Minnesota levies world's first carbon tariff...against North Dakota

If you regulate CO2 produced from manufacturing, it's probably more expensive for you to produce goods compared to somebody who just blithely opens the smokestacks like they're living in 19th-century England. Carbon tariffs are a way for countries that do control CO2 to level the economic playing field against ones that don't—you simply tariff imported goods that are cheap because of polluting so that the price better reflects the damage done, and so that the cleaner country can compete.

Or, rather, it was assumed the parties would be countries—and it was generally assumed that China would be the first polluter to have a tariff levied against it. But, you know assumptions ...

The first carbon tax to reduce the greenhouse gases from imports comes not between two nations, but between two states. Minnesota has passed a measure to stop carbon at its border with North Dakota. To encourage the switch to clean renewable energy Minnesota plans to add a carbon fee of between $4 and $34 per ton of carbon dioxide emissions to the cost of coal-fired electricity, to begin in 2012, to discourage the use of coal power; the greatest source of greenhouse gas emissions. Coal has immediate health effects in addition to the well documented long term effects on climate. Coal has been implicated in asthma, diabetes, heart disease and even neurological damage, reducing intelligence levels. North Dakota ranks 8th in toxic metals contaminating its coal waste, with 3,419 tons of toxic metals.

If this seems a little weird, you should probably understand that Minnesota has been generally pushing for cleaner power within its borders (it's no California, but it's doing better on this than most states), but the utility companies that operate here have, over the past decades, sited a lot of coal power plants on the relatively cheap and open land of North Dakota. My guess would be that this is a way of extending policy to cover more of the energy used within the state, even though it happens to be produced elsewhere, while simultaneously spurring investment (theoretically in both Minnesota and North Dakota, as only coal-power electricity is affected) in renewable energy development.

North Dakota, meanwhile, is pissed, and has sued the state of Minnesota. Minnesota had anticipated this, and has a half million dollars set aside to fight.

Scientific American: First Carbon Tariff Will Tax CO2 at the Border
Treehugger: Minnesota Slaps North Dakota With World's First Carbon Tariff

Image courtesy Flickr user tisue, via CC

• [SamSam]

  No, I was assuming freedom of choice, like I said. (And I mentioned it because it wasn’t a perfect assumption).

  If Gold Medal increases the cost of their flour, they would expect to see a decline in sales, even if the total amount of flour used nation-wide doesn’t change, because consumers will switch to other brands.

  Likewise, if I’m a company in MN and the electricity from ND doubles in price, I will try to buy my electricity from somewhere cheaper.

  Now, of course my assumption is not completely justified because in the short-term there will be plenty of places that might not have access to alternative power companies. But:

  1) those that do have alternatives will have an increased likelihood of switching, and

  2) There is an increased incentive for cleaner power companies to start serving once under-served areas, because they will now be able to offer a more competitive price.

  So the net result is that the percentage of power bought in MN from dirty ND plants will decrease over time.

  I agree with you that laws are frequently more powerful, but if MN is not able to influence the laws in ND, then economic incentives can also achieve similar results. Plus, economic incentives are generally viewed more favorably by the general population. (e.g. you get a tax credit if you have health insurance, instead of saying you will go to jail if you don’t have health insurance.)

• [self-propelled]

  If it costs more to fix warming then, what, we all die choking while riding our toys?

  Nice. Costs of warming multiply exponentially as time goes on, so there’s no way doing nothing now is the cheaper option – though it will push more of the costs onto the poor rather than the rich in global terms – but that’s a pithy summation of the ‘grow now, pay later’ mentality.

• [fiatrn]

  Samsam wrote
  “In this case, a higher cost of electricity will have a direct effect on consumption (assuming consumers have enough freedom of choice). Higher costs mean less electricity bought.”

  –

  But that assumes an elastic demand. What if you can’t lower your personal demand? Sure, everyone should be able to use a few less kwh of lightbulbs, or shower quicker, but there is usually a finite lower limit to personal demand of SOME items – water, milk, heat, etc… sometimes a tarrif raises money for the local government, but does not actually reduce demand.

