About the SA Blog Network

Plugged In

Plugged In

More than wires - exploring the connections between energy, environment, and our lives
Plugged In HomeAboutContact

It’s Not About Tar Sands – It’s About Us

The views expressed are those of the author and are not necessarily those of Scientific American.

Email   PrintPrint

By Melissa C. Lott and Scott McNally

According to Dr. James Hansen, developing Canada’s tar sands would mean “game over for the climate.” And, the current Director of NASA’s Goddard Institute for Space Studies is disappointed with President Obama for not taking action to stop Canada from causing a climate change-induced apocalypse. But, what Dr. Hansen fails to acknowledge in his May 9th NY Times Op-Ed is that demand drives supply. The tar sands are not the climate endgame – we are.

Hansen’s two main arguments, as presented in his NY Times article, are as follows:

  1. Developing Canada’s tar sands will release massive amounts of harmful greenhouse gases into the air.
  2. The President should take action to prevent the development of Canada’s tar sands, in order to avoid a climate apocolypse.

Assuming that you agree with 97% of climate scientists, Hansen is absolutely correct when he says that we “need to start reducing [greenhouse gas] emissions significantly.” And yes, developing Canada’s tar sands would lead to the release of large amounts of these gases. But, this is not the crux of the climate issue.

Stopping Canada from producing tar sands will not curb the world’s oil demand, reduce fossil fuel consumption, or significantly reduce our total greenhouse gas footprint. In truth, if President Obama were to convince Canada to stop producing their own resources, as Hansen suggests, this would not discourage Americans from driving their SUVs to the mall.

If we want to reduce fossil fuel consumption, we have to reduce demand.

In his article, Hansen does suggest an approach for reducing carbon emissions. In his article, he advocates for a modified carbon tax, where all of the proceeds would be redistributed back to the American people (a.k.a. oil consumers). In his own words:

“We should impose a gradually rising carbon fee, collected from fossil fuel companies, then distribute 100 percent of the collections to all Americans on a per-capita basis every month.”

But, taxing oil producers, and then distributing those tax revenues to oil consumers makes little sense in the context of our nation’s energy markets. Here’s why:

If you impose a tax on an energy company, instead of becoming less profitable by absorbing the tax, the energy companies will pass on the expense to the consumer. (Not because they are evil, because it is basic finance. If the cost to produce a product increases, the sales price must increase, otherwise you will go out of business.) So ultimately, energy will be more expensive, and the consumer will pay more. From an environmental perspective, this is good, because incentivizing consumers to use less can lead to demand reductions. But, giving those taxes back to the consumer nullifies the incentive and, in the process, creates a system that must be managed (and can be manipulated).

If we want to reduce the carbon footprint of our transportation fuels, we should focus on reducing demand, and a tax that would punish producers and reward consumers is not going to help.

About the authors:

Melissa C. Lott is an engineer and 2011 Presidential Management Fellow. She holds two master’s degrees – in Mechanical Engineering and Public Affairs – from The University of Texas at Austin. You can reach Melissa at melissalott at gmail dot com. [Full bio here]

Scott McNally has a B.S. in Chemical Engineering from the University of Texas. He has worked as an Environmental Engineer for Valero Energy Corporation, a Project Engineer for Shell Oil Company, and an energy and climate research intern for the White House Council on Environmental Quality. Scott is a frequent guest blogger at Plugged In. You can reach Scott via e-mail at scottmcnally at gmail dot com.

Photo via David Wogan’s post

Melissa C. Lott About the Author: An engineer and researcher who works at the intersection of energy, environment, technology, and policy. Follow on Twitter @mclott.

The views expressed are those of the author and are not necessarily those of Scientific American.

Rights & Permissions

Comments 14 Comments

Add Comment
  1. 1. dubay.denis 11:57 am 05/24/2012

    Melissa and Scott correctly argue that we need to reduce demand for fossil fuels. A carbon tax does this most directly by making fossil fuels more expensive. Consumers will seek to reduce their energy costs by using less fossil fuels by either using them more efficiently, or switching to alternatives that are not subject to a carbon tax. The per-capita return of the tax to taxpayers simply makes the process revenue neutral overall. But it would be wiser to use some of that carbon tax to speed up development of alternative energy sources and the infrastructure to make best use of them. (Of course the producers would pass the carbon tax on to consumers, that’s the whole idea!)

