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