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Bipartisan Support Grows for Carbon Price as Part of Debt Deal

By Joe Romm  

"Bipartisan Support Grows for Carbon Price as Part of Debt Deal"

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At the end of this year, the United States will confront a trifecta of difficult fiscal challenges: The Bush tax cuts will be set to expire; the defense budget and spending on civilian programs will face a $110 billion sequester; and a new extension of the federal debt limit will be looming.

At the same time, the evidence will be clearer than ever that urgent action is needed to protect our nation and the world from irreversible climate change. The overwhelming scientific consensus will have grown even stronger. And if 2011 is a harbinger of our future, record-breaking droughts and storms will have again afflicted our nation — at immense cost in lives and property damage.

These fiscal and environmental problems may appear unrelated. But as a bipartisan group of current and former members of Congress, we want to propose a new idea: These seemingly intractable challenges are easier to address together than separately….

If budgeting is ultimately about choices, enacting a policy that reduces dangerous air pollution while providing hundreds of billions of dollars in debt relief should be a no-brainer. No other policy would do as much for our economy, our security and our future as putting a price on carbon.

That’s the opening of a bipartisan Washington Post op-ed on how a price on carbon could immediately help America address two of its biggest long-term problems, global warming and the national debt.  The authors:

Democrats Henry A. Waxman and Edward J. Markey represent California’s 30th District and Massachusetts’s 7th District, respectively, in the House of Representatives. Republicans Sherwood Boehlert and Wayne Gilchrest formerly represented New York and Maryland districts, respectively, in the House.

As I first reported last May, a “high and rising price for carbon pollution has emerged as a credible deficit reduction strategy.”

Then in July, I pointed out, ”The only plausible scenario now for seriously addressing US greenhouse gas emissions in a way that would enable a global deal and give us some chance of averting catastrophic multiple, simultaneous climate impacts is for a serious carbon price to be part of the post-2012-election budget deal.”

Now 4 members of Congress, 2 Ds and 2 Rs, have stated the obvious: Since higher revenues must be part of any grand bargain to address the debt, a price on pollution makes the most sense. And yes, Yes, I’m aware the two Republicans ain’t in Congress any more. Ya gotta start somewhere!

Here is more of their argument:

The best approach would be to use a market mechanism such as the sale of carbon allowances or a fee on carbon pollution to lower emissions and increase revenue. Using these policies, the United States could raise $200 billion or more over 10 years and trillions of dollars by 2050 while cutting carbon emissions by 17 percent by 2020 and 80 percent by 2050, providing transition assistance to affected industries, and supporting investments in clean-energy technologies.

Such a policy would have enormous benefits beyond its fiscal contributions. As the National Research Council of the National Academy of Sciences concluded last year, “The risks associated with doing business as usual are a much greater concern than the risks associated with engaging in strong response efforts.” Inaction on climate means more intense and frequent heat waves, more droughts, more flooding and more loss of coastline. Delaying action just until the end of the decade will quadruple costs to the global economy, according to the International Energy Agency.

A market-based policy would be a catalyst for international action, help protect U.S. families from ecological disasters and level the playing field for clean-energy sources such as wind and solar. It would spur research into and development of electric batteries, carbon capture, storage technologies and the like.

And it would provide urgently needed certainty for business and industry. During the past Congress, the chief executives of leading energy, chemical and manufacturing companies endorsed comprehensive climate legislation. They told us that they have deferred hundreds of billions of dollars of investments until they know what they will be required to do to protect the planet. And they said that delay in addressing climate change puts our country’s competitiveness in jeopardy, allowing China to race ahead of the United States in building the ­clean-energy industries of the ­future.

We recognize there are several ways to raise revenue through climate policies. Our goal is not to propose a particular policy solution but to start a discussion. It is a testament to the enormous power of the oil and coal lobby that climate-change policies have been dismissed as a viable option for deficit reduction. We believe that must change.

I think it is safe to say that this is not a high-probability outcome, but it is non-zero.

I don’t think, however, a debt deal is going to include anything that looks like a tradable carbon allowance — either cap-and-trade or “cap-and-dividend.” A “fee” is much more likely because of its simplicity. The vast majority of the money raised would have to go to deficit reduction for this to be politically viable.

