Yet in its September report “Carbon Tax – Deficit Reduction and Other Considerations,” the Congressional Research Service (CRS) promoted fiscal effectiveness over climate issues, forecasting that a carbon tax of $20 per tonne of carbon dioxide – designed to rise annually by 5.6 per cent – could halve the projected federal deficit to $1.1 trillion in 10 years.

Many Republicans see no chance of this happening, at least in the short term. “We have been offered tax hikes for tax cuts before,” Republican arch-lobbyist Grover Norquist of Americans for Tax Reform told CK. “New Jersey’s income tax was introduced to reduce property taxes; in Texas, Bush raised sales taxes promising lower property taxes. The result is always the same. New tax grows. Old tax grows back.”

Memories are long on Capitol Hill, said John Gimigliano, a principal with KPMG’s energy sustainability tax practice in the U.S. He points to former U.S. President Bill Clinton’s BTU (British thermal unit) tax to conserve energy and raise $30 billion per year. While not enacted after being proposed in 1993, it was still succeeded by a motor fuel tax of 5 cents per gallon.

The CRS report has nonetheless sparked some political discussion. Two months after its release the conservative American Enterprise Institute (AEI) organized a one-day carbon tax conference, which included International Monetary Fund and Treasury officials. Citing one admittedly extreme scenario, the AEI’s Kevin Hassett suggested Republicans may be willing to accept a carbon tax under the right conditions. “If we had a one-cent carbon tax and we took 10 percentage points off corporate taxes, what do you think the reaction would be?” he offered rhetorically.

ExxonMobil would also accept a carbon tax if enforced, but would not advocate for one, company spokesman Alan Jeffers told CK, conceding that carbon taxes were administratively more efficient and provide greater price certainty than carbon markets based on cap-and-trade. Exxon would insist, however, on revenue neutrality and not tolerate a revenue grab, said Jeffers.

The devil is certainly in the details, but Republicans and Democrats risk missing a great opportunity by not taking the carbon tax option seriously. To address the fiscal deficit, Obama has two basic choices: broaden the tax base through measures such as taxing carbon emissions or increasing existing taxes; or cut welfare and health care spending. The latter is politically costly.

But policy tradeoffs do exist through so-called revenue neutrality – recycling carbon tax receipts to offset increased energy prices or, for example, reducing payroll or corporate taxes and continuing with Bush-era tax cuts.

Individual taxes raised $1.09 trillion in 2011, or 47 per cent of total federal receipts, while social insurance and retirement receipts provided 36 per cent. Corporate taxes raised $181 billion, just 8 per cent of federal receipts, according to the CRS report. It estimated that a $20 carbon tax could raise $88 billion in year one, increasing to $144 billion by 2020 with a 5 per cent annual increase.

Opposition to carbon taxes often stems from trade-exposed, energy intensive industries such as the coal industry and coal-fired power utilities. The CRS report projected a $20 per tonne price would increase the cheapest coal prices by $38 a short ton, four times its 10-year price average, while the most expensive coal, anthracite, would see its 10-year price average increase 80 per cent to $48 a ton.

Furthermore, a $20 per tonne carbon tax would represent 10 per cent of the average U.S. utility’s revenue, according to a 2007 Carbon Disclosure Report, which estimated North American utilities emitted 5,000 tonnes of CO2 per million dollars in revenue – 2,000 tonnes more than European Union utilities.

Consequently, the American Coalition for Clean Coal Electricity claims carbon pricing could cost $220 billion, forcing the closure of 69,000 megawatts of power generation capacity and costing up to 900,000 jobs, mainly in electoral battleground states Ohio, Michigan, Missouri, Wisconsin, Illinois and Indiana.

This is likely scare-mongering. In resource-dependent Australia, the government introduced a three-year fixed carbon price of A$15 (about US$15.50) per tonne last July (transforming later to a cap-and-trade market). But tax-free thresholds, above which individuals pay income tax, will triple from A$6,000 to $18,000, offsetting the impact, said Tony Mohr, climate change program manager at the Australian Conservation Foundation.

Besides, carbon taxes could prove to be a competitive advantage for U.S. industry.

