Climate policy question #1 is simple: “Are we in?”

*This is guest post from K.C. Golden, the Policy Director of Climate Solutions.*

Climate and energy policy touches everything. So it’s no surprise that as Congress finally sets to work on a national climate policy, it confronts a blizzard of complexities.

**But at the end of the day, Congress will face some stark questions. Will they step up to a real commitment to reduce fossil fuel dependence?** Will they launch an economic recovery that delivers sustained, broadly-shared prosperity, or just a short-term stimulus and bailout? Will they fight for real, effective climate solutions — as big as the problem?

If we’re too clever and not focused enough, we can make these questions too complicated to answer. With so many competing energy and climate policy ideas on the table, how will we know when our leaders really deliver the goods? How can we hold them accountable for saying “Yes” to these basic, threshold questions?

**There is of course no single policy that will effectuate all the necessary solutions. But there is a policy choice that calls the essential question — a single decision that will signify a genuine commitment to reduce fossil fuel dependence and deliver climate solutions at scale, with real accountability for results: a firm, science-based cap on climate pollution.**

A carbon cap is not a complete policy blueprint, by any means. But it is a foundation — a serious public policy commitment to do the whole job. It is the clearest possible signal — to energy markets, to the international community, to ourselves — that we are stepping up to the climate crisis and the unprecedented opportunity for economic renewal in solving it. It will unleash investment and innovation to implement existing solutions and develop new ones. **It leaves many questions unanswered, but it nails the most important one: “Do we have the will to do what is right and necessary?”**

**This may seem simplistic. But the biggest danger now isn’t oversimplification. It’s the opposite.** The risk is that Congress and public opinion will be fractured by endless debate about policy design permutations. Opponents of the clean energy transition cannot win a simple referendum on fossil fuel dependence. But they may prevail anyway, if we turn the debate into an impenetrable wonkfest or a snakepit of special interest pleadings.

“Why cap and trade instead of a ‘simple’ carbon tax? Why don’t we just do clean energy standards or investments first? Will emission allowances be auctioned or given away? To whom? How much allowance revenue will be returned to households, and how much will be used for public investment? How can we prevent market manipulation? What about ‘leakage’ of jobs and emissions to places that have no climate policy?”…

These and many more fair questions must be answered. But given the potential for paralyzing complexity, we need to simplify and underscore the basic policy choice. Confusion is one of the most effective weapons in the arsenal of those who intend to forestall strong policy action. So before the smoke builds up so thick that we can’t see where we’re going, let’s try to lock in on our destination.

**First, “cap and trade” is not one word.** The “cap” is the heart of the policy. It codifies the commitment to actually do the job. It opens the market space for solutions. It lights the fire of investment under the growth of the green economy — the necessity that births invention. Tradable permits are one among many design features that may help align economic incentives with the efficient achievement of the cap. But the cap is the driver. And the fact that we are now debating “cap and trade” as a policy design “scheme” instead of “cap” as a fundamental policy commitment is a great source of leverage and comfort to those who just want the whole thing to go away.

**Second, carbon taxes are not an alternative to the cap.** Like trading, carbon taxes may play a useful role in aligning economic incentives with the imperative to reduce climate pollution. But they are no substitute for the imperative itself, which is expressed by the cap. Carbon prices that reflect the real costs of climate pollution will help a market economy make the right investments. But “carbon pricing” is not the goal. A safe quantity of carbon is the goal. And a cap says, “Reducing climate pollution to safe levels is not just a good idea. It’s the law.”

A carbon cap is by no means the complete answer. Many other public and private actions are necessary: accelerated investment in the new energy economy and good green jobs; protection for households to ensure affordable basic energy service; transition assistance for workers, communities, and ecosystems; investment in international adaptation and mitigation as a cornerstone of a fair and politically practical global climate treaty; stronger energy efficiency and renewable energy standards…and more.

A cap by itself doesn’t accomplish all these things. But it commits us to a destination that we can only reach by doing them. It’s more like a declaration of war on fossil fuel dependence than a battle plan. It doesn’t say everything about how we intend to win. But it commits us to the cause. *Finally.*

Every President since Eisenhower has warned of the dangers of fossil fuel dependence, and each one has left America more dependent than when he took office. The economic, environmental, and security consequences of this addiction have gone from bad to catastrophic. Now, after a half-century of speeches, platitudes, and false promises, will our leaders deliver a REAL commitment to systematically reduce our fossil fuel dependence? That’s the question that the carbon cap calls.

