Climate Change Law and Policy Lawyers & Attorneys : McKenna Long & Aldridge Law Firm : Climate Change Regulation, Green Strategies, Environmental Policy

Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.

Exit the airlines, enter T. Boone Pickens. To fanfare in USA Today, Pickens has announced his Pickens Plan to beat the oil crisis with a one-two punch from wind and natural gas. Like the airlines, he has a website, and a plan to be on TV more often than Obama and McCain. "Neither presidential candidate is talking about solving the oil problem. So we're going to make 'em talk about it," Pickens says.

To the delight of the American Wind Energy Association, Pickens says the US can produce enough wind power within a decade to be able to divert twenty percent of the natural gas used to fuel power plants to fueling cars and trucks. Pickens wants to see a third of all vehicles powered by natural gas within a few years, if the distribution system can be put in place.

Pickens, of course, has business interests in both wind and natural gas but says at his age and with over four billion dollars net worth, his Pickens Plan is not a booster plan for his financial interests. Pickens is building what would be the world's largest wind farm near Pampa, northeast of Amarillo in the Texas Panhandle. USA Today reports he has spent two billion dollars on the project, including purchase of almost 700 wind turbines this year from General Electric. He will invest up to $10 billion in the project and generate electricity by 2011.

What do the candidates for president say about all this? Very little yet, except splitting over the idea of a gas tax holiday, with Senator McCain and ex-candidate Senator Clinton for it and Senator Obama, sensibly, we think, against it. But is it too much to predict that the candidate that jumps out front to lead on this issue will win the election in November? President Clinton's staff famously admonished themselves over sixteen years ago in setting his campaign priorities that "it's the economy, stupid." This year “it's the price of gas, stupid.” Moreover, the candidate who jumps on this and gets elected will probably be able to claim major credit within his first hundred days, according to the report of Agence France Presse that the International Energy Agency and OPEC predict that oil demand will slacken next spring, sending oil prices lower.

What is the relevance to climate change, you have been impatient to ask? Plenty. Any solution that emerges from the efforts of the airlines, T. Boone Pickens, Congress, the President, the candidates, and the host of others seeking a solution -- will be bad for greenhouse reduction. Congress is searching for solutions to both the economic problem -- voters bankrupting themselves at the pump and the nation sending $700 billion a year abroad to buy oil primarily from the Middle East -- and the climate problem. If it solves only the first problem, it worsens the second.

The problem is, Congress has yet to consider a win-win solution. To achieve such a solution, some have suggested that it’s best if we leave the price of oil high and recover the windfall the oil companies receive in the form of a tax that in turn is earmarked for investment in climate-friendly technologies and projects to “green” the tax proceeds. It could be called a windfall profits tax or a green gasoline tax, but whatever it is called, it would achieve precisely the benefits a direct carbon tax such as the one Congressman Dingell once proposed (as a provocation) and then withdrew -- an incentive to drive less, buy less-polluting vehicles, and use less oil and gas. Thus what critics almost universally say is a political non-starter, i. e., a direct federal tax on carbon fuels, could be indirectly achieved, at least for oil and gas, in two steps by tolerating the high price of oil and gasoline but building a large green fund from the tax on the oil companies. 

The green gas tax will not solve the balance of payments and energy independence concerns that deserve the most serious consideration, but by deliberate design it would give a stimulus to the types of technologies that would both help the US achieve a greater measure of energy independence and thus ultimately bring down the price of oil: wind and solar, biofuels, further conservation, flex fueled vehicles, a hydrogen fuel economy, and clean-coal plants. The one-two punch of a green gas tax and the auction of a significant portion of the carbon emissions rights created by federal and state climate legislation would put the nation firmly on the path to a responsible greenhouse gas reduction program and a greater measure of energy independence and weaning from Middle Eastern oil.

One last hurdle exists -- keeping revenues firmly linked to the environmental and energy objectives they would be used to pursue. A green gas tax and its dedicated revenues nicely link climate protection, green technology, and energy conservation, but the temptation to use the revenues to offset the costs of other expensive social programs may be very strong with a new Congress and new administration. For example, one member of the House Ways & Means Committee spoke recently  of taxing carbon emissions in lieu of cap-and-trade and using at least some of the funds generated to offset payroll tax increases that may be necessary to fund existing or expanded entitlement programs. The pressure on entitlements, for which the Ways & Means Committee has principal responsibility, is finally starting to be felt. Naturally, that Committee looks toward taxation since tax legislation would bring the funds generated under the Committee’s jurisdiction.

The revenues that would be created by defining carbon emissions as units of value to be either taxed or traded would, either way, be enormous. It will take leadership from the new White House to unify congressional leaders and avoid diverting the funds from investment in green technology and reducing our reliance on foreign oil to other legislative objectives. If the new president is Democrat, as not a few prognosticators are predicting, his first priority may well be funding health care and in particular expanded Medicare and Medicaid programs. The revenues generated by either a carbon tax or by auction of emission rights under cap-and-trade may tempt the new president, who could try to kill two birds with one stone by launching a US climate program (tax or trade) and funding health care reform with the proceeds.