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Clean Tax Cuts Takes Off at the GOP Convention

Just two months have flown by since I first introduced the Clean Tax Cuts policy concept publicly, in writing, here in the pages of The American Spectator. Now it turns out I’ve just been invited to speak on Wednesday at the Republican National Convention, at the Sustainability Forum, hosted by the American Sustainable Business Council.

So tomorrow, I’ll be introducing key members of the Republican Party to a new (and greatly improved) conservative idea that can deliver broad supply-side tax cuts, a boost the economy, and cure climate change.

How on earth did I get here?

Well, I got lucky. A handful of really smart people were kind enough to give me very good advice and suggestions. Some have challenged me to push the idea into new territory, make it broader, more neutral. Their comments have shaped the clean tax-cut idea in just the last two months, and made it better. I should give credit where credit is due, to faithfully witness the process whereby new ideas grow up, make friends, meet challengers, and grow stronger for it.

R Street Encouragement

The first of those smart people to reach out to me, simultaneous with the publication of my column, was Eli Lehrer, President of the R Street Institute. Eli kindly invited me to lunch with his Energy Policy Director, the impressive Catarina Rorke (who will, btw, be on the same panel with me in Cleveland, along with Jerry Taylor and others… should be fun! We are streaming live.). While Eli clearly liked much about the idea, both he and Catarina encouraged me to make it better.

Catarina urged me to work out the question of pay-fors: how exactly will clean tax cuts be financed, using dynamic scoring. While I am still hoping Catarina will someday oversee the actual computer modeling, her suggestion did produce a back-of-the-envelope answer:

2004 research by Harvard professor Greg Mankiw indicates that half of a capital income tax cut (which is exactly what clean tax cuts are) is about 50% self-financing by expanding investment and economic growth.

So if you follow that formula, then 2$ clean tax cut should equal the pay-for: $1 new revenue from growth, plus 1$ clean spending cuts, from reducing existing subsidies and regulation. That should pay for itself, while reducing government, boosting GDP and helping the environment. So, depending on the nature of the subsidies, the value of a clean tax cut could be 1 to 2X the value of all the 1,149 separate energy subsidies (see below) that it phases out and replaces, plus 2X the value of the regulatory cost it replaces. And, pursuant to suggestions below, if the clean tax cut can be really broad and apply to the entire economy, and can be used to justify eliminating most tax breaks from the tax code, then the clean tax cut could increase greatly by 1 to 2 times the value of those eliminated tax breaks, depending on their nature.

So that is a pretty big number, worthy of further study (Catarina?).

Eli encouraged me to figure out how to avoid picking individual winners and losers, a question that troubled him, and has dominated my thinking ever since.

The answer to that concern was suggested by comments from two other very smart gentlemen, who, as fate would have it, sometimes don’t agree with each other: Ted Nordhaus, co-founder and executive director of the Breakthrough Institute, and (a month later) Amory Lovins, co-founder and chief scientist for the Rocky Mountain Institute. In addition, a handful of cleantech entrepreneurs, fossil fuel innovators, scientists and venture capitalists helped fill in important gaps.

Ted’s Challenge

Ted got in touch with me at Eli’s suggestion. Over dinner, Ted challenged me — he actually said “I challenge you…” — to extend my discussion of the clean tax cuts concept to nuclear and hydro, because in his view climate change cannot be addressed quickly enough without those technologies in the mix.

Ted was right that my Spectator column had mostly focused on the declining cost of utility scale solar and wind, and how that made clean tax cuts newly relevant for those technologies. I only briefly mentioned hydro, and nuclear not at all. In so doing, I followed cautious advice from some careful economists to study and make the case for clean tax cuts one industry at a time, to be very careful to get the facts right about each industry. I was certainly not opposed to broader applications. Wind and solar is just where GRF and our research partner, The Jack Kemp Foundation, started.

But Ted made some good points as to why the industry-by-industry rollout of the concept might not be such a hot idea. It smacked of picking winners and losers, he said, echoing Eli’s concern.