  Hence the occasional need to make LAWS to make things cleaner (ie, regulation)- it’s not always something a “free” market can sort out. If profit is the only motivator, and not clean air or affordable Cap’nCruch, then sometimes you need societological intervention (sometimes called government regulation).

• [Antinous / Moderator]

  Wouldn’t it be easier to ask Jesse Ventura to kick North Dakota’s ass?

• [Uncle Geo]

  Pollution may or may not be a sin but it is something that harms a great many outside the company itself. It causes rises in health care costs, in environmental damage and lost revenues in other industries (ex:fishing).

  We as a society and a democracy have the right to say “what you are doing is harming others. We will tax what you do to make the cost of your goods go up in relation to methods that do less harm. If you choose to invest in cleaner energy as Minnesota has and is planning more of, then you’re back in the game”.

  Free marketers will scream at the government intervention in the market, but the alternative is letting companies ignore what needs to be done in favor of their own profits. We saw what happened when we let bankers do this.

  I just do not buy the idea that we must remain powerless and trust the free market to heal itself. Epidemics also eventually end themselves but after what damage?

  • [Notary Sojac]

    Taxes levied on business, sooner or later, are reflected in higher prices to consumers. As long as the consumer/voter understands this, I’m fine with it.

    It is disingenuous to suggest that (a) businesses will just deduct this tax from their profits and the consumer won’t even notice or (b) moving from fossil fuels to other sources will be a relatively painless, low cost transition.

    Especially when any dozen malcontents with a lawyer and a website can hold up the construction of any new project (coal, wind, solar, nuclear, hydro) effectively forever. Possibly the best value per dollar in totally carbon-free energy in America’s history was Hoover Dam. Do you think it could be built today?

  • [Notary Sojac]

    The mistake we made with the bankers was in insulating them from the consequences of their own bad judgment. Bush began this and Obama has redoubled the mistake.

    In my administration, the word “bailout” would be used only in the context of parachute jumping.

• [Anonymous]

  psst… It’s “sited”, not “cited”. But thanks for the article. I live in MN and hadn’t read this in the local press. With a prevailing westerly wind, we don’t need SD coal smoke…

• [Clemoh]

  3419 Tons x $34 levy per ton = $116,246.00.

  Gee, that should stop ND from polluting. They’d probably pay 4x that to keep doing business as usual.

  This is why carbon credits are bogus and do nothing for the environmental good.

  • [paulmclaughlin]

    3419 Tons of heavy metals != 3419 Tons of CO2.

    The higher heating value of anthracite (the best coal) is approximately 27 MJ/kg. Each kg of coal combusted, assuming approximately 30% efficiency, would therefore give 27 x 0.3 x (1000 / 3600) = 2.25 kWh of electricity. The amount of CO2 produced would be 44 / 12 = 3.67 kg.

    Therefore, each kWh of electricity generated from coal results in 3.67 / 2.25 = 1.63 kg of CO2 being liberated.

    At $4 / ton (= $3.6 / tonne), this is a tax of 0.59 cents per kWh. The Minnesota average retail price of electricity is 10.1 cents per kWh. Assuming for the sake of argument that 10% of Minnesota’s electricity is generated in North Dakota (I have no evidence for this – it’s just a guess), this is equivalent to an increase in electricity prices of 0.58%. If the tax is higher than $4, the increase will be commensurate.

    The population of Minnesota is 5.2 million and assuming 1000 kWh of consumption per person per year, the total tax burden would be approximately (0.59 / 100) x 5 200 000 x 1000 = $30 680 000, or $50 per annum per resident of North Dakota.

  • [Anonymous]

    You misread the article. That was tons of HEAVY METALS you used in your calculations, while the amount of CO2 produced from the coal is orders of magnitudes more.

• [Notary Sojac]

  If I read this correctly, it’s actually a tax to be paid by Minnesotans on the use coal-generated power they use.

