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Only a carbon tax can make the most of coal’s decline

Economy-wide tax on coal could raise revenue for cutting other taxes.

The accelerating decline in US coal-fired power is good news for public health and the climate. Surprisingly, it isn’t such good news for the federal government’s approach to cutting reliance on an especially dirty fuel.

Confronting Coal

Federal regulation under the Clean Power Plan aims to cut electricity from coal by 43% from its 2007 peak by 2030. At the current rate of decline, that will happen in just the next two years — before the rules demand any reductions begin. That the policy can be rendered out of date so quickly underlines the case for a more adaptable approach, one based on prices, not quantities. It makes the case for a modified carbon tax.

Cheap natural gas and growth in renewables are reducing power from coal faster than almost anyone predicted. Coal-fired power fell 14% between 2014 and 2015, to a level 33% below that of 2007. That’s great: Burning coal releases mercury, lead, sulfur dioxide and other pollutants into the air, causing asthma, heart attacks, neurological and other diseases, and an estimated 7 500 deaths each year. Coal-fired power produces almost twice as much carbon dioxide per kilowatt-hour as natural gas, making it among the largest contributors to global warming.

Then why not build on this progress by simply ramping up the targets in the Clean Power Plan? Because that’s not how the federal rules work. New targets would require more years of work and negotiation by federal and state agencies. And the next batch of rules could also be beside the point before they ever came into effect.

The Cost of Carbon

Consider the advantages of an economy-wide tax on coal, based on estimates of the health and climate costs of coal-fired power. This would allow more efficient adaptation and raise revenue for cutting other taxes — the familiar advantages of a carbon tax. In addition, it would maintain a steady pressure to reduce coal-fired power without requiring accurate long-term forecasts of emissions: If emissions fall faster than expected, no new rules or approvals are required. 

The political resistance to using a tax would be intense, it goes without saying. But the advantages would justify the effort. In the case of coal, economising on regulatory overhead might be top of the list.

© 2016 Bloomberg

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