Industry often flags the risk of carbon leakage as a consequence of carbon pricing – that is, industries in developed countries will become uncompetitive against those in developing countries like China and India that do not mitigate CO2 by pricing carbon. Therefore, they argue, developed countries’ industries would be encouraged to close shop at home and move operations overseas.

Many consider this a red herring. China is committed to reducing its carbon intensity to between 40 and 45 per cent below 2005 levels during the next decade, a target comparable to the U.S. target of 17 per cent below 2005 levels by 2020. Seven Chinese provinces are planning cap-and-trade markets and Beijing wants a national carbon market by 2015, according to a 2012 FORES/Stockholm Environment Institute report.

Also, a carbon tax plan could be designed to protect U.S. industries from developing-country competition by legally imposing border tax adjustments on nations such as India and Indonesia, which fail to reduce emissions, according to a World Trade Organization-UNEP report released in July 2009.

Republicans must face reality. They lost the climate battle when the U.S. Supreme Court ruled that the Environmental Protection Agency (EPA) could regulate greenhouse gas emissions under the Clean Air Act. At best, the GOP can delay implementation through legal action, but industry observers say this also risks delaying regulations beneficial to the flourishing natural gas industry.

Besides, the EPA regulations can be used by Obama as an olive branch. “There won’t be any concession on our side without EPA pre-emption,” said Dave Banks, a Bush-era Council on Environmental Quality policy advisor turned Tea Party activist.

Should Obama waive EPA regulations, “a sincere conversation” could take place between the “two crowds” in the debate – the energy-environment crowd and the Treasury-tax crowd, said Banks.

Both sides (and crowds) would be wise to seize the mettle, but breaking the impasse likely requires congressmen to perceive how negative consequences of inaction over a carbon tax outweigh the consequences of implementing a carbon tax, explained KPMG’s Gimigliano.

For those watching the discussion unfold, don’t hold your breath.

The post The fiscal cliff appeared first on Corporate Knights.

A quarter of the world’s productive land is under the threat of soil erosion and nutrient depletion. Making matters worse, 40 per cent of agricultural production is never consumed as food, said Steiner. UN Secretary-General Ban Ki-moon’s high-level sustainability panel report, “Resilient People, Resilient Planet: A Future Worth Choosing,” indicates the annual irrigation behind wasted food is equivalent to providing nine billion people with water.

As current production and consumption patterns stretch the planet’s resources, the world population by 2050 will require two and a half planets. Developing countries are expected to account for most of the increased demand, said Karl Falkenberg, the European Commission’s Director-General for Environment, in an interview with Corporate Knights.

If we are to accommodate a growing population, Rio+20 must put the strong governance in place to deliver green, sustainable growth, said Falkenberg.

The legacy of Rio

Held in Rio de Janeiro, Brazil, the 1992 UN Conference on Environment and Development, or Rio Earth Summit, was an “historic moment for humanity,” according to Maurice Strong, secretary-general of the conference.

It brought a new post-Cold War security agenda focused on development and environment and delivered new governance with the creation of UN bodies for climate change, biodiversity and sustainable development. Millennium Development Goals were set and sustainability was embodied in Agenda 21 (for the 21st century), a plan of global action that sought to make polluters pay, end global poverty and restore the earth’s ecosystems to health.

The Rio summit was a “huge success,” former Canadian prime minister Paul Martin told Corporate Knights. “Rio focused attention on environmental considerations in a way nothing else could have,” he said, underlining its “unprecedented” nature in gathering world leaders to discuss the environment.

Historic, yes. But successful?

As world leaders gather in June for the 20-year anniversary of the landmark Rio summit, Ban is warning that climate change is at the point of no return. His report states the ozone layer is decades from recovering to pre-1980 levels. World poverty, which stood at 46 per cent in 1990, still affects 27 per cent of the population. During the same period, GDP has increased by 75 per cent, indicating a widening gap between rich and poor.

Almost one billion people have no access to clean water, while 2.6 billion have no sanitation and 1.3 billion go without electricity. More than two-thirds of primary and secondary school-age children have no education and nearly 800 million adults, most of them women, have basic literacy problems. Expect intense discussion at Rio+20 of the triple crises around food, energy and fresh water supply. The OECD Environmental Outlook to 2050 projects that, without new policies, global energy demand will increase by 80 per cent, with 8.5 out of every 10 units of supply coming from fossil fuels.