Clean Tax Cuts should be technologically neutral, said he. He would favor that, if clean tax cuts treated all low or zero carbon energy sources equally according to the same metric. To do that I’d have to include everything from the get-go, including nuclear and hydro and clean low carbon fossil fuel innovation, or risk the perception that I was picking winners and losers. Besides, Ted pointed out, nuclear and hydro are popular among some conservatives.

Ted also urged me to broaden my clean deregulation argument right along with broadening clean tax cuts. In an email a few days later he wrote: “conservatives could cobble together a pretty credible decarbonization agenda largely centered on deregulation.” He had in mind deregulation in order to ease research, development and deployment of a new generation of smaller and hopefully safer and cheaper modular nukes, adding low impact power capacity to existing hydro dams, and preventing new over-regulation of already declining methane emissions in the natural gas industry. To Ted, over-regulation in these areas was, as he put it “largely a sop to the environmental movement,” to the detriment of actual GHG reduction, when you looked at the hard facts. “[Clarification: Ted does not advocate a deregulatory agenda but observed that a deregulatory agenda around nukes, gas, and hydro would be at least as credible as a decarbonization strategy as what green NGO’s and Democrats advocate.]

As I considered Ted’s challenging arguments, one thing became clear to me. If Ted was right that technological neutrality was key to avoid picking specific winners and losers, and therefore that I should broaden clean tax cuts and deregulation — and he made very good arguments — then by his own logic, he was only partially right, and both the challenge and potential benefit was even greater than what he proposed. Why? To be really technologically neutral, I had to be much broader than just clean energy. To really avoid picking winners and losers, I had to be neutral with respect to all decarbonization investments, including efficiency, land-use, sequestration and maybe more than that.

That greatly increased the challenge for me personally, because either I would have to become an expert in all of that stuff very quickly, or I would need to very quickly develop a coalition of think tanks and scholars and industry analysts who were experts in all these sectors, who could help me figure out simple decarbonizing metrics that made sense across the board.

But this also greatly increased the benefit and power of the argument. Because not only would total technological and investment neutrality overcome the problem with picking winners and losers, it would also make clean tax cuts a very broad economy wide supply side tax cut, since decarbonization and energy efficiency are profitable and easily attainable goals for every corporation and tax payer in America and globally. Such a broad clean tax cut would have huge political appeal to both the right and left, and would be even more powerfully pro-growth than just a niche tax-cut just for clean energy. It could be encompassed in any existing GOP tax plan fairly easily, broadening the bipartisan support as the tax rate cuts would being earned by good citizenship, in terms of energy efficiency, decarbonization and pollution reduction.

Ted believes nuclear hydro and gas deregulation are politically achievable in the current Congress. However, it seems to me such deregulation will only make palatable sense to the environmental movement, and indeed the broader public consensus, if it is combined with clean tax cuts that reward nuclear, hydro and gas investors for making each technology ever cleaner and safer, for following best practices without fail. That could help give the public significant peace of mind that corporate interests were aligned with public and environmental safety… and that would make some sensible deregulation OK, and political consensus smoother.

Further, I had a hunch that if clean tax cuts expanded economy-wide, then that would (a) turn up lots of other opportunities for clean deregulation to remove regulations blocking decarbonization and efficiency, and (b) justify new clean spending cuts from eliminating other distorting subsidies and tax breaks.

Jimmy Kemp agreed. The best way forward was to broaden the idea economy-wide, and simultaneously seek out a broad coalition of scholars, think tanks, funders, and policymakers, with plenty of sector expertise, to help us figure out how to apply clean tax cuts to their concerns in a way that was as simple and technologically neutral as possible across the entire economy.

Super Connectors

We could not have done that in a mere two months without the help of two of the best eco-policy connectors I know: my 007esque cousin, Bill Stetson, a fellow alumnus of the Smith Richardson Foundation’s Reagan-era grants board and natural born transpartisan diplomat; and his friend, Chip Commins, chairman and CEO of the American Renewable Energy institute and founder of the institute’s annual gathering of cleantech VCs, entrepreneurs, policy wonks, heavy hitter donors and politicians, both conservatives and liberals, known as AREDAY, set in beautiful Aspen, Colorado.

