http://www.investors.com/editorial/IBDArticles.asp?artsec=5&artnum=1&issue=20081003
Carbon Tax Break Finds Way Into $700 Bil Rescue BY DAVID HOGBERGINVESTOR'S BUSINESS DAILYPosted 10/3/2008While Wall Street teetered on the edge last week, lawmakers larded up their mortgage rescue bill with provisions that had nothing to do with restoring confidence in financial markets.One such item could make it more profitable to capture and store carbon, and trade carbon credits. The end result could be a much larger constituency with a financial stake in pushing for a cap-and-trade regulatory system to address climate change.Inserted by Senate Finance Committee Chairman Max Baucus, D-Mont., it gives preferential tax treatment to publicly traded partnerships that derive at least 90% of their income from processing and marketing industrial carbon dioxide."The intent of the provision is to facilitate the capture and storage of carbon dioxide," said a Baucus aide.The idea is to collect carbon dioxide from sources such as power plants and store it in the deep ocean and deep geological formations. It would let companies comply with carbon dioxide caps mandated by a cap-and-trade system.The technology as yet is unproven. But Jean Prevost, professor of civil and environmental engineering at the Princeton Environmental Institute, contends it's viable. "We have pilot programs and we are going to do it." Chris Horner, counsel and senior fellow at the libertarian Competitive Enterprise Institute, disagrees. "It results in a tremendous energy cost," he said, putting it at 30% of the potential energy of gas or coal. A power plant serving 100,000 homes would light up only 70,000.Under a cap-and-trade system, companies that didn't exceed their caps could sell carbon credits to firms that did exceed them. Whether the tax provision applies to businesses that derive their income by selling credits is an open question."It opens up the opportunity for that," said Vincent DeVito, a partner at Bowditch & Dewey and former assistant secretary of the Energy Department. "A ruling from the IRS will be helpful."But Horner is skeptical. Carbon credit traders "don't actually sell carbon dioxide, but the absence of carbon dioxide," he said. Then there is the question of whether this is good tax policy or the placating of special interest groups."We need positive tax treatment that encourages the development of technology that reduces carbon dioxide," said Bracken Hendricks, a senior fellow at the liberal Center for American Progress.James Dellinger, director of Greenwatch at the conservative Capital Research Center, sees it enlarging a "market" that only exists because of government decree. "It's a sop to companies in the carbon business."

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