Photo Credit: Johnny Klemme, Flickr
With the Bush Administration gone, Americans are at long last starting to debate climate change legislation. Progressives agree that any climate policy must achieve the deep and rapid emissions reductions that are needed to avoid catastrophic climate change. And the policy must be just, not placing disproportionate burden on the poor, and not letting big polluters off the hook. Beyond that progressives and climate justice activists are deeply divided on what policy to support. Some are surprisingly supportive of carbon taxes, others vehemently opposed to cap and trade, and most completely silent on the benefits of regulation.
Carbon Tax and the Left: Strange Bed Fellows
It is completely understandable why conservatives, like Newt Gingrich, see a carbon taxes as their preferred climate policy. A carbon tax involves less government involvement in the economy than cap and trade or regulation, it is highly regressive, and it is predicated on the assumption that markets will solve our problems as long as the prices are right. These are all features conservatives like.
Carbon taxes fail the twin criteria of justice and adequate emissions reductions required for a progressive climate policy. Carbon taxes are clearly regressive because poor and working people spend a higher share of their income on energy, and therefore will be hit hardest by the carbon tax. It is true that the regressive nature could be offset if the revenues raised by the tax were given back to the poor as a carbon dividend.
Carbon taxes are not likely to sufficiently reduce emissions. As pointed out by Peter Barnes in his primer on climate policy (Climate Solutions: A citizens guide) a single tax will not ratchet emissions down over time as is needed. And it is very unlikely that politicians will have the political will to repeatedly raise taxes over and over to get the needed emissions reductions over time. Equally serious the effects of price increases from a carbon tax often don't reach the right people. For example, houses are built by developers, but they don't have to pay the utility bill, therefore they have little incentive to build energy efficient homes. And although buyers might prefer an energy efficient home, energy efficiency is hard to evaluate, and must compete with multiple other considerations when buying a house. Similarly, car maker's finances do not depend upon the cost of driving the cars they sell, and therefore the effects of high gasoline prices are not felt directly by the companies. Believers in the market will argue that car companies must make what consumers want or they will go out of business. But higher gas prices do not necessarily translate into effective pressure for fuel efficient cars. Consumers facing high gasoline prices may instead demand a repeal of gasoline taxes (summer 2008), or more offshore drilling, or support foreign wars to protect "our oil."-
A Just and Adequate Cap and Trade System is Possible
Many climate justice activists deeply distrust cap and trade. A powerful reality fueling their position is that the European cap and trade system has been a complete disaster. It has enriched companies and failed to effectively reduce emissions. The plan gave away permits to polluters rather than sold them at auction, and it allowed for bogus offsets where firms could pay for inadequately monitored or outright fraudulent schemes instead of making real emissions reductions in their operations at home. But just as the injustices in one countries tax system should not lead one to oppose taxation in general, the European experience with cap and trade should not lead to a blanket condemnation of cap and trade systems in general. Just like tax systems, there are good and bad cap and trade systems. The devil is in the details "" specifically auctioning or giving away of permits, the extent to which offsets are allowed, and are the targeted emission reductions in the cap sufficient.
A just cap and trade policy must call for auctioning of permits to ensure that industry pays for the permits, and the public gets funds for public investments in clean energy infrastructure and for rebates to the poor to ensure they do not pay a disproportionate burden. The critiques of cap and trade focus on trade, and tend to forget about the cap. The cap is regulation which, as long as offsets are kept at a minimum, should deliver real and predictable emissions reductions. The cap can be set to provide the size and timing of reductions that science indicates we need.
Environmental justice groups often object to polluters paying for the right to pollute. In doing so they miss the key point that with a cap the total amount of pollution is regulated. All that permit trading does is shift around between polluters which one is going to pollute how much. In the aggregate there is no way to buy their way out "" the cap regulates total emissions.
There is a sound environmental justice objection to permit trading in some cases: trading can create pollution hotspots in poor neighborhoods. This argument applied to the Bush administration's proposal for a trading system to reduce mercury pollution. But the argument does not apply to greenhouse gas emissions which do not have local health effects. True, there can be co-emissions along with greenhouse gas emissions that may have health effects. But these are already regulated by laws designed to protect public health which do not allow trading. If these laws are not strong enough or only weakly enforced that is a separate issues, but not a good reason to oppose permit trading for greenhouse gases. The irony of environmental justice group's opposition to cap and trade is that one of the huge anticipated benefits of California's AB 32 landmark climate legislation (which includes cap and trade) is improved public health due to reduction of particulate co-emissions in poor neighborhoods.
Some prefer the supposed simplicity of a carbon tax to the admitted complexity of a cap and trade system. But as Joseph Romm has pointed out, anyone who has looked at the US tax code knows that taxes are not necessarily simple. Others argue that industry lobbyists will monkey with the details of cap and trade such that it won't really work. This is a real risk. But this is real risk with all climate policy. If we don't have the political forces to beat the polluters in the legislative process then we will get a weak policy whether it is a tax, cap and trade, or regulation.
In Praise of Regulation
It is a mystery why recognition of the benefits of regulation has been largely missing from progressive debate on climate policy. It is as if thirty years of the Right railing against government regulation has finally convinced even progressives that regulation does not work. Or maybe it is distrust of government's ability and will to actually control business - but that is a problem we will have to face with all approaches to climate change policy.
We should be praising regulation as the best way to fairly, effectively, and certainly reduce emissions. Regulation is the only way to bring about key changes that cap and trade and carbon taxes operating through markets and prices cannot. For example, we need green building codes to force insulation and energy efficiency standards in homes and buildings. We need to regulate automobile fuel efficiency, and regulation to require or incentivize use of hybrid, and all-electric vehicles. We need federal Renewable Portfolio Standards requiring public utilities to provide a certain share of their electricity from renewable sources "" thus creating a huge new market for clean energy production and powerful incentives for technological innovation in energy.
The stakes in the current debate are high. If the U.S. does not have firm commitments in place to reduce emissions, it will make it much harder to reach a new global climate accord at Copenhagen. Developing countries, particularly China and India, are unlikely to accept binding commitments to reduce their emissions, if the US, historically the largest emitter, still has no adequate plan to reduce its own emissions. Cap and trade legislation is our only chance of getting real climate policy any time soon. Fortunately, cap and trade legislation often contains regulation that operates independent of the cap and trade system. In California's AB 32 climate policy, 80 percent of emission reductions come directly from regulation, while only 20 percent come from cap and trade.