When Exxon Mobil Corp. endorsed a carbon tax proposal initiated by former Secretaries of State James Baker and George Shultz, some observers foresaw a future with dramatically fewer regulations. Not W. Thaddeus “Thad” Miller, the executive vice president and chief legal officer of Houston-based electricity provider Calpine Corp., who also endorses the Baker proposal.
If the carbon tax becomes reality, “this is not as large a change on the regulatory front as people may think,” Miller says.
While the proposal includes a rollback of future regulations on carbon emissions, he notes there have been many environmental regulations regarding other emissions that will remain in place, and he expects regulatory lawyers who handle environmental regulations to continue that work.
“It’s just that the potentially fertile ground of CO2 [carbon dioxide] emissions regulation and litigation will not materialize,” Miller says.
His company has found ways to generate electricity and keep a reduced carbon footprint. On its website, Calpine touts itself as “among the cleanest power generators in the nation.”
But if a carbon tax takes hold, Calpine’s costs will still rise, Miller says.
In February, Baker and his fellow members of the Climate Leadership Council, a group composed largely of former Republican White House officials, unveiled a proposal to have Congress authorize a tax on carbon emissions. In exchange, it would trash proposed carbon regulations in the Clean Power Plan, established by the Obama administration, and subject of legal challenges championed by the fossil-fuel industry.
Exxon, along with Shell Oil Co. and BP, took out an ad supporting the Baker-Shultz proposal in the Wall Street Journal in June, though Miller and other lawyers say the plan’s details remain sketchy.
“Mounting evidence of climate change is growing too strong to ignore,” the proposal states. “While the extent to which climate change is due to man-made causes can be questioned, the risks associated with future warming are too big and should be hedged.”
The plan calls for a tax starting at $40 a ton, which would steadily rise; dividends paid through the Social Security system from the carbon tax proceeds; border carbon adjustments to protect U.S. competitiveness; and a “regulatory rollback.” The proposal argues that under such a plan it would be possible to eliminate “regulations that are no longer necessary upon enactment of a rising carbon tax whose longevity is secured by the popularity of dividends.”
Consumers, meanwhile, would gain by conserving energy which would cost more. “[F]orward-looking households would have an incentive to borrow to make durable purchases that would reduce their carbon footprint,” the report states.
The Environmental Protection Agency’s regulatory authority over carbon dioxide emissions “would be phased out,” the report states. It predicts “repeal of the Clean Power Plan.”
What else goes away? Potential liability for fossil fuel producers. “Robust carbon taxes would also make possible an end to federal and state tort liability for emitters,” the report states.
And what about the carbon tax consequences for Miller’s own company? “In terms of the impact for Calpine as a company,” Miller says, “we’ve long been advocates of pricing carbon. It levels the playing field and stops the government from picking winners and losers.”
The Regulatory Framework
Patrick Ferguson heard about the Baker-Shultz carbon tax proposal from a direct source. A partner in Davis Wright Tremaine’s San Francisco office, Ferguson is on the board of directors of the Power Association of Northern California (PANC), to whom Shultz presented the carbon tax plan in April.
The PANC members at Shultz’s presentation included energy professionals from investor-owned utilities, independent power producers, power marketers, fuel suppliers, municipal utilities, energy customers and regulatory agencies.
“As always, the devil’s in the details,” says Ferguson. “It’s a high-level proposal. There would have to be kind of exceptions to the rules.” He envisions that “certain industries would be exempt,” and says the number of exceptions will dictate how effective the tax becomes at achieving carbon reduction.
Investments in the energy distribution system would be required to make the costs of a carbon tax livable, Ferguson says, but an examination of those investments aren’t in the Baker-Shultz plan. The carbon tax proposal will eventually lead to a split in the fossil fuel industry, pitting modern natural gas turbine operators against other providers, including coal plants and older gas facilities, the Davis Wright lawyer says.
“In a lot of ways, a carbon tax would be a boon to the natural gas industry,” Ferguson says.
A carbon tax “just means we will be paying more for our fuel, which is natural gas,” says Calpine’s Miller. But those costs will be passed onto consumers, and Calpine’s costs will not be as high as some of its electricity-producing rivals, since it relies largely on natural gas and alternative fuels and — notably — no coal, Miller says. “A carbon tax will hit coal hard.”.
Will the carbon tax proposal or other broad-scale regulatory changes impact the clean energy world soon? Miller doubts it, based on the political realities of the Washington, D.C., bottleneck. “We don’t expect any kind of massive congressional proposals,” Miller says. “They’ve got their hands full at the moment.”
The Outlook for Law Firms
Even though it could idle some lawyers, partners from Baker Botts, Jackson Walker and Haynes and Boone — all Texas-based firms with corporate oil and gas clients — have voiced tentative support for the Baker-Shultz carbon tax proposal. The lawyers reacted positively to the news that Exxon and the other oil companies supported the plan.
“I think it’s incredible to have Exxon’s support,” says Megan Berge, a partner in the Washington, D.C., office of Baker Botts. She stressed she was only speaking for herself and not any particular client or for Baker, who is also a partner at the firm.
“I see the endorsement of this by the world’s largest gas producers as game-changing,” says Amy Baird, a Jackson Walker partner in Houston.
A policy switch could have big implications for lawyers who counsel clients on regulatory matters and who litigate challenges to the Clean Air Act. “It will be less work for all those people,” Baird predicts. “If all there is to dispute is the level of emissions, that’s a heck of lot easier for the government to enforce.”
If the tax is set high enough, Baird says, emissions and litigation could decline as utility companies and consumers rely less on carbon-producing fuels.
But there’s no consensus that lawyers would lose out. “I don’t see it as a lawyer unemployment act,” says Baker Botts’ Berge, adding that the work “would shift to different arenas.”
Given that the Trump administration has not signaled support for the plan, Berge said it’s “more than a little bit speculative” to determine which lawyers will gain — or lose — business from a carbon tax.