Volume 15 / Number 2 / Summer 2011





Earl Blumenauer

Reflections on the Environmental Impacts of Federal Tax Subsidies for Oil, Gas, and Timber Production

John A. Bogdanksi 

The oil, gas, and timber industries in the United States are favored with  tremendous federal tax incentives designed to encourage exploitation of these natural resources. Critics argue that these subsidies promote environmentally harmful practices—by artificially reducing production costs, thereby reducing consumer costs and increasing consumption, and by enhancing after-tax return on investment, thus artificially moving capital into the affected industries. These criticisms imply that repeal of the tax incentives would reduce consumer demand and make investment in production operations less attractive. This Essay considers the benefits bestowed by the tax provisions and assesses their net market impacts. It suggests that repeal of oil and gas subsidies would result in, at best, a marginal reduction in consumption, and that any resulting withdrawal of capital from domestic oil and gas operations would not necessarily result in a flight of investors’ funds to activities that are less problematic from an ecological perspective. Additionally, some timber tax subsidies actually promote environmentally responsible practices; repeal of these measures would be counterproductive. In light of these conclusions, the best case for elimination of the tax subsidies on ecological grounds might be that it would create a pool of new revenue from which affirmative environmental programs could be funded.

What Kind of Environment Do we Owe Future Generations?

Neil H. Buchanan

Despite widely held beliefs that current generations bear heavy obligations to look out for the welfare of future generations, the philosophical case in support of such intergenerational obligations is surprisingly tentative. Moreover, quantifying any such obligations is subject to even greater uncertainty. Even so, current generations bring future generations into existence in the knowledge that doing so will put a claim on resources that could have been used to reduce suffering among people who are already alive. The choice to allow living people to suffer and die, and instead to bring forth more people in the future, thus implies a moral imperative to provide a life for future generations that is worth living.

Many policies—such as so-called green technologies—that could improve the lives of future generations could bring about greater prosperity for current generations as well. The potentially difficult policy choices are those that represent a clear trade-off: decreasing future generations’ living standards as a means of providing current and future generations with a better environment. Because future material living standards are projected—even under the most pessimistic scenarios—to be much higher than living standards today, it is possible to give future generations both a better environment and a much higher material standard of living than people enjoy today. Claiming that pro- environmental policies will harm future generations, therefore, amounts to observing that it would be possible to give future generations even higher incomes—along with a dirty planet. We should, therefore, not be hesitant to transform some future material prosperity into an inheritance that will truly benefit future generations: a livable world.

Federal, State, and Local Tax Policies for Climate Change: Coordination or Cross-Purpose?

Roberta F. Mann

Although the United States has not yet enacted comprehensive climate change legislation at the federal level, federal tax laws affecting energy have significant climate change effects. At the regional level, several groups of states have joined together in climate change legislation. Most states and many localities have tax laws affecting energy. When national, state, and local governments all attempt to influence energy use through tax legislation without coordination, inefficiencies and conflicts are bound to arise. Not only in the energy area, but in general, federal decisions impacting state and local tax policy are ad hoc and uncoordinated. What level of government should bear the primary responsibility for setting climate change policy? In the absence of federal leadership on climate change, a second-best alternative is coordination between federal, state, and local efforts to encourage wise energy behavior. This Essay will explore alternatives for coordination and potential challenges.

Paying for Greenhouse Gas Reductions: What Role for Fairnes s

Gilbert E. Metcalf

Several authors have made different claims regarding the property rights associated with the atmosphere. This discussion is essentially one of fairness and asset ownership. Indirectly, it gets at the question of who should bear the burden of policies to reduce greenhouse gas emissions. While reviewing various ownership claims, this Essay argues that economics cannot adjudicate among competing claims to the atmosphere. What economics can do is improve our understanding of the economic burdens arising from climate change legislation. In particular, this Essay considers the distributional impacts of carbon pricing as a means to reduce greenhouse gas emissions.

This Essay makes several points. First, the ultimate burden depends on the combination of impacts from carbon pricing along with the impacts of the distribution of revenues (from a carbon tax or auctioned permits) and any freely allocated permits. Any regressivity from carbon pricing itself can be undone through judicious allocation of permits or revenue. Second, measuring the burden of carbon pricing requires knowing how consumers spend their income on carbon intensive products that become more expensive (uses side impacts), and on how their income is earned when factor prices may adjust in response to carbon pricing (sources side impacts). While uses side impacts appear regressive, sources side impacts appear proportional to progressive. This leads to the third point. Concerns that carbon pricing disproportionately burdens low income households may be overblown. Sources side impacts blunt the regressivity, and allocation of revenues or permits from carbon pricing can undo any remaining regressivity.

Environmental Taxation in the United States: The Long View

Janet E. Milne

The United States has a four-decade history of using the tax code to protect the environment. After reviewing the vocabulary of environmental tax policy, this Article explores the lessons one can learn about the design of environmental tax instruments from the federal government’s experience, highlighting the tax on ozone-depleting chemicals, the gas guzzler tax, President Clinton’s attempt to enact a broad-based energy tax, Superfund taxes, and the petroleum tax that funds the Oil Spill Liability Trust Fund. It underscores the federal government’s recent reliance on tax expenditures, not tax increases, to improve energy efficiency and renewable energy. It concludes with thoughts about prospects for the future, including the repeal of environmentally damaging subsidies and the role of environmental tax policy in the portfolio of environmental instruments. By taking the long view, this Article does not provide a full inventory of federal environmental tax measures but instead identifies perspectives that might be relevant to the future development of environmental tax policy at the federal or state level, or in other countries.