Agriculture accounts for 70 per cent of annual world water consumption – one litre of water is required for each calorie of food produced – and energy prices make fertilizers increasingly unaffordable in developing countries. Continued environmental degradation and erosion of natural capital will ultimately reverse 200 years of progress, with 40 per cent of people globally expected to suffer severe water stress, stated the OECD.

So what went wrong?

Rio 1992 framed sustainable development as three converging circles of environment, economy and society, becoming the three-legged stool at the Johannesburg Earth Summit a decade later. Too much emphasis on one leg unbalanced the stool.

An “irresponsible generation” failed to deliver a sustainable world after Rio, said Felix Dodds, executive director of the Stakeholder Forum, a non-governmental organization. Increasingly unsustainable consumption patterns, now being exported to developing countries, led to “two lost decades,” he said. Where the imbalance between economy, social justice and environment could be seen as a crisis of capitalism or globalization, Ban told KPMG’s summit that he saw “a crisis of leadership – a lack of imagination in looking at old problems with fresh eyes – and a lack of urgency as the clock ticks down.”

For Martin, the challenge at Rio+20 will be to convince those clinging to the economic leg of the sustainability stool that transforming our “brown” economy into a green growth alternative is the only way forward. “Environment is an economic issue and the costs of climate change will be horrendous,” said Martin, who expects Mexico President Felipe Calderon to push world leaders on the issue when he hosts the G20 Summit in Los Cabos on June 18, just days before the Rio+20 conference.

The message is that Adam Smith’s capitalism is out of date and the economy must create value beyond narrow concepts of growth. One major hurdle is that sustainable development has not historically been integrated into the political process. Politics and institutions of the day reward the short term, and there are few incentives to think otherwise. Political challenges are immediate, while the dividends that come with good policy require patience.

In essence, what’s needed is a political process that can bridge short- and long-term considerations. It must embrace sustainable development and be guided by science such that we can map the planet’s boundaries, thresholds and tipping points.

Will Rio+20 deliver? Levels of ambition and expectation run the gamut. A presidential election year prevents the United States from agreeing to anything more binding than broad-based principles and voluntary commitments. It is certain to avoid agendas that force obligations on other countries. On governance, the U.S. also rejects the idea of creating any overarching “world environment agency” and prefers common goals to replace dichotomous language like “North-South.” Green growth remains an opportunity to explore, but not a priority. To its north, Canada’s ephemeral ambitions refer to green patents and technology. Neither the U.S. nor Canada talks timeframes, nor do they have clear sustainable development goals.

The European Union, on the other hand, recognizes the world as very different from 1992. For it, real actions are needed in June, not after. “We want to be proactive and get things done,” said Falkenberg. “In Rio (1992) the emphasis was on developed countries and their responsibilities. The world has moved on and we need to collectively move forward.”

In that spirit, India and China must also embrace green growth, said Falkenberg. “We can’t have Canada pushing oil sands as its agenda item, or China wanting coal-fired power. Co-ordinated actions are required.” He said targets related to clean air, emissions, fish stocks, fresh water and green energy will be crucial if we are to move beyond the aspirational.

Dominic Waughray, the World Economic Forum’s senior director and head of environmental initiatives, echoed that view. “Developing countries mustn’t see green growth as a restraint on (economic) growth,” he told Corporate Knights, adding that for Rio+20 to work “real timeframes and goals are required.” It must be more than just a photo op.

The key to moving forward in a meaningful way may rest with markets, and the creation of new and better market signals. Georg Kell, head of the 1,400-member private sector organization UN Global Compact, said markets must urgently assimilate companies’ non-financial performances and translate them into market signals. Governments must place ‘’a premium on good performance, and incentives must transcend short-term thinking,” said Kell.

Vast scope exists for ecological fiscal reform, including corporate tax reductions for achieving greenhouse-gas emissions targets and tax-free dividends for investors when companies achieve environmental and corporate social responsibility (CSR) targets. As Kell told KPMG’s summit: “There is competitive advantage in CSR.”

And what if government leaders fail to deliver a brave green world at Rio+20, the same world promised two decades ago at the original Rio summit? Is failure an option? Michael Dorsey, a member of former U.S. president Bill Clinton’s Council on Sustainable Development, put it this way: “People will just have to roll up their sleeves and really fight.”

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