  Although I’m a firm opponent of AGW hysteria, I don’t really have a problem with this. The citizens of Minnesota ought to see in every monthly utility bill exactly what it costs to “go green”.

  As a matter of fact I think that any state that wants to assuage its guilt feelings ought to ban the use of coal fired power entirely. Let’s see how many Minnesota Gorebots are able to post on BB after two straight weeks using solar power only.

• [Mephy]

  Being a Minnesota resident, I’m relatively happy with how Minnesota is approaching clean energy. We’re not going overboard, but making slow and steady progress.

  Even better, we haven’t had huge increases in our energy bills, despite some of the newer environmental legislation. Taxing energy generated from North Dakota was a necessity, since they pay no taxes and most of their income is from Minnesota residents. (Unlike other neighboring states like Wisconsin or Iowa…)

• [Mephy]

  I would also like to point out that poster #1 should be ignored, as “Clemoh” doesn’t apparently understand the difference between carbon credits (not what this article is about) and a carbon tax. Furthermore, the goal is NOT to stop North Dakota from polluting. The goal is to prevent Minnesota companies from polluting by closing the loophole of moving their power plants a few miles across the border to skip out on any Minnesota regulation.

  • [Notary Sojac]

    Perhaps the Minnesota companies will address the problem by moving their operations to North Dakota in their entirety.

    Thus providing a useful micro example of what will happen when some countries ban fossil fuels and others do not.

  • [AnthonyC]

    @#1 @#4: No, poster number one should be ignored because he apparantly didn’t notice the distinction between Co2 emissions, which are subject to this tax, and heavy metal pollution, which is where the number 3419 tons comes from.

    You need to burn a lot of coal to release 3419 tons of heavy metals, since these are only a very small fraction of the coal’s mass.

  • [Clemoh]

    I do understand the difference between carbon credits and a carbon tax, but in the end, they are merely a way to pay to continue to pollute. A better method would be to provide tax incentives to clean energy sources such as wind power, which is suited to this geographical area. This doesn’t mean someone ‘should be ignored’. That’s just ignorant.
    Carbon Credits, Carbon ‘Tax’. Call it what you will Mephy, but neither really stop the bleeding.

    • [SamSam]

      But you can’t just say that “companies can just pay to keep polluting” without considering whether paying makes sense for the company.

      It’s not like “oh, I’ll pay more to guzzle rich food because I’m happy to pay for my sin of gluttony.” Companies actually have to make a profit, and they won’t do whatever they are doing if they can no longer make a profit from it. The money really is the bottom line.

      In this case, a higher cost of electricity will have a direct effect on consumption (assuming consumers have enough freedom of choice). Higher costs mean less electricity bought. And the company can’t even offset that with the higher prices because they aren’t the ones getting the extra dough per watt. Sure, they could increase the price that they sell it at, but this would simply decrease consumption even further. They can’t win when it’s someone else that’s causing the price to go up.

      So you are suggesting some companies will simply pay to keep polluting, where in this case “paying” means taking in fewer profits. Well, probably some will. But if there are fewer profits, fewer companies will be profitable, and fewer new plants will be developed.

      It’s the same as if we slapped a huge tax on pork. The price of pork would go up, the sales of pork would go down, and the pork farmers would be screwed.

      It wouldn’t make sense to say that pork farmers would simply “pay to continue to [produce pork].”

      The only reason this idea sounds rational when we talk about polluting is because we imagine pollution as a sin, like gluttony, that we would pay for if we got to keep doing it. No, instead it’s just a pure economic proposition, like a pork tax.

• [cinemajay]

  Take that for kicking our asses in men’s college hockey!

• [dculberson]

  It is treading on some thin ice, seemingly regulating interstate commerce and all that. But if they just tax all electricity generated from coal then the might be okay.

• [Anonymous]

  Mephy, the browns are not amenable to reason. They are driven by beliefs, they do not analyze or consider incoming information. It’s no coincidence that most of them are members of “revealed truth” religions such as Xianity.

  You can talk ’til you are blue in the face and the chances that a brown will turn green will still be zero. They don’t understand any science or philosophy more complex than Pascal’s wager.