Challenging State Taxation of Renewable Energy: Will Wyoming be the Battleground?

Walter Wang

The push for renewable energies has increased over the last few decades as a result of several state and federal measures, such as the passage of the Public Utilities Regulatory Policy Act, state-mandated goal-setting, and tax credits. Federal tax incentives for wind-generated electricity, however, provide for uncertain investment opportunities due to their on- again off-again nature. In 2010, Wyoming became the first state to impose a tax on wind energy production. The new law allocates the proceeds from the tax between the counties where the turbines are located and the state’s general fund. Not surprisingly, wind producers have voiced significant opposition to the tax.

This Essay examines how the Supreme Court has applied the Dormant Commerce Clause to state taxation of natural resources to predict how the Court would rule, if given the opportunity, on Wyoming’s wind production tax. The Essay concludes that the law would likely survive such a challenge and explores reasons why such a tax may be necessary to counteract other problems that arise from wind projects.

The Loophole that Would Not Die: A Case Study in the Difficulty of Greening the Internal Revenue Code

Lawrence Zelenak

Congress and the Treasury have commissioned the National Academy of Sciences (NAS) “to undertake a comprehensive review of the Internal Revenue Code of 1986 to identify the types of and specific tax provisions that have the largest effects on carbon and other greenhouse gas emissions and to estimate the magnitude of those effects.” The hope of the proponents of the NAS carbon audit is that Congress, once informed of the results of the audit, will respond by “greening” the Internal Revenue Code. This Essay cautions that a more environmentally friendly Code will not necessarily follow from the legislative consciousness-raising of the carbon audit. It offers the story of the “SUV loophole” as a case study in the difficulty of removing environmentally offensive provisions from the tax laws, even when Congress is well aware of the existence of those provisions.



Of Judging and Judaism

Hon. Rick Haselton


Has the IRS Gone Too Far with Its Alternative Valuation Date Proposed Regulations?

Skye Christakos

The alternate valuation method under section 2032 of the Internal Revenue Code can rescue an estate from a drastic market decline and it can save an estate money, even when the market is fine. Although the election is always available for estates that meet the criteria, in a declining market, the alternate valuation date can likely reduce tax obligations more than in a steady or increasing market. Following a recent Tax Court decision, the IRS proposed new regulations to reinterpret the valuation rules for estates electing the alternate valuation date. The IRS’s stated purpose in promulgating the proposed regulations was to clarify that the alternative valuation date was to be used in the case of a reduction in the value of the gross estate due to market conditions following the date of the decedent’s death, but not due to other post-death events. This Comment analyzes why the proposed regulations, though aimed at the reasonable goal of reducing abuse, fail to meet the stated objectives. In addition, the proposed regulations eliminate many of the benefits of the alternate valuation election. By completely reinterpreting the section, the proposed regulations not only confuse the issue, but they eviscerate the entire purpose behind the election. The IRS should either drastically change the proposed regulations or eliminate them completely to save itself from needless litigation over the meaning, validity, and application of the new regulations. The most effective change would be to alter the current regulations’ sections on dispositions.

Gestational Surrogacy Maternity Disputes: Refocusing on the Child

Erin Y. Hisano

The growing problem of infertility coupled with increasingly sophisticated reproductive technology has produced an unfamiliar problem: the identification of a child’s legal mother. This issue of legal motherhood is exacerbated in the situation where an infertile couple uses a gestational surrogate as a means of having a child. Many times, a gestational surrogacy arrangement goes smoothly. However, in some cases, the arrangement results in a maternal rights dispute. In a gestational surrogacy arrangement, there are three potential women with maternal rights claims: the gestational surrogate, the genetic donor, and the woman for whom the baby is intended.

To resolve the issue of legal motherhood, courts have traditionally applied one of three tests based on the three forms of connection to the child: the genetic maternity rule, the gestational maternity rule, or the intended mother rule. This Comment argues that none of these three tests provides an accurate determination of motherhood, as each test unfairly elevates one component of motherhood over the others. Instead, this Comment focuses on a different test, the best interest of the child test, which courts have applied to custody disputes, but never to a maternal rights dispute. The best interest test allows the court to refocus its inquiry on the child and encompasses how a woman’s genetic contribution, gestational bond, and pre-conceptional intent can positively or negatively impact the welfare of the child. Courts may also take into account factors such as family stability and personality traits. Finally, this Comment proposes a new component to the best interest test: the intent-based tiebreaker. If, after weighing each woman’s connection and traits, the court still finds that each woman is equally fit to care for the child, the court may use pre-conception intent as a tiebreaker. This Comment argues that intent is the fairest solution because courts should recognize and preserve the pre-conception intent as indicated by both the commissioning party and the gestational surrogate.

H. Tomás Gómez-Arostegui, Lydia Pallas Loren, and Joseph Scott Miller