    Link to this
  2. 2. dubay.denis 12:05 pm 05/24/2012

    By the way, James Hansen has been pushing a carbon tax for quite some time as a much simpler and less-easily abused alternative than a carbon cap and carbon trading system. And if Melissa and Scott have another way to reduce demand and use of fossil fuels, they should by all means tell us about it. Simply urging people to “do the right thing” does not work if the right thing is more expensive. Taxes are how society can justly adjust incentives in ways we agree are necessary, so the “right thing” becomes “the most cost-effective thing.” Garrett Hardin included taxes in what he referred to as “mutual coercion mutually agreed upon” in his 1968 article in Science magazine, The Tragedy of the Commons.”

    Link to this
  3. 3. Deep Climate 12:16 pm 05/24/2012

    Comment #1 from dubay.denis is absolutely correct. It’s nonsensical to claim that a carbon tax would not reduce demand for fossil fuel, relative to “business as usual”.

    Lott and McNally seem to fundamentally misunderstand the “revenue neutral” concept, one variation of which is espoused by Hansen. This does not involve returning collected tax to “oil consumers”. Rather, other taxes are reduced, usually or as Hansen appears to support, a per capita credit or “dividend” is issued.

    As previously mentioned, it is also possible to use some of the money to invest in “green” infrastructure. But in the end, since there is no “refund” linked in anyway to consumption, there is no way that any of these uses of carbon tax can “nullify” the incentive to reduce demand.

    Link to this
  4. 4. jtdwyer 12:30 pm 05/24/2012

    In simple economic terms, the most effective way to reduce carbon demand is to tax its consumption and apply those taxes to support the acquisition of non-emitting energy sources. Electric vehicles supplied by coal power plants should not qualify for price supports, btw…

    Link to this
  5. 5. RDH 12:46 pm 05/24/2012

    A tax which is totally returned to the people? That’s a good one Hansen. Old, but good. Is this SciAm or Mad Magazine?

    Obama can stop the Canooks. Send a few drones to the tar sands and that’ll stop ‘em.

    Link to this
  6. 6. wbiber 1:01 pm 05/24/2012

    Giving the money back protects the poor from worsening poverty due to the tax and does not reduce the incentive.
    All people, even those who use no energy get the rebate.

    Everyone would have an incentive to reduce energy use because doing so reduces the tax paid for energy, but does not reduce the rebate received.

    Link to this
  7. 7. pokerplyer 1:10 pm 05/24/2012

    The idea of a new carbon tax being implemented in the US so that we might not damage the climate is laughable.

    1st worldwide CO2 emissions will continue to rise regardless of US actions on the issue. 70% of the world’s population wants greater use of electricity and personal transportation. They will gain greater access to these in the most economical means possible, and that is and will be fossil fuels for several decades. Does it matter if worldwide CO2 concentrations are at 455 ppm in 2050 vs. 450 ppm? Is it worth 100’s of billions in additional costs to US citizens? Why?

    2nd people should recognize the realities of the world’s financial situation. The US has a huge problem of expenses exceeding revenues. The US must soon either drastically cut spending or drastically increase revenues. The idea of a new carbon tax is simply not something that can be implemented except as a part of an overarching restricting of the tax code.

    BTW- the article had something about agreeing with 97% of climate scientists. The only thing that 97% of climate scientists agree upon is that humans are having an impact on the climate. There was no such agreement on Hansen’s ideas, or on the rate of warming associated with more CO2 or what should be done, if anything. There is not even any agreement that it being warmer is better or worse for humanity overall over the long term.

    Link to this
  8. 8. evosburgh 1:19 pm 05/24/2012

    Look … any tax is just a way to get more money into the government coffers so that it can be ‘redistributed’ as they see fit. There is a simple though exercise based upon subsidies that the federal government pays (2007 baseline) per kWh for different fuels ( p. 106).

    The experiment: remove all of the subsidies on all forms of energy generation. Reasoning to do so is to baseline the cost because whether it is paid on your bill or through a subsidy it is all coming from our pockets (or at least the pockets of those paying taxes which is a whole different topic altogether). The result: the cost of buying ‘renewable’ (meaning wind and solar) energy to the consumer goes up 69 times.

    Now, as suggested, increase the tax on the suppliers of coal and natural gas to make up for the increase in cost to the consumer as a refund (or just use the subsidy route which is a way to keep the money out of the consumers hands and offset the cost increase) and we find that we need a tax of around $24.63/kWh, or a total of $70 billion dollars (per year), to make up the cost of subsidizing solar and wind as a replacement for coal and natural gas.