• [swards]

  Wish they would do it on a global scale, too.

  http://www.obamasuggestionbox.com/story.php?title=impose-tariffs-if-company-polutes-lacks-employee-benefits-or-unsafe-1

• [bklynchris]

  ooooh, Notary! Mephy just called you out…and good for him/her. That said, North Dakota has some seriously wind swept plains. I would venture to say their shifting snow banks might resemble the current pulls on the sand beds of the sea floor.

  But can someone please tell me why the EPA just approved the mining of a mountain top in W. Virginia that will essentially devastate three head water streams? With another approval for Appalachia in the very near future?

  This so soon after Obama’s speech on the importance of the US taking the lead in renewable energy to re-dominate the global economy (OK he did not say that last part, that is just my secret wish to get my preference on the dollar exchange rate on, that Euro exchange rate is bustin my nut). I don’t feel very ‘hope’-ful anymore.

  • [Notary Sojac]

    Hey, if a clear majority of the residents of any given state or country want to go without fossil fuels (and wind power if bats or birds are impacted, and solar power if the habitat of a few dozen desert lizards are impacted, and nuclear power for all the well known Chicken Little reasons), I say go for it. Less power to them!!

    Where I have a problem is the selling of this as an economic miracle in the making, as if “green jobs” are anything other than Bastiat’s parable of the glazier on a global scale. Go as green as you want, but don’t ever let me hear anyone bitching about the cost.

• [DanRuth]

  This is more exciting than last week’s Vikings win! Skol!

• [Anonymous]

  North Dakota could challenge the Constitutionality of this move by Minnesota since is seems to violate Article One, Section Ten

  “No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it’s inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Control of the Congress.”

• [Bevatron Repairman]

  Minnesota should save its money, because it is going to lose. As they should. The Supreme Court is really very clear that a state cannot tax something coming from out of state differently than if it is produced in state. This has been applied to landfill, water, and just about any other commodity you can imagine. Complete Auto Transit v. Brady a 1978(?) case sets the standards out pretty well.

• [insert]

  How is this even remotely constitutional?
  

  No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports

  The fact that the tax is to be paid by Minnesotans doesn’t matter, I don’t think. Besides, this is interstate commerce, which only Congress can limit. (Or is this one of those parts of the Constitution that we conveniently ignore?)

  Kind of unfortunate, because I think that it’s quite reasonable for Minnesota to want to do this.

• [SamSam]

  Wow, this is great! Putting their money where their mouths are. And, as Notary Sojac said, it will provide a great small-case example of how this will play out between nations.

  #1: I assume that you’ve worked out by now that the idea of tariffs is not to “fine” anyone, but to increase the cost of something to consumers, thus decreasing the demand for the thing that is being sold.

  The real question is, will any tariffs ever be added to goods produced in ND, and if so, how would they be calculated? I assume that 90% of the electricity generated in ND is used within its own borders, and so if Minnesotans still buy cheap North Dakotan tchotchkes, their still contributing to the use of coal-burning power plants.

  • [Notary Sojac]

    Thank you for the delightful phrase “cheap North Dakotan tchotchkes”. What a concept!!!

• [Simon Cameron]

  I suspect that the law does not soecifically identify North Dakota, but is instead a tax on coal-powered electricity. While the latter effectively operates as a tariff, it is well within a state’s rights.

  • [self-propelled]

    Simon, you’re right: the Treehugger post confirms that
    

    Minnesota plans to add a carbon fee of between $4 and $34 per ton of carbon dioxide emissions to the cost of coal-fired electricity, to begin in 2012

    That post also mentions that the law doesn’t mandate a tariff, but does allow for the creation of one in the future.

    If this was an international measure, it would probably be challenged in the WTO as a violation of the ‘national treatment’ principle, on the grounds that although it doesn’t specifically target foreign power plants, the effect would be almost equivalent. Proponents of carbon tariffs could argue either that it’s a necessary move to tackle unfair trade subsidies (that is, refusing to force electricity generators to pay for carbon externalities); or that it’s a necessary measure to protect either human/animal/plant life/health (Article XX(b)) or exhaustible natural resources (Article XX(g)).

