FBR still sees long odds for carbon tax in new Congress

Despite Hurricane Sandy and a larger Democratic majority in the Senate, FBR Capital Markets analysts still think the chances of some sort of carbon tax being enacted during the next four years remain slim.

“Little has changed since climate legislation failed in 2009,” according to a Nov. 12 commentary authored chiefly by FBR Energy and Natural Resources analyst Benjamin Salisbury.

“Even if there are plausible scenarios under which Republicans might want to support climate legislation, we believe there will be little ability or desire to balance the multitude of entrenched interests necessary to pass such complicated and controversial legislation amid big picture battles over taxes, entitlements, and immigration,” Salisbury said.

“Rather we expect the Obama Administration to move forward with CAA [Clean Air Act] regulation and push for a Clean Energy Standard setting minimums for low-carbon fuels in power plants,” the FBR analyst said. FBR has indicated that there remains potential for some type of “grand bargain” on coal and renewable energy policy.

Salisbury noted that the solid re-election of President Obama and a Democrat-controlled Senate has fueled calls for Congress to implement a carbon tax, possibly as a revenue source to bridge the “fiscal cliff.” Climate change is the largest unaccomplished agenda item from the President’s first term, and fundamental trends could push the issue to the fore next year.

“However, we believe that Congress is unlikely to impose a significant burden on fossil fuel producers in the foreseeable future,” Salisbury said.

The Environmental Protection Administration (EPA) has published draft greenhouse gas regulations that would “effectively prohibit” construction of new coal plants, the FBR analyst said. This has led some to argue that Congress should replace the EPA regulations with a carbon tax.

The appeal for the coal sector would be transparency, new coal plants, and revenue that could be used to smooth the transition such as carbon capture funding.

But Republicans still dominate the House and have shown no inclination to pass climate taxes. “Finally, although the President will enjoy some latitude in not having to run for reelection, Senate Democrats who must vote on climate taxes will face an uphill battle retaining control of the Senate in 2014, an off-cycle election where young Democratic voters are less likely to participate,” Salisbury said.

In 2014, 20 Democrats and only 13 Republicans will be up for re-election in the Senate. Additionally, the chairman of the Senate tax panel, Democrat Max Baucus, faces re-election in coal-rich Montana, FBR said.


About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.