Obama sticks by cap and trade — and plans to return most revenues back to the public (duh)

In a Saturday article on President Obama’s budget outline, the NYT reported:

Full details of Mr. Obama’s budget for the 2010 fiscal year will be released in April. The outline on Thursday will make clear that he intends to push ahead on promises to contain health care costs and expand insurance coverage, and to move toward an energy cap-and-trade system for controlling emissions of gases blamed for climate change.

“The president believes there are essentially three areas that have to move forward even as we pare back elsewhere — health care, energy and education,” said David Axelrod, his senior adviser. “These are the bulwark of a strong economy moving forward.”

So, yes, we will see a cap-and-trade bill on Obama’s desk in FY2010 — between October 1, 2009 and September 30, 2010. Equally interesting are the details of the bill that leaked into the budget:

On energy policy, Mr. Obama’s budget will show new revenues by 2012 from his proposal to require companies to buy permits from the government for greenhouse gas emissions above a certain cap. The Congressional Budget Office estimates that the permits would raise up to $300 billion a year by 2020.

Since companies would pass their costs on to customers, Mr. Obama would have the government use most of the revenues for relief to families to offset higher utility bills and related expenses. The remaining revenues would cover his proposals for $15 billion a year in spending and tax incentives to develop alternative energy.

This may be surprising to Congressional Dems, some of whom may expect to be using for a variety of energy and environmental purposes.

But I’ve been saying for a while that, as a matter of politics, the vast majority of the revenues from the auction will need to be returned to taxpayers — that is to say, the vast middle class. I think at least 60% to 80% needs to be refunded to start with, rising to 80% to 90% within 10 years. Otherwise conservative opponents will simply attack this entire effort as a tax (see “Is 450 ppm politically possible? Part 6: What the Boxer-Lieberman-Warner bill debate tells us“). Yes, they’ll do so anyway, but if the bottom of three to four quintiles are made whole, the argument can be refuted.

Fortunately, team Obama seems to understand that.

6 Responses to Obama sticks by cap and trade — and plans to return most revenues back to the public (duh)

  1. Mark says:

    This is key to getting public acceptance. Republicans will no doubt be pushing the “your electric bills will go up” populist argument, but having revenues returned to working people will refute that. Peter Orszag, former CBO director and now part of the Obama team, has long argued for this.

    “Another possible use of revenue from auctioning allowances is to offset the effects that higher energy prices would have on low- and moderate-income households. Although such price increases encourage greater efficiency in reducing emissions, and are thus essential to the success of a cap-and-trade program, they would impose a disproportionate burden on low- and moderate-income households. The Congressional Budget Office has found that if the allowances were sold and the revenue used to provide equal rebates to every household, lower-income households could be financially better off because the rebate would be larger than the average increase in their spending on energy-intensive goods. Alternatively, the distributional consequences could be offset by increasing the earned-income tax credit or boosting food stamp benefits. ”

    I’m not sure about your comment here:

    “So, yes, we will see a cap-and-trade bill on Obama’s desk in FY2010 — between October 1, 2009 and September 30, 2010. ”

    What gives you high confidence that it will happen? I’m worried about its fate in the Senate, where Republicans can fillibuster. There are conservative Democrats from coal-rich states that might join them.

  2. CTF says:

    It seems an awkward time–as more and more scientists and economists are getting behind a revenue-neutral carbon tax–to be presenting a cap and trade scheme as a fait accompli.

  3. If Obama remains committed to spending just $15 billion/year to spur a new energy economy, we will fail in that endeavor. Cap or no cap, I’m not sure you can find one expert that thinks the public investments required to build a new energy economy will cost that little.

    There’s widespread consensus – including among Obama advisers like White House science adviser John Holdren, Sec. of Energy Steven Chu, and Obama campaign energy adviser Dan Kammen – that public investments in clean energy R&D alone need to rise to $15-30 billion annually, putting them on the same scale as other national innovation priorities (e.g. health research at NIH, military R&D, etc.) and past R&D initiatives (e.g. Apollo, Manhattan, Project Independence, etc.).

    Likewise, building a modern electrical grid, including long-distance transmission expansion and integration of smart grid (and probably storage) will cost on the scale of hundreds of billions over the coming decade or two. Not all of that will have to come from the public sector, but a sizable chunk will, maybe $5-15 billion annually.

    Incentives to spur the deployment of emerging clean energy technologies and drive down their cost are also necessary, even with a cap and trade program in place. The EU’s ETS doesn’t preclude the necessity of a roughly 50 cents/kWh feed-in tariff for solar in Germany, for example, or more modest feed-in prices for wind and solar across the EU nations. The three-year PTC expansion in the stimulus is projected to cost $13 billion over the next ten years, and the cost of supporting emerging renewable energy technologies will only increase as the scale of their deployment ramps up.

    Spurring energy efficiency will require major public investments in low-cost financing to bring down capital barriers for consumers as well. Architecture 2030 called for a $171 billion, two-year stimulus investment in efficiency, for example, while Green for All, COWS, CEPR and CAP have called for $3 billion annual investment to underwrite a $50 billion public revolving loan fund for efficiency retrofits. There’s at least $8.5 billion in annual investments in efficiency alone in the stimulus, and that money just begins the task of building a more efficient economy.

    No wonder the Apollo Alliance, Breakthrough Institute and Center for American Progress have all called for public investments in clean energy on the scale of $50 billion annually. $15 billion a year simply falls far short of what is needed.

    So what is it going to take to get for Obama to double, triple or even quadruple his commitment to public investments necessary to spark a clean energy economy? I get that there’s politics involved here, but if the money doesn’t come from carbon auctions, it’s gotta come from elsewhere. Obama says sparking a clean energy economy is his top priority (after getting the economy out of crisis). It’s time for him to put the money on the table.

    [JR: I think you are confusing clean energy R&D with clean energy R&D&D&D. Thanks to Obama (and Congress), we will be spending something close to $50 billion a year for this year and next in total public investment for clean energy.

    But a strong cap and a serious price for carbon dioxide are certainly more important than the exact level of public investment. Ultimately, the private sector will need to be spending 10 to 100 times what the public sector does.]

  4. David B. Benson says:

    I want an Excess Carbon Dioxide Removal Fee levied on all fossil fuels. To be used for the stated purpose.

    Could be on top of a cap-n-trade or carbon tax returned to taxpayers.

  5. Joe, thanks for responding to my comment above. I’m certainly well aware of the difference between R&D and RDD&D (which is why I list infrastructure, clean energy deployment and efficiency all separately from R&D). Is it your impression that when Obama talks about $15 billion annually in investments in clean energy, he is only referring to R&D alone? If so, that’s about right, as long as he’s committed to larger amounts for the last two Ds, particularly a new deployment strategy that can more effectively drive price reductions and steady improvements in performance for emerging techs (getting us on track to the 3-5x reductions in price for PV needed, for example). But the Times piece characterizes this $15 billion as for “spending and tax incentives to develop alternative energy,” which would seem to include plenty of deployment-related activities as well as R&D. I recall Obama saying all kinds of ambiguous things about that $15 billion during the campaign, so I’ve got little by way of public statements to give me confidence that Obama grasps the true scale of public investment required here – cap or no cap.

  6. Peter Wood says:

    There are some advantages to cap-and-trade, and some advantages to a tax. Cap-and-trade guarantees that a target will be met. A tax guarantees investment in low emissions technology. Cap-and-trade, but with a price floor, guarantees both.