I’m not certain that a deal has to extend out to 2050 — as that requires a very big bite for everyone to swallow.  These debt and deficit deals tend to be 10 years and that would be fine. It gets us through 2020 and that means Obama could actually deliver on his Copenhagen pledge of a 17% reduction by 2020 with even a modest starting price (as I explained 3 years ago).

If such a deal were possible at the end of 2012, I don’t think politicians would be less inclined to continue a carbon price in 2022, when the entire nation and the world have another decade of warming and ice melting and drought and extreme weather and almost another billion people to feed — and when the cost of key entitlement programs really start to kick in.

What’s interesting is that there is some genuine bipartisan support for this approach. I’ll excerpt my May 2011 post, since it has the key details.  The Peter G. Peterson Foundation funded six groups from across the political spectrum to put forward plans addressing our nation’s fiscal challenges.  All the plans are here.   The Center for American Progress plan, “Budgeting for Growth and Prosperity” brings the deficit below 2% of GDP within 6 years and fully balances by 2030.

The CAP budget does so while boosting clean energy research and deployment funding roughly $10 billion a year — and instituting a high and rising CO2 price. You can read a summary of it here.

The CAP strategy probably isn’t a big surprise to Climate Progress readers.  But what is remarkable is that the American Enterprise Institute (AEI) takes a strikingly similar approach on the revenue side — a high and rising CO2 price!  As AEI’s plan, “A Balanced Plan for Fiscal Stability and Economic Growth,” explains:

Replace energy subsidies, credits, and regulations with carbon tax

Subsidies for ethanol and other alternative fuels would be abolished (basic research on renewable energy would be funded on the same stringent terms as other basic research). As discussed above, business and household energy tax credits would be abolished. Regulations designed to lower greenhouse gas emissions would be repealed.

Instead, a tax on greenhouse gas emissions (“carbon tax”) would be imposed. The tax would be similar to Revenue Option 35 in the Congressional Budget Office’s March 2011 Budget Options book, but would be implemented as a tax rather than as a cap”and”trade program. The tax would take effect in 2013 and be phased in at a uniform pace over five years, so that the 2017 tax equaled the level prescribed for that year in the CBO option, slightly more than $26 per metric ton of CO2equivalent. As prescribed in the CBO option, the tax would thereafter increase at a 5.6 percent annual rate through 2050.

This is actually higher than the CAP price, which is $22 a ton of CO2 in 2017 [$81/ton of carbon], and which rises a bit slower, but still triples in a quarter century.

Again, I don’t think a deal needs to go out to 2050, though if it were only 10 years, then I’d recommend having the deal at least hold the CO2 price at the 2022 level when it expires, rather than zeroing it out entirely. These CO2 prices are certainly more than enough to hit the 17% reduction in 2020 — even if natural gas prices were much higher than today.

The Economic Policy Institute (EPI) budget blueprint takes a similar approach to CAP, using carbon pricing to meet the Waxman-Markey targets with “half of the revenue from proposed carbon pricing earmarked for energy rebates and tax credits for low-and moderate-income populations” to “fully offset the higher cost of energy for the lowest 60% of earners.”  The Roosevelt Institute Campus Network strategy uses the same escalating carbon tax as AEI in their plan.

The Bipartisan Policy Center did not table a new plan.  They used their November 2010 plan, which comes close to endorsing a high and rising carbon tax.  It uses a Debt Reduction Sales Tax (DRST) otherwise known as a sales tax.  The “Task Force considered alternative sources of revenue that could be phased-in to help reduce the DRST….  Of the alternatives considered, a tax on carbon dioxide (CO2) emissions from fossil fuel combustion received the greatest – though not unanimous – support. The specific option that the Task Force examined would have introduced a tax of $23 per ton of CO2 emissions in 2018, increasing at 5.8 percent annually.”  Ultimately they did not endorse a carbon tax in November.

Only the Heritage Foundation plan makes no mention of carbon pricing.

All in all, this strikes me as a big deal.  Not too long ago, the political acceptability of any carbon pricing was viewed as virtually non-existent, a “third rail” for the foreseeable future.  Now you have major policy groups from across the political spectrum seriously entertaining not just any carbon pricing, but a high and rising price sufficient to substantially reduce US emissions and put us on the path needed to meet our obligation as part of an overall global deal aimed at 450 ppm or stabilization near 2°C.