• [toomuchheat]

  Would all you greenies please put dollar figures to the amount of money we all will shell out for your green actions?
  I mean, it is one thing to say we all should pay to get greener, but just put a number so we call all understand, OK? Like paying 4x for your energy?
  Is that all OK with everyone in MN? And what are you getting for your money, same as a Prius owner?
  Please feel free to give us all your understanding of the actual money here PLEASE….
  And lastly, the coal plant owners in ND will be glad to just raise the cost of electricity to MN users directly.
  And what about all those flatulent cows for the cheeseheads in Wisconsin? What about taxing that cheese, eh?

  • [SamSam]

    @toomuchheat:

    “And lastly, the coal plant owners in ND will be glad to just raise the cost of electricity to MN users directly.”

    It’s always the “anti-greenies” who leap to make arguments without having any clue of the topic under discussion. I mean, really? This has been explained, like, six times above.

    The only increase is the increase to the cost of electricity to MN users directly. That’s exactly what it is. As for why MN wants to do this, I let you read all the comments above that have explained this. Or, hey, read the original article.

    I wonder if there’s a correlation between people who jump in to angrily say something on a topic they haven’t bothered to understand, and those who dismissively refer to people as “greenies” and never bother to understand climate science.

  • [dr2chase]

    Your request is a fair one, but the costs are not as large as you imagine. Suppose the carbon tax were applied to gasoline. In round numbers, a gallon of gasoline, burned, produces 20lbs of CO2 — 1/100th of a ton. So if the carbon tax is $40/ton (high end estimate for the Minnesota tariff), then a $.40/gallon addition to what you pay for gasoline (on top of a lot of other taxes). If the carbon tax is $4/ton, then only $.04/gallon additional tax. The number I have heard tossed around for an “effective” tax, meaning one that would cause some shift in behavior, is $40/ton. I may have heard wrong.

    So there’s gasoline. Someone up above did the same thing for electricity, and they got quite a low number, but I did not check their work.

    Another gasoline comparison is with how far you would drive, and the expenses for that driving. 100 gallons of gasoline (a ton of CO2), is around 3000 miles of cruddy (suburban commute) driving in a subcompact. The additional cost of a $40/ton CO2 tax, is 4/3 of a penny per mile. Obviously, in a monster truck, the cost per mile will be higher, but that’s sort of the point, isn’t it? If the tax has no sting at all, where will the changes in behavior come from?

• [T0AD]

  I predict one of two results. Either the increase in cost will be passed on to the citizens electric bill which is usually what happens. Or the power company will by coal from elsewhere perhaps even China. I hope the latter as i have invested in Chinese coal companies specifically with this possibility in mind.

  • [SamSam]

    @T0AD: It doesn’t matter where the coal is purchased from — it still has to be burnt in North Dakota (or wherever). We can’t (yet) buy electricity from the Chinese.

    The tax is on coal-produced electricity, not coal.

• [Anonymous]

  What the F? Stupid hypocritical hippies. Has anyone ever driven around MN? Lets start this CO problem with something easy. TRAFFIC LIGHTS. Have you noticed that you stop at damn near every single one of them? No matter the time of day? Start and Stopping, single more expensive thing a vehicle can do.

  CHANGE THE LIGHT SYSTEM TO A TIMED SYSTEM.

  There, I just saved billions in fuel and tons of carbon output with that suggestions.

  Start there you stupid retards.

  • [CheshireKitty]

    Better than timed lights…traffic circles.

• [aeroplane]

  T0AD, the tax/levy/tariff/whatever is on the power generated from coal, not the coal itself.

  94% of electricity produced in ND is generated by burning Lignite coal, which is usually comes from within the state. Lignite is considered the lowest grade of coal.

  IMHO Minnesota is doing the right thing for the right reason, and it won’t economically make or destroy anybody. It will, hopefully, influence decisions on where power companies invest their money, so we can have cleaner energy in the future.