    Also, we need to be able to increase the capacity (in 2007) of solar and wind almost 9000% (or 90 times) in order to have enough to replace the fossil fuels. If you want to jump on the bandwaggon against nuclear then the $70 billion goes to $90 billion per year and we need an additional 2400% increase in solar and wind for a grand total of 11400%, or 114 times the 2007 level, increase in wind and solar capacity.

    Now what is going to happen when you increase the taxes on fossil fuels to account for the needed $90 billion dollars per year is that the cost of fossil will go up and ultimately the tax payer will carry the entire $90 billion we are looking at a tax increase of around $300/per person in the US per year. Since around 80 of the total 300 million residents in the US are actually paying taxes that means that the actual tax payers get to pay an additonal $1125/year to support this plan. Pretty sweet, I guess this is what is meant by ‘paying your fair share’.

    Link to this
  9. 9. dyamihayes 3:44 pm 05/24/2012

    I have to disagree that blocking the development of tar sands will have no impact on the overall demand,and thus no impact on emissions. Cutting off a large supply works similarly to imposing a tax, that is, it causes a macro shift upward in the price suppliers will charge, which will in turn force the demand down.

    I’m not saying that a carbon tax wouldn’t also be good, or that we shouldn’t also target the moral sentiments of people to do “the right thing” (picture the PR against smoking in my country, only with carbon emissions), but lets not pretend that we can IGNORE the supply chain altogether – that the decisions to impede our drilling is moot.

    Perhaps I am missing some subtle economic abnormality specific to the oil industry that some people find relevant? If such is hypothesized, I’d love to hear more! From what I know, any time there is a scare in oil price hikes due to, for example, wars in East Asia, it is because of how the disturbance in supply is shocking the price.

    Link to this
  10. 10. PGreenlee 8:02 pm 05/24/2012

    “… energy will be more expensive, … From an environmental perspective, this is good, because incentivizing consumers to use less can lead to demand reductions. But, giving those taxes back to the consumer nullifies the incentive …”

    The authors need a course in micro-economics. There is no reason to believe that ALL of the refund would be spent on fuel, but rather every reason to believe that some would be spent on other “goods.”

    Specifically, change in demand with price has both a substitution effect, and an income effect.

    A simplified example: If the price of Coke goes up, and Pepsi doesn’t; then Pepsi becomes relatively more attractive, so at the margin more Pepsi and less Coke will be consumed (substitution), and the consumer will feel less wealthy (they must reduce their desired consumption of cola, and/or of some other good(s) to stay budget neutral (income).

    If you are comfortable with partial differentials lookup “Slutsky Equation.”

    Link to this
  11. 11. Melissa Lott 10:38 pm 05/24/2012

    Thanks to everyone for the comments in response to this post. I enjoyed reading through them and hearing your thoughts on Dr. Hansen’s article, and our response to it.

    @dubay.denis – I agree with you (and with Hansen) that a carbon tax could be an efficient way to discourage the use of fuels with large environmental footprints. And, to @Dyamihayes ‘s point, we should not ignore the fuel supply chain if we were to implement one – if one resource has a larger impact than another, it goes to reason that it should bear a larger amount of tax than the cleaner alternative. All fossil fuels are not created (or developed) equal.

    But – this does not bring into account Dr. Hansen’s advocacy for a net-zero tax. I become concerned when he speaks about returning the revenues brought in via a carbon tax to energy consumers. This seems to undermine the point, which is to discourage consumers from using a particular product. I agree with @RDH – it would not be feasible to set up a system where 100% of the taxes pulled in are then distributed. A tax and refund system takes $$ to operate. I also have concerns about the social justice question-marks raised by @wbiber. More on this below.

    @Deep Climate – Thank you for bringing up this point. To clarify on Hansen’s carbon tax proposal as presented in his 5/9 op-ed… he states that:

    “We should impose a gradually rising carbon fee, collected from fossil fuel companies, then distribute 100 percent of the collections to all Americans on a per-capita basis every month.”

    To this reader, this proposal (as outlined) means that Hansen believes that we should bring in money from fossil fuel companies and then give everyone in America a check. Since most of us directly use fossil fuels (and, almost certainly all of us use these fuels indirectly), this means that the funds are going to American oil consumers.