As the bipartisan op-ed concludes:

The “grand bargain” talks collapsed over the summer and the “supercommittee” failed in the fall for largely the same reason: The debt-reduction alternatives then on the table — raising taxes, cutting Social Security and Medicare, or carving deeply into defense and discretionary spending — were too politically painful. These alternatives will not magically become more attractive a year from now.

That is why we believe the time is right to begin considering new options. If budgeting is ultimately about choices, enacting a policy that reduces dangerous air pollution while providing hundreds of billions of dollars in debt relief should be a no-brainer. No other policy would do as much for our economy, our security and our future as putting a price on carbon.

I would underscore that raising personal income taxes to balance the budget is very, very unlikely to happen, except perhaps for the wealthy, and that isn’t anywhere near enough to close the budget gap even with entitlement reform. Also, raising the corporate income tax to balance the budget is very, very unlikely to happen — heck, everyone seems to be talking about lowering the corporate income tax now.

So I do think the chances of a price on carbon pollution being in the ultimate grand bargain are non zero. But as I said in July, it’s not plausible unless Obama becomes as much a salesman for that approach as he has for debt reduction in general.

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25 Responses to Bipartisan Support Grows for Carbon Price as Part of Debt Deal

  1. Sasparilla says:

    Very interesting Joe. It’s interesting that this is even talked about on the GOP side (since its a tax, something they attack on sight).

    Seems like a way, way long shot, but it would make me feel better to see it brought up in a bipartisan way by the leadership in the House (I’m guessing that is where it wouldn’t be allowed).

    Politically it would be a tactical mistake for Obama to be a cheerleader for this prior to the election (with gas prices expected to rise through the summer above $4 a gallon and be his biggest threat) – the GOP would pound him into the ground saying he wants to raise gas prices.

    • Joe Romm says:

      Unfortunately, you may be right.

      So many conversations these days assume Obama is going to become some sort of different person after the election — or rather become the person that he used to be. We’ll see.

    • Tim Laporte says:

      Fortunately, Obama doesn’t need to be a cheerleader for a carbon price before the election. All he needs to do right now, is WIN the election. That gives him, and Democrats, tremendous leverage going into what will be the most important budget negotiations of the decade.

      Democrats already have leverage going into the negotiations because on Jan 1, 2013, the following “triggers” come into effect: (1) All Bush tax cuts are set to expire, and (2) $500B in across the board military spending comes into force. Both of these results are unthinkable for today’s GOP. If Obama wins reelection, and Dems do reasonably well in congressional elections (i.e. hold the Senate, narrow the gap in the House), Obama & Democrats will bring tremendous bargaining power to the table. Also, Obama will be freed from reelection concerns, and will have no more incentive to bow to the GOP demands. Given the looming threat of Bush tax-cut expiration and huge reductions in military spending, the radical GOP will be in little position to oppose a reasonable carbon price as part of an overall deficit reduction deal, especially when the remaining moderate GOP embraces such a carbon price.

      In other words, Obama doesn’t need to sell a carbon price to the public during an election season marked by high gas prices. What needs to happen instead is that a bipartisan consensus (minus the crazy Tea Party, who will never agree) needs to embrace the common sense wisdom of using a carbon price for deficit reduction. Already, there is bipartisan agreement that a debt-reduction deal should include lower marginal income tax rates in exchange for fewer deductions, write-offs, and loopholes (such an approach would increase income tax revenue, despite the lower marginal rates). If a similar bipartisan consensus emerges around the (incredibly obvious) wisdom of a carbon price, this idea will naturally be given weight during post-election deficit negotiations, which are likely to favor Democrats.

      The challenge for environmentalists in 2012 is to continue to grow the conventional wisdom supporting a carbon price as a deficit reduction measure. Joe’s article does a wonderful job of illustrating how this trend is already well-developed, and today’s WashPo op-ed is a huge step in the right direction. By continuing to give this solution exposure in print media, dinner table discussion, and (bipartisan) think tank analyses, Obama & Democrats will have room to push for a carbon price as part the wider deficit reduction deal to be reached at the end of 2012, without having to explicitly campaign on this issue during the election season.

      This is the BEST chance that we have to put a price on carbon in the foreseeable future. If a carbon price is included in the year-end deficit reduction package, the GOP cannot filibuster it because of the looming expiration of Bush tax-cuts and military spending cuts that will come into effect if no deal is reached. The green community must be focused like a laser in 2012 on spelling out the great benefits of a carbon price as part of a year-end deficit reduction package.