• [Uncle Geo]

  Taxes will indeed show up in the cost of goods. It ought to be that way. I think that’s the point actually -if a company waits and waits and waits to do the right thing (or fights and fights) and that affects their competitiveness then isn’t that what we want: companies thinking about more than just their own survival? Smart companies are doing something now.

  Toomuchheat: I will when you tally up the costs of a warming planet. If they’re the same do we toss a coin? If it costs more to fix warming then, what, we all die choking while riding our toys?

  Anonymous: Your eloquence humbles me but hey, I’m right with you there on timed lights. I’ll go with you to the DOT. And you are on to something that it will take a number of things like that to solve this problem. I guess I won’t call you a retard.

  • [Anonymous]

    Meh, you leave my use of capslock alone :)

    The traffic situation is huge not only for CO, but for fuel used. Factor in the cost savings and environmental impact where everyone’s city milage goes up 4mpg. Factor in cost savings from less accidents from running red lights, or speeding once folks realize you just cruise you make every light.

    There is better time spent doing better things with our state’s money then some tariff.

    What is really annoying when I lived in south Minneapolis is situations like on 55 following the light rail, where you know they purposely muck with traffic there. The traffic light patters when a train approaches makes ZERO logic.

    Typical road rage will go down and hot tempers cooled off. The CO2 from heavy breathing will go down. :) didn’t the EPA say exhaling is bad for the environment now?

    Why is this article out dated? The proof that climate change is a scam is out.

• [Anonymous]

  Eh. ND has a $1.2 billion surplus. Not that I really want to see my state tax dollars to be wasted on some interstate lawsuit, but I doubt half a mil is going to cover the legal costs. MN needs to focus on cutting costs first.

• [Uncle Geo]

  Oh, and Anonymous, the caps lock is right above “Shift”. On or off, your choice.

• [Uncle Geo]

  It is interesting to note that our governor-in-absentia and Pres hopeful Tim Pawlenty was all for Minnesota’s innovative energy initiatives before he was against them. Many of us were astounded that, as a conservative, he had a hand in them at all. He loudly and rightly claimed credit. All that was forgotten as he began kowtowing to the righteously ignorant Palin constituency in his quest for the White House.

  It seems from the opponents of any environmental action in these comments that we should do nothing; or actually that if we do anything about climate change then we treehuggers, are naiive and unprepared for what it might mean to our pocketbooks or what we’d personally have to give up:

  Notary Sojac: “Hey, if a clear majority of the residents of any given state or country want to go without fossil fuels (and wind power if bats or birds are impacted, and solar power if the habitat of a few dozen desert lizards are impacted, and nuclear power for all the well known Chicken Little reasons), I say go for it. Less power to them!!

  In this black and white world there is no possibility of moving from fossil fuel to less fossil fuel -it’s all or nothing. It’s hard to believe this simplistic view of a planetwide threat gets any traction.

  Bottom line: we need to make decisions as a society. We should base those decisions on the best available data which comes, in this case, from the vast majority of scientists. That is the sane way to do it. (Even putting aside warming, there are a zillion health and environmental reasons to curb pollution). Climate change deniers, as anyone with a lick of sense knows, are really carrying water for industries who are scared they’ll have increased costs. They paint treaties and regulation as restrictions on their personal freedom to make and keep money, as if climate changes from global warming won’t have any deleterious effects on the world. Lacking any science to support their position they trump up fake think tanks and institutes that churn out pseudoscience. Their’s is the “simulated wood grain” of the scientific world -looks like science but it ain’t. This is a foolish way to make policy.

  Opponents of climate legislation cannot be be honest. If they were, they’d say that any restriction on profitmaking is inherently wrong no matter what the consequences to anyone at any time. They prefer a position of “every man for himself” to “E Plauribus Unum”.

• [Anonymous]

  As a Canadian I here by offer all heavy users of cheap electricity in Minnesota to close up shop and move a few hundred miles north to Manitoba.

  An people wonder where all the jobs went…