Porter: Carbon tax can lead to clean, cost-effective energy

The writing is on the wall. America is bound for more regulations to reduce carbon emissions from our power plants. Unfortunately, the Obama rules are shaped to promote wind and solar energy, helped greatly by taxpayer subsidies and government mandates.

In other words, the government picks energy winners and losers. It's now time to seriously consider a market-based approach to reduce emissions, specifically by imposing a revenue-neutral carbon tax.

A carbon tax works by putting a fee on what we don't want - pollution - and accordingly incentivizing energy producers to invest in or use cleaner sources of energy. Carbon taxes are already in use in several industrialized countries. Canada's British Columbia put one in place in 2008, and Sweden has had a national carbon tax since 1991. Economists, including Robert Stavins, who heads Harvard's Environmental Economic Program, believe an economy-wide carbon tax is the lowest-cost path to reduce emissions.

Predictable and clear, a revenue-neutral carbon tax would promote efficiency. And because it's revenue neutral - meaning whatever revenue raised by the tax would be offset by reductions in other taxes - it would not pad the government treasury.

In fact, while carbon-reduction efforts are often criticized for their potential cost to consumers, particularly those with lower incomes, a revenue-neutral carbon tax could actually put money back into consumers' pockets. The revenue raised by the carbon tax would potentially allow for a cut in federal income taxes. That's something free-market types should be able to get behind.

Implementing a market-based solution, such as a carbon tax to cut emissions, would be a drastic improvement over where we are now heading. Our current hodgepodge of emissions regulations and subsidies is not only hard to understand, but very inefficient. The goal of any effective carbon reduction strategy should be finding the most cost-effective means to reduce emissions.

Fortunately, a carbon tax would encourage the use of the energy sources and strategies that work best. Instead of throwing taxpayer dollars at wind and solar, which still generate just 7 percent of the nation's electricity, nuclear power and natural gas would be better recognized for their much larger role in reducing carbon emissions.

Our fleet of nuclear power plants are far and away our largest source of emissions-free energy. They generate 20 percent of the nation's electrical power and nearly two thirds of our emissions-free power. But, many well-operating nuclear power plants are facing financial pressures caught between low cost natural gas and mandates for greater use of renewables. A carbon tax would go a long way to better recognizing the value of the emissions-free nuclear power.

Furthermore, a carbon tax would also allow us to take full advantage of natural gas. Thanks to the shale revolution, our vast and affordable supply of natural gas has been the primary driver in reducing carbon emissions from power plants to 20-year lows. When used to generate electricity in place of coal, natural gas produces just half the carbon emissions.

In fact, natural gas is our most readily available and market-competitive solution to quickly cut emissions, while holding down energy costs. But various tax credits and renewable portfolio standards are encouraging the growth of wind and solar, when greater use of natural gas could cut emissions faster and at a much lower cost to consumers.

Isn't it time we drop the subsidies and let solar and wind power stand on their own two feet ?

A carbon tax would certainly encourage more low-carbon or zero-carbon energy, while providing a more level playing field between low-carbon energy sources. Actually, there's no better mechanism to drive down the cost of renewables than stiff competition.

The past seven years of energy policy skirmishing has taught that more action on emissions control is nearly inevitable, and very costly. So, consumers need free-market leadership on energy and climate policy - thus a revenue-neutral carbon tax is worthy of serious consideration.

Porter is an energy and environmental consultant, based in Savannah, Ga. Earlier, he was an EPA assistant administrator in Washington, D.C.