  2. Also note that former Republican Representative Bob Inglis has for years touted a carbon tax: http://insideclimatenews.org/news/20101208/outgoing-rep-bob-inglis-still-touting-revenue-neutral-carbon-tax

  3. SecularAnimist says:

    Joe quoted: “Republicans Sherwood Boehlert and Wayne Gilchrest FORMERLY represented New York and Maryland districts, respectively, in the House.”

    The key word there is “formerly”. There are a lot of approaches to dealing with AGW that would get “bipartisan” support — if “bipartisan” includes Republicans who are no longer in office and could no longer win a primary in today’s Republican Party.

    Once upon a time, there were Republicans who supported — and indeed pushed for — cap-and-trade.

    That was before the Republican Party became a wholly-owned subsidiary of the Koch Brothers, and people like Boehlert and Gilchrest were purged, and any Republican who dared to suggest putting a price on carbon, or even to acknowledge the reality of AGW, was threatened with a heavily Koch-funded primary challenge by some “Tea Party” whacko.

    • Mulga Mumblebrain says:

      The plutocrats rule. I see, too, that class loyalty amongst the kleptocracy is so great that none of the ‘enlightened’ billionaires has spent any money financing a grass-roots movement to counter the suicidal frenzy of the various denialist mobs. Or if they have done so, they have been conspicuously unsuccessful.

  4. Doug Bostrom says:

    Sad to say, I’m mostly struck by the “ex” status of the two Republicans. It’s simply not possible now for a sitting Republican to publicly support something as thoughtful as the policy proposed in the op-ed piece. The collective GOP has inhaled too much stupid and isn’t capable of following that line of reasoning, not now.

    Eventually the GOP will be forced to exhale and then we can resume moving forward.

    • SecularAnimist says:

      Doug Bostrom wrote: “The collective GOP has inhaled too much stupid …”

      The collective GOP has inhaled too much Koch Brothers’ money.

    • Mulga Mumblebrain says:

      ‘Thoughtful’ is the key word. With the Right triumphant across the world, with its ethos of unlimited greed, unbounded inequality, atomised hyper-individuality and complete indifference to the fate of others imposed everywhere now for decades, you’d think they’d be content. Unfortunately the facts on the ground, the undeniable evidence that societies based on crass materialism and contempt for others are inherently malignant and self-destructive, have in recent years shattered their illusions. Being basically very simple-minded (Greed is God), intellectually incurious and reliant on simple-minded ‘faith’ as their cynosure, they have pitifully few moral, spiritual and cognitive resources to fall back on when economies implode under debt, the climate rapidly destabilises and when the long period of total Western global dominance comes to its inevitable end. So they react with rage, (as it has served them well before to intimidate and frighten others into submission)with heightened, even hysterical, redoubling of their protestations of infallibility and with a fevered search for scapegoats, for ‘traitors’ who sabotaged their great victory for ‘Freedom and Free Markets’. If you read the blogs, even the polite MSM ones, the denialist rabble are growing very, very, agitated that the ‘warmists’ haven’t disappeared and left the field to the denialists, so that they can better strut and fret and sing the praises of their great victory. We are very near a great climax to the collision of utterly irreconcilable forces. To navigate this safely we would need leaders whose wisdom and virtue would be worthy of the Nazarene-but they’d probably be crucified or immolated too. There are too many Grand Inquisitors about.

  5. with the doves says:

    Very interesting. Thanks. AEI supporting a carbon tax seems like a big deal.

    The authors of the op-ed were both from the GOP “moderate wing” which has atrophied over the years. There is a reason why they are former Congressmen. Gilchrest lost in a primary to a Club for Growth candidate.

  6. clays says:

    If you support this kind of thing, you better not cry about high gas prices.

    • SecularAnimist says:

      clays wrote: “If you support this kind of thing, you better not cry about high gas prices.”

      Bring ‘em on. The higher the better.

    • Barry Saxifrage says:

      Do you mean like the $10 a gallon that people in the EU pay today?

      I heard hair shirts can be seen on the streets of London and the folks in Copenhagen are living in caves. Oh…what…they drive fuel efficient cars instead? What are those?

      • Spike says:

        In england I am paying £1.40/Litre, so about $10 per gallon fuel. The world goes on and people are buying smaller more efficient cars and driving less. I’d support a carbon tax on top of this, with a heavier tax on coal. Perhaps taxes on income or labour could be reduced to offset the effects on wallets.