    Further, to the social justice point raised by @wbiber – giving the same amount of money to every person in the U.S. (refunds or dividends on a per capita basis) implies that consideration would not be given with respect to the energy intensity of each person. In some ways, this is good. A lower income person who uses less energy than the average American would get the same refund as an intense energy-consumer who happens to fall into a higher tax bracket. But, what about the potential regressive impacts to lower-income bracket folks who are caught in a situation of – lets say – commuting to work. Attempts to avoid regressive impacts here would almost certainly add a layer of complexity to the system and, therefore, a layer of cost in implementation and an increased possibility for manipulation.

    @dyamihayes – your point is well taken. Sure, if America were to stop buying oil from Canada’s tar sands, it would certainly have some impact on the movement of oil around the globe. But, unfortunately, due to high demand for the resource, this impact could be largely negative. Instead of moving the oil through pipelines to (relatively) close refineries, America’s refusal to use these resources would likely only lead to them being moved to other countries. And, in turn, our nation’s oil supply would come from other countries – like Venezuela and the Middle East – bringing their own additional environmental risks due to the extra transportation distance.

    Again, thanks for everyone for your comments.

    Link to this
  12. 12. BigInScience 8:30 am 05/25/2012

    Hi Melissa and Scott. Another timely and important article! (I was just researching and writing about tar sands for my upcoming book). I agree with your assessment- tar or oil sands are environmentally damaging. Currently the most common form of extraction is through strip mining with about 2 tons of of tar sands needed for 1 barrel of oil. Consider also that it takes 2-4 cubic meters of water and 125-214 cubic meters of natural gas to extract just a single cubic meter of synthetic oil. And tar sand extraction releases much more greenhouse gases than traditional oil extraction. Finally, tar sand processing leaves “ponds” of toxic liquid waste (which has been known to kill migratory birds among other animals).

    Unfortunately, present tax structures in Canada (Canada has ~70% of the world’s tar sands deposits) make extraction of tar sands very profitable (likely even more profitable than extraction of more conventional oil). In the near future though, the Canadian government will likely phase out some of these tax benefits, but I agree this will not be enough to deter companies from continuing to extract tar sands and further steps are needed.

    In sum, we really should be doing more to develop and expand less harmful sources of energy- this is something I write about extensively in my upcoming book “Rush: Science and Technology in our Acceleration Age.” Feel free to visit my website

    Link to this
  13. 13. spork 6:06 am 06/6/2012

    This argument about demand has become rather tired. Yes, there is a demand for fossil fuels, and yes, this contributes to our problems. But the assumption of the authors, and too many people in positions of power, is that as long as there is this demand, there is nothing we can do.

    But we can. We can, by force of political action, leave demand unmet. To all the industries crying out in demand for fossil energy, we can say “screw you, you’re not getting any (or less than you want, and at higher prices)”. In fact, I think this is the only litmus test we need to distinguish people who are serious about climate legislation and those who seek excuses for passivity: Are you willing to use political force to substantially shift the fossil fuel supply/demand curve? We have the option to answer “YES!”, and we should.

    And the best way to shift the supply demand curve is on the supply side: to have governments force energy extractors to LEAVE FOSSIL FUELS IN THE GROUND! It’s completely stupid to allow their extraction, and once they’re in barrels, bemoan the fact that somebody buys and burns what’s in them. Once the stuff is in barrels, of course it will be bought and burned. It would be a collosal waste if it wasn’t. If governments hope to have any effect at all, it must though forcing extractors to leave that stuff in the ground, even if “the market” wants it out of there. There is market demand for child prostitution, organ selling and cannibalism, and nobody thinks it’s strange when governments step in to disrupt these markets. Why is it so unthinkable that governments should disrupt energy markets? Given what we learn from science, isn’t that EXACTLY what they should do? Isn’t this what governments are for?

    Link to this
  14. 14. Ian St. John 11:52 am 06/25/2012

    A very good article, but to refine the question of rebating the tax to ensure that it has no ‘overall’ impact other than to reduce fossil fuel use, the tax cannot be purely ‘per capita’. Think about the ‘per capita’ use of a farmer vs the ‘per capita’ use by a city dweller using bicycles or transit. It must be rebated on the basis of ‘average fuel use relative to a classification of user’. The ‘waster’ will be at a relative disadvantage and the ‘saver’ will enjoy a bonus he can spend at the mall.

    If part of the tax can be used to offset regressive taxes (such as payroll and income) then that is also an option that may encourage more employment.

    Link to this

Add a Comment
You must sign in or register as a member to submit a comment.

More from Scientific American

Email this Article