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Manufacturing group attacks carbon tax, but lawmakers press on

The National Association of Manufacturers (NAM), a key opponent to past climate change legislation, is trying to slow down momentum beginning to build in Congress for a carbon tax, saying it could harm companies as they struggle to recover from the recession.

NAM released an economic study yesterday showing that a $20-per-ton carbon tax could reduce the productivity of energy-intensive companies by 15 percent, sparking a decline in jobs, wages and domestic products. Companies that use less electricity face drops in productivity of 7 percent, the study says.

The analysis comes as carbon policies face remote odds in Congress. President Obama seemed to dismiss taxes on greenhouse gas emissions this fall, and his administration reiterated this week that it won't propose them as a revenue-raising device to address the deficit.

But Jay Timmons, president and CEO of NAM, said yesterday that he isn't comforted by the administration's promises.

"The administration said they have no plans to propose a carbon tax," he said. "I have not seen them say that they would absolutely veto a carbon tax should it arrive on the president's desk."

He also expressed concern that Congress could entertain carbon policies if it begins debating tax reform, and as it wrestles with recurring budget crises, from the sequester this week to the debt ceiling later in the year.

Cantwell cool to revenue-neutral approach

Sen. Maria Cantwell (D-Wash.), who has co-sponsored carbon legislation with Sen. Susan Collins (R-Maine), said yesterday that she senses an opportunity to address climate change over the next two years.

"I just think it's more about the president breathing a lot of life into the concept [of climate] and now we have to talk about tax reform," she said. "So I just think there's a lot of things that are pushing this to the forefront more than maybe a couple of years ago, when people didn't even think that would be an agenda item."

Cantwell said she will introduce legislation patterned on her and Collins' "cap and dividend" approach, which would have auctioned off carbon permits to emitters to raise money for nationwide rebates and clean energy funding.

But she was cool to a carbon design that many economists believe has the best chance of finding traction among Republicans: a carbon-for-corporate-tax swap, which would lower levies on businesses in exchange for new revenue from emissions.

The Brookings Institution released a paper by economist Adele Morris yesterday that proposes taxing carbon at $16 a ton. The revenue could be used to lower corporate tax rates by 7 percentage points while decreasing the nation's debt by $800 billion over 20 years, the paper says. A small amount would go to low-income households and to research low-carbon technologies. The tax would also eliminate subsidies for renewable energy.

Cantwell, on the other hand, envisions using the revenue for additional federal spending, something that conservative groups disdain.

"I'm thinking more like reduce the deficit, do [disaster] mitigation, adaptation, things like that," Cantwell said when asked whether she could support using carbon revenue to lower corporate tax rates.

A bill proposed recently by Sens. Bernie Sanders (I-Vt.) and Barbara Boxer (D-Calif.), who chairs the Environment and Public Works Committee, would use the revenue from a $20-per-ton tax to send monthly rebates to every household. It would also fund clean energy investments and deficit reduction, while investing $75 billion in energy efficiency projects for manufacturers.

The NAM study did not analyze the Sanders-Boxer bill, but it considered a similar $20 tax that would apply all the revenue toward deficit reduction through 2022. Thereafter, through 2053, the tax would be evenly split between reducing deficits and lowering personal income tax rates.

It found that electricity rates would rise by about 12 percent in the first year and, by 2053, would be 20 percent higher than without the tax.

"A carbon tax can be expected to create an offsetting drag on the economy, because it would make several major sources of U.S. energy more costly to use," said Anne Smith, senior vice president of NERA Economic Consulting, which was commissioned to develop the study.

Ohio senator not sure carbon tax is 'right way to go'

The study did not consider what the economic effects on manufacturers would be if the carbon tax reduced corporate tax rates. It also did not consider the economic impacts of doing nothing to address climate change.

"Obviously, a reduced corporate tax rate, one that was designed to promote growth, would benefit manufacturing," Timmons said. "But right now, the focus in Washington is on reducing the overall debt and annual deficits that our country faces."

Sanders disputed the study's finding, saying the cost of Superstorm Sandy, at about $60 billion, points to climbing climate damage that's not accounted for in the NAM study.

"The price that America cannot afford to pay is the price of doing nothing to reverse global warming," Sanders said in a statement.

Sen. Sherrod Brown (D-Ohio) said in a brief interview yesterday that he's not sure a carbon tax is the right solution to address emissions. But he indicated that something needs to be done about rising temperatures.

"I think climate change -- I think it's real," Brown said. "I think a lot of businesses aren't willing, and a lot of angry Republicans aren't willing, to look at the science. I think they have to start paying attention. Regardless of what we do, they have to start thinking about the science and making decisions based on the science."

Asked about a carbon tax, he said, "I don't know if that's the right way to go."

Ways to cut the pain of carbon taxing

Several economists agreed with the NAM study's finding that a carbon tax stands to hurt some manufacturers economically by increasing the cost of electricity. But they also said those impacts could be reduced, or negated, by designing the tax to provide relief to energy-intensive companies.

"It is true that numerous studies have found adverse impacts on energy-intensive trade-exposed industries. So this result is not surprising," said Richard Morgenstern, an economist with Resources for the Future. "However, most policy recommendations have included some compensating mechanism."

A direct check to manufacturers from the U.S. Treasury would likely run afoul of the World Trade Organization. But the tax could be designed so it's applied to only part of an industry's production, providing economic relief, Morgenstern said.

He also said some sectors, like aluminum and cement producers, would face high burdens, while others that use little electricity would face mild levies. Aluminum makers, for example, spend 18 percent of their production costs on electricity. But energy accounts for only 1 percent of the cost to make cars.

Donald Marron, director of the nonpartisan Tax Policy Center and a former economic adviser to President George W. Bush, said a carbon tax can be an efficient way to address the cost of climate change.

Marron wrote a recent paper that says a $20 carbon tax, and its anticipated revenue of $1.2 trillion over a decade, could help pay for a reduction in the corporate tax rate from 35 percent to 25 percent. Some of the revenue would likely be needed for rebates to help low-income households handle higher energy prices. Some of it might also be used for deficit reduction, the paper says.

"If you pair a carbon tax with reducing other potentially, possibly even more distortionary taxes, you could have a net package that has relatively mild economic effects or possibly, some studies suggest, even a net economic positive," Marron said yesterday in an interview.

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