Their one brilliant simple piece of advice? Come speak at AREDAY!

In fact, Bill introduced us in March. When Chip first heard the clean tax cut idea, he remarked “Dude [he actually said dude] when you took the words “carbon tax” and added “cut,” I realized that — with three simple letters — you had just won the world energy policy Scrabble game.”

He then immediately asked me to come introduce the idea for the first time publicly, at AREDAY. I absolutely did not get what his event was all about and put him off for a couple of weeks. But Chip kept calling and Bill insisted I would be an idiot not to go. So I went.

AREDAY: Energy Efficient Hookups Galore

Good thing too! Trammell Crow, Texas gazillionaire and Republican founder of Earth Day Texas, who was on the “token” conservative panel with me, loved the idea, and how it might shift Texas Republican politics. T. Boone Pickens, who spoke right after me, was intrigued with how clean tax cuts could make the natural gas industry ever cleaner, and accelerate the shift of trucking fleets to compressed natural gas.

Here are video excerpts from our lively Conservatives & The Green Agenda panel. (To skip intro, jump to 1:15.)

Here is the first public presentation of the Clean Tax Cuts concept at AREDAY:

Paul Walker, Executive Director of ConservAmerica, pointed out to me, “You know Rod, one of the strongest points about clean tax cuts is that it actually simplifies the tax code. If you can wipe out the 1,149 energy subsidies that are mostly counterproductive and highly distortionary, and replace it with a technologically neutral clean tax cut that treats everyone equally, that alone would be a huge tax code simplification — and simplification of government too. And if you can go beyond that…” In short, Paul and ConservAmerica President Rob Sisson were “in,” delighted to partner with GRF and the Jack Kemp Foundation to research and develop this aspect of the clean tax cuts further.

I was blown away by all the other really impressive folks who wanted “in” and kindly offered to help me shape the policy and think through the metrics: Prof. Klaus Lackner, Director, Center for Negative Carbon Emissions, ASU, as well as his colleague, Bill Brandt

Director of Strategic Integration, ASU Lightworks; David Orr, Distinguished Professor of Environmental Sciences & Politics, Oberlin College; Connor Platt, CEO of Etho Capital, a sustainability investor; Henk Rogers, President of the Blue Planet Foundation; Rev. Mitchell C. Hescox, The Evangelical Environmental Network; Gueta Mezzetti, energy security and advanced technology consultant; Aaron Berger, Co-Chair, Nexus Working Group on Climate Change; John Rutherford Seydel, III, Founder, Revolution Nation Network (RNN); Ray Gwin and Ryan Brown, with Earth Day Texas, Elizabeth “Hallie” Halliday (who feeds me the best jokes), Kinga Jones (did this radio interview with me: show: Aspen/ starting 21:50), and many others.

Including of course, Richard Eidlin with the American Sustainable Business Council, who kindly invited me to Cleveland.

Some of the most important feedback came from cleantech entrepreneurs, fossil fuel innovators and VCs whom I Interviewed at AREDAY. Space does not permit including those interviews here, but in a column soon. But some of these guys, like Sierra Energy and ZHRO, have amazing working technologies right now capable of producing carbon negative energy, as well as cleaning up and transforming the fossil fuel Industry into clean energy plus carbon materials business, while potentially earning more profit per pound of fossil fuels than by just burning the stuff.

Every one of them said, to the man, that clean tax cuts would allow them to capitalize and grow their decarbonizing businesses much much faster. In other words, this was important evidence that Clean Tax Cuts could: (a) help the fossil fuel industry become cleaner, and perhaps even transform into a clean energy/carbon materials industry; and (b) help promising new cleantech innovators, with technologies possibly better in some way than current cleantech (wind, solar, hydro, nuclear, etc.), but who are not receiving the same level of subsidy support.

