in passing a carbon-related bill that went nowhere in 2009.
Conceptually, a carbon tax would target and put a price on certain pollutants in an effort to curb them. States like California, New York and Vermont, among several others in the Northeast, are already taxing carbon dioxide and other greenhouse gas emissions with regional programs.
There are many ways to go about creating a carbon tax, none of which has ever been popular in Louisiana. Cap-and-trade is one possible route that was taken by the House in 2009 but stalled in the Senate. In theory, such a system would force plants, manufacturers and other businesses to buy permits for their emissions, which would be capped. The permits could then be traded or sold to businesses with greater needs for emissions.
The regional carbon-taxing programs could also be expanded or the federal Clean Water Act could be applied in such a way that energy plants would face stiffer regulations. Another alternative would be a static tax on carbon implemented across the board.
In the week’s following Obama’s re-election in November, administration officials and the president repeatedly told reporters and others that a carbon tax was not on the political menu for 2013. However, once the dust settles on the so-called “fiscal negotiations,” many expect the issue to be included in the coming tax reform talks.
While the administration has stated it has no plans to introduce a carbon tax, Sen. David Vitter, a Metairie Republican, said, “A lot of evidence is starting to surface that there is, potentially, a lot of discussion toward placing a tax on carbon in some shape or form — including within the Obama Treasury Department.”
In December, Vitter co-sponsored a resolution expressing concern. “There’s a lot of talk in Washington about raising taxes, and finding ‘revenues’ in creative ways, to avoid going over the fiscal cliff,” he says. “But a carbon tax — which would force more financial hardship upon family budgets, energy consumers and job seekers — needs to be completely taken off the table.”
In a recent brief to Congress, the left-leaning Center for American Progress offered three pieces of advice on the issue, including setting a price for carbon at a level that will lead to climate safety and that would rise over time and be phased in across all sectors.
The brief’s final suggestion is multi-tiered: “Third, the revenue needs to be directed to three uses: minimizing harm to vulnerable consumers and businesses, growing the economy with investments in clean energy infrastructure and other infrastructure that makes communities more resilient in the face of climate change, and reducing the deficit burden on future generations.”
While Vitter has his hands full opposing a concept cheered by environmentalists, Sen. Mary Landrieu, a New Orleans Democrat, has been cozying up to Big Oil. Right before Thanksgiving, the American Petroleum Institute ran a series of television ads praising Landrieu for opposing higher energy taxes. “Good thing Sen. Mary Landrieu is fighting for economic growth,” states the ad. “She knows job-killing energy taxes hurt the Louisiana economy.”
The ads were in heavy rotation until early December, placed by API to fend off the same thing Vitter is fighting: a tax increase. In particular, industry’s oil depletion allowance is said to be a prime target in Congress’ search for revenue. But API targeted states where Democrats are seeking re-election, which Landrieu intends to do in 2014.
To be certain, it makes for interesting politics. According to an April Washington Post story, API considered spending money to defeat Landrieu in 2008 when she was opposed by GOP state Treasurer John Kennedy, but its board ultimately vetoed the idea.
API Senior Director of Federal Relations Khary Cauthen says the group’s recent campaign was about letting Congress know that the industry already pays its fair share in taxes. “The oil and natural gas industry is already an engine of revenue for our nation, and it’s ready to do its part under broader tax reform,” Cauthen says. “Targeted additional taxes on oil and gas are the wrong approach for what’s needed to rebuild our economy and get our fiscal house in order. More energy development produces more jobs, revenue and energy. More taxes produce less of all three.”
In recent interviews, Landrieu has said that she wouldn’t support tax increases on, or repealing tax breaks for, the oil and gas industry during the year-end budget negotiations. Last April, she was also among the few Democrats to oppose peeling back such tax breaks.
But she seems to be leaving her options open for 2013, telling D.C. reporters concepts like this could potentially have a role to play in a broader tax reform package Congress is expected to eventually take up.
Further strengthening her pro-oil credentials during the last Congress, Landrieu introduced the Offshore Petroleum Expansion Now Act of 2012, or OPEN Act. The legislation provided an alternative to the administration’s proposed 2012-2017 Outer Continental Shelf drilling plan, adding an additional dozen lease sales.
It also has an added benefit for states like Louisiana. “This legislation would replace the administration’s shortsighted five-year plan for drilling in the OCS, and instead allow the U.S. to tap into the vast oil and gas potential off our coasts,” she says. “In addition to creating jobs and giving the U.S. economy a much needed boost through increased energy production revenues, this bill includes revenue sharing for coastal states that produce essential energy resources for our country, something that is lacking in other drilling legislation.”
Energy could prove to be a big issue in 2014. After carrying nearly 80 percent of the vote in an expanded district and with close to $2 million still in the bank, Congressman Bill Cassidy, R-Baton Rouge, is poised to challenge Landrieu. Congressman John Fleming, R-Minden, is said to be considering the possibility as well.
Although Cassidy has long gravitated to oil and gas issues, especially as a member of Energy and Commerce, the newly redrawn 6th District puts him in direct contact with the coast, its resources and those who have profited. Democrat Landrieu has enjoyed a delicate relationship with Big Oil in the past, and opponents have had a difficult go of labeling her as anti-energy. Cassidy, however, could be uniquely positioned to overshadow those alliances.
But Landrieu finds herself in a unique position as well. Democrats have a 54-45 edge in the Senate, and Landrieu could position herself as a swing vote. It’s a sticky game, though; siding with the GOP on tight votes might play well in conservative Louisiana, but it would chip away at her political roots.
Like Vitter, Landrieu is starting off the new year knee-deep in tax-related energy issues. Unlike Vitter, though, she’s forced to straddle two sides of a fence, more times than not on the side of Big Oil. But for both, oil and gas issues represent the bread and butter of Louisiana politics — and it’s doubtful either will become separated from these topics in the near future.