        Stiglitz said this on carbon taxes

        “Economic efficiency requires that those who generate emissions pay the cost, and the simplest way of forcing them to do so is through a carbon tax. There could be an international agreement that every country would impose a carbon tax at an agreed rate (reflecting the global social cost). Indeed, it makes far more sense to tax bad things, like pollution, than to tax good things like work and savings. Such a tax would increase global efficiency.”

    • John Hollenberg says:

      > If you support this kind of thing, you better not cry about high gas prices.

      I haven’t even checked gas prices for months, since I don’t need any for my (electric) Nissan Leaf, which I use for about 80% of my annual mileage.

  7. ltr says:

    I can tell you for sure, there will be no carbon tax passed in the coming couple of years. Not even a chance. Proposing such a tax would ruin Congressional Democrats as a whole. President Obama seems to care almost nothing about climate change anyway, so why think Obama would lead on such an issue?

    • Barry Saxifrage says:

      Guess: because they desperately need the money?

      Funny thing about carbon pricing is that once you got it even the pols who hate it seem to have a hard time raising other taxes to get rid of it.

  8. Joe,

    Your comment struck me as important:

    “I don’t think, however, a debt deal is going to include anything that looks like a tradable carbon allowance — either cap-and-trade or “cap-and-dividend.” A “fee” is much more likely because of its simplicity. The vast majority of the money raised would have to go to deficit reduction for this to be politically viable.”

    See “Carbon Tax: Win/Win for Climate and Fiscal Policy” at http://www.carbontax.org/blogarchives/2011/10/20/carbon-tax-winwin-for-climate-and-fiscal-policy/

    • Leif says:

      What better deficit reduction can you get than the Green Awakening Economy? You get build-out of “high tech” because efficiency is such a big solution to the problem. We Want it, so do others. (Exports) We get deployment and employment to the local communities. Massive employment at low pay but zero middle men. We get universal health care built into the price of fuel at the pump. (Perhaps a few other things as time goes on and the economy gets its feet adjusted to the new reality.) Universally traded BTU to BTU. Nation to Nation. Carbon priced for its negative value. All the money spent here on green energy is recycled here here in the homeland, not $$ into secretive bank accounts someplace. Green energy becomes the most secure monetary investment out there. Where do you want your investments to go in a level playing field? What benefit is it to society to allow profits on polluting the commons in the first place? Man’s creation of Capitalism as currently practiced, after a long and protracted labor, has emerged still born. At this point I believe the mother still might make it. The GOP think tanks know all this too and are fighting tooth and nail to revive the child. Its grieving time.

      Give me another reason?

  9. Leif says:

    I feel the earth move under my feet… As long as WE the People are not left out of the debate. As long as I can sell my new solar PV production to the grid as the corporations are able to sell their power to the grid. If the price doubles the value of my 25K system is as well. Which makes solar PV twice as valuable for my neighbors to put in as well. (Cash infusion directly into the community and all Green) Perhaps adjoining properties could share premium locations, splitting rewards and improving investment value. Power companies underwriting financing with costumers, value going both ways.

    I even can see a third party forming where ideology no longer calls the tunes but a unified electorate gets to support positive solutions to a specific problem first. Not whether Democrats or Republicans win the most. I always thought that was the definition of democracy. Let see? I think it went something like …”We the people, in order to form a more perfect union…” something or other… It would appear like there would be a big group that agree what we have is not approaching perfection. Say “We the People”?? Some might call it the 99% others the 100% of the oppressed…

    “Democracy” is coming to the USA… Lenard Cohan http://www.azlyrics.com/lyrics/leonardcohen/democracy.html<

    Hopefully we will all be presently surprised how fast sanity can be re-established once problems are clearly addressed in a civil manor. For the well being of all for all time.

  10. Bill Walker says:

    Yet another demonstration of Republicans becoming sane after they leave office.

    • Leif says:

      I would go so far as to say, ” survival is a human right!” It is not a Democratic or GOP issue. It is a “We the People” issue and we get a seat at the table. Capitalism as currently practiced is a 200 year labor that has delivered a still birth. The GOP continue to plead for more life support attempts and refuse to accept that reality. I still have hope for survival of the mom but she needs all our help now, not more resuscitation for a still birth. It is grieving time. Pursuit of profits at the expense of the commons must stop.

      Re-boot and move on.