Amory’s Invitation

When I first laid eyes on Amory Lovins, the godfather of the energy efficiency movement, he was complaining to General Wesley Clark, with a twinkle in his eye, about too much regulation preventing the deployment of solar energy and resilient energy-efficient electrical hook ups.

I knew right then this was a man I could talk to.

IMG_2280

Amory and me, taking in the subtleties of his home…

Indeed he talked to me for two hours, as he gave me a tour of his ultra–energy efficient home, and the new headquarters of the Rocky Mountain Institute. The man is a genius. He grows bananas in his living room, at over a 6,000-foot elevation with -30°F winters, in a nifty hobbit hole with no heat source except a stunningly great design. The proudest feature of his new office? The nega-mechanical room, an empty space where all the completely unnecessary heating and cooling equipment… is not.

The entire time, he kept bringing up annoying regulations that prevented him from achieving even greater energy efficiency for no good reason.

Amory did not challenge me quite the way Ted had. Instead he just kept pointing out really cool but very subtle thought-provoking stuff. Like his plumbing pipes. Most homes use thin plumbing pipes with T-head junctions. Amory’s house uses wide pipes with gentle angles. And that means less friction in the system, which uses 30% less electricity. In other words, simple low tech design is a decarbonizing investment as much as any high technology, with a higher and faster return on investment.

 

Rod and Friends

Rod Richardson, Bill Stetson, Amory and Judy, in the  Lovins’ kitchen.

Clearly Amory was as attracted to something about clean tax cuts as I was to the elegance and efficiency of his home design. Perhaps it’s because clean tax cuts is a similar design concept: rather than fighting the flow of capital, which is what most climate policy tries to do, it harnesses and focusses the power of the flow, merely diverting it gently by dropping the tax barriers in the direction we need it to go. It is efficient friction-reducing socio-economic design.

Of course, it probably did not hurt that clean tax cuts could vastly accelerate the shift to energy efficiency and decarbonization, deep and abiding interests for Amory.

I told Amory flat out that I needed his help to figure out how to apply clean tax cuts to energy efficiency and decarbonization economy-wide. We needed to figure out simple metrics that could be easily applied in a neutral manner. Could he help me? He said yes.

Our brainstorming on this front has been entirely preliminary. But a few interesting ideas have bubbled up so far. One possibility: we really do not need to come up with our own metrics, because well accepted metrics are already out there, widely used right now.

For instance, More than 5,500 corporations voluntarily disclose GHG accounting data to CDP (formerly Carbon Disclosure Project). CDP scores corporations on GHG reduction using the Corporate Standards developed by the World Resources Institute GHG Protocol, which is widely considered the global standard for GHG accounting. CDP issues grades, 1 – 100, grading disclosure practices, and A through E, measuring how effectively a company is addressing climate risk.

 

IMG_2242

Amory’s wide pipes with gentle angles.

A corporation’s tax rates could be lowered according to their CDP score. This method has the advantage of simplifying all decarbonization considerations for a complex corporation (fleet efficiency, energy intensity of operations, use of renewable energy, etc.) into one final score. And we know it is not overly burdensome, as 5,500 corporations already voluntarily disclose this information.

Alternatively, if some corporations and taxpayers find it simpler to receive tax rate reductions for separate components of decarbonization at the project or product level, the EPA’s well known Energy Star Program, measuring efficiency for homes, buildings, industrial plants and consumer products, could be used to set benchmarks for energy efficiency gains that merit tax rate reductions at that level.

Doubtless there are other metrics that may be even more useful. The good news is that it seems, following Ted’s challenge to be completely technologically neutral, and Amory’s invitation to explore simple, objective metrics for energy efficiency and decarbonization, we can satisfy Eli’s concern the Clean Tax Cuts should not pick specific winners and losers.

At the end of our tour, Amory proposed that RMI and GRF should convene a clean tax cut forum of scholars, think tanks, funders and policymakers to explore the structure and implications of the clean tax cuts idea, and for those so inclined, to form an ongoing working group committed to shaping and developing the concept wisely.

I said yes. Of course.

*****

 

 

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