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Feature Article

Climate Legislation to Transform the U.S.

by
Scott Smithline and Danna Moore

For the last three years, federal climate policy has been dominated by the cap and trade approach. In almost perfect unison a band of prominent corporations, our most senior and respected environmental legislators, and a coalition of nationally recognized brand name environmental groups have assured us that cap and trade is not only the best solution to global warming, but it is the only politically viable solution. They must be using a different definition of politically viable, and for that matter, a different definition of "best."

As it turns out, what seemed to be the legislative panacea just hasn't got the necessary votes, even with Senators revamping the Waxman-Markey version that passed through the House in June 2009. The first makeover version, Boxer-Kerry, was disregarded almost as quickly as it was introduced. Now policy makers are, yet again, at work on another bill to be introduced this Spring.

Senators John Kerry (D-MA), Lindsey Graham (R-SC), and Joe Lieberman (ID-CT), the co-authors of the new bill (referred to as KGL), seem to finally be acknowledging the need to broaden their efforts and include a wider range of stakeholders beyond US Climate Action Partnership (USCAP).

What's clear is that the three senators are trying for a more hybrid approach in the hopes to gain support from a number of legislators who have proposed alternative policies: cap and dividend by Senators Maria Cantwell (D-Wash) and Susan Collins (R-Maine), carbon tax by Reps John Larson (D-Conn) and Bob Inglis (R-SC), and a hybrid bill by Reps. Lloyd Doggett (D-Texas) and Jim Cooper (D-Tenn).

Its speculated that the KGL bill will propose a multi-sector price on carbon that includes a declining cap on emissions for power generators, a carbon tax for transportation fuels and, eventually, a cap for the industrial sector. Wait, isn't this the same carbon tax that wasn't politically viable before?

In early February, James Hansen, the director of NASA's Goddard Institute for Space Studies and one of the first scientists to testify before Congress on climate change, met with Senator Kerry on climate policy. He was looking to persuade him that a carbon tax, scaled up rapidly, would change behavior and reduce emissions. The Senator expressed that he liked the carbon tax but questioned if it would gain the necessary votes. "In theory, that's terrific," he said. "But show me one Republican who's going to vote for a tax, let alone some Democrats. So the things you hear in theory just don't translate into legislation. Ideally, that'd be a great way to approach it."

And yet, there it is, inserted into one of the most significant pieces of legislation in US Senate history. The breadth and depth of such a policy makes it the largest and most comprehensive piece of environmental legislation policy makers have ever confronted. Comprehensive federal climate/energy legislation will profoundly transform the country's energy infrastructure. An effective approach will also work simultaneously minimize negative effects on the domestic economy. The impact of such a bill is unprecedented-in terms of the magnitude of the problem being addressed, the number of entities impacted, the affect on foreign social and economic relations, and the time span involved.

The carbon tax is perhaps the most important development in the new bill. By folding in this policy, albeit narrowly applied to the transportation sector, KGL breathes new life into the approach. Once thought of as a political bill killer, or the deadly "T word," carbon tax now has an opportunity to be a big player in the climate game.

Economists, environmentalists and policy makers including the following have argued this is the best climate policy for years:

[The politician]
The Obama Administration's Energy Secretary, Stephen Chu: "that while President Obama and Congressional Democratic leaders had endorsed a so-called cap-and-trade system to control global warming pollutants, there were alternatives that could emerge, including a tax on carbon emissions or a modified version of cap-and-trade."

[The environmentalist]
Ralph Nader: "A global carbon tax levied on a relatively small number of large sources can be monitored by satellite and checked against the annual surveillance of fiscal and economic polices already carried out by IMF staff. Thus, the accounting involved is much more precise and much less subject to the vagaries of corruption and conflict over which industries and companies get their free handouts of carbon credits - carbon pork - than in a cap-and-trade system."

[The Economist]
Columbia Univ. Economics Professor and Nobel laureate, Joseph Stiglitz: "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...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."

Having established the viability of a carbon tax, we are finally past the political rhetoric that was providing a barrier for truly the "best" climate policy. A carbon tax with a portion of revenues recycled back to consumers would be the most effective and cheapest way to tackle this problem. A tax is predictable and wouldn't create a volatile new energy trading market like a cap and trade system. It's simple, much harder to manipulate, and far less harmful to consumers. Most importantly, it creates incentives for businesses to invest in long term clean energy projects because the cost is predictable and easier to administer. Top leaders from Google, Exxon Mobile, JP Morgan Chase & Co, Sempra Energy and Duke Energy have all reiterated this key component.

With this in mind, carbon tax would bring in a much wider range of stakeholders; consumers like it because they are either given a direct dividend or a tax reduction, companies like it because its less costly and predictable over time, environmentalists like it because there are no hidden offsets and the tax can be increased to get to necessary reductions, and policy makers like it because there is already an existing regulatory federal body to administer and oversee the process.

Some basic policy principles for a carbon tax could be:

• Direct, upstream steadily increasing CO2 fee calibrated to reduce emissions to levels called for by climate science consensus.
  Carbon Fee/Tax Shift should include a regular review and mechanism to periodically adjust fees upward as needed to reach CO2 reduction targets.
  
• The vast majority of revenues returned to consumers, either directly ("dividend") or via tax reductions ("tax shift").
• A small portion of revenues allocated to a single fund for climate purposes such as transition assistance for affected communities, international adaptation/ mitigation/research and development, low-carbon energy research, and targeted cost-effective energy efficiency investments.
• Border adjustments: Allow for and encourage coordination with the emissions-reduction approaches used by other countries, and as necessary incorporate border adjustments or other WTO-compliant mechanisms to reduce the leakage of emission-producing activities to nations that impose low or no costs on their carbon emissions.

It's a good sign that our legislators are looking anew about how to solve this problem, moving away from the constraints of USCAP and the laser-like focus on cap and trade. It is critical that policy makers identify the most effective mechanisms to deal with climate change and integrate those into a strong legislative foundation. If we can do that we will have already cleared the most important hurdle. Just as perceived political infeasibility can easily become a barrier to progress, it can also be easily overcome. If we demand what we believe are truly the best solutions for addressing climate change, we can create the necessary political will to them.

It seems the least we should do for the planet and American people who are desperately fighting to save it.