**This single commitment won’t do all the work, but it will say the one, essential thing that we have so far failed to say: “We will do this.”** The world needs to hear this. Americans who want to be part of real solutions — from working families who need good jobs to innovators in the new energy economy — need to hear this. Our kids need to hear this, lest they sue us for breach of the intergenerational contract.

And unless and until we say it, the rest of the climate policy design debate is academic.

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  1. James Handley - April 6, 2009

    Cap adherants seem to believe that a cap ipso facto reduces emisssions. (Some even assert that a cap will do its magic without a price increase.) In fact, the EU’s cap/trade has only made traders rich. Why do down that dead-end?
    Let’s be honest: Cap/trade is a hidden, volatile, regressive tax. Create scarcity and let markets set the ever-changing price.
    A revenue-neutral carbon tax is explicit, predictable and, with a corresponding payroll tax reduction, it can be progressive. That’s what Rep. John Larson, chair of the House Democratic Caucus has proposed. Rep. Bob Inglis (R-SC) advocates a revenue-neutral carbon tax too. Gore says, “Tax what we burn, not what we earn.”
    The Senate has balked three times at cap/trade because it’s a blank check. Put an explicit price on carbon and tell us what you’re doing with the revenue, and we can have a discussion. “Hide the price” won’t cut it.
    Prices are the strongest way to affect aggregate energy consumption and to stimulate investment in alternatives and efficiency. If we don’t use prices, we’re not serious about this problem.
    House Ways & Means is starting to get the idea.
    See http://www.carbontax.org and http://www.pricecarbon.org.
    [Ed. -- Meanwhile, on planet Earth...]

  2. Tom Harrison - April 7, 2009

    This point is one far too often overlooked — your post is thoughtful and well articulated.
    In my profession I do design. Software in my case, but in all designs there’s a simple rule that applies: Keep It Simple, Stupid.
    There are indeed many gnarly and complicated issues; many of which we could predict. Zealots of many stripes will contend that we’re all wrong, for various reasons.
    But a carbon cap is not wrong. It is simple to understand, obvious in it’s cause/effect relationship, proven in its efficacy, and the straightest path towards a real first step.
    Thank you for saying what needs to be said. We must do it.
    I’m in!

  3. James Handley - April 7, 2009

    Yes, keep it simple.
    Which points to a revenue-neutral carbon tax. Rep. Larson’s carbon tax bill is 17 pages. Waxman’s cap/trade discussion draft (which will need to include other rules and programs that might not be needed if we just priced carbon explicitly) is 748 pages.
    Caps involve creating a currency in carbon allowances with traders, secondary markets, derivatives, etc. Friends of the Earth recently released Subprime Carbon detailing the problems of trading in carbon allowances and the likelihood of market manipulation and bubbles.
    A cap has to be monitored, enforced, allowances have to be auctioned and then you need ways to limit volatility like banking, borrowing, offsets, a carbon Fed, price floors, price ceilings, etc, etc. And it’s a mess to link with other nations’ carbon caps.
    If you’re going for simplicity, a revenue-neutral carbon tax is the way. Visit the Carbon Tax Center for more information.

  4. lee - April 8, 2009

    A carbon “tax” will accomplish one thing and that is to drive the economy further in the hole..This is not the time to increase taxes.Those of us that are on fixed incomes are having a hard time with the already too high energy costs!(what happened to HYDRO POWER??)

  5. Paul S. - April 8, 2009

    This is so simple, I don’t get it.
    How is the cap set?
    How is the cap enforced?
    Who can financially benefit from it?
    I agree with Mr. Handley. A revenue-neutral carbon tax will be more effective, especially if revenue neutral.
    Lower payroll taxes, tax carbon emissions. Individual citizens have lower taxes, the polluters pay higher taxes.
    Seems pretty simple to me.

  6. Adam Stein - April 8, 2009

    Folks, a carbon tax is a fine thing. It has no political momentum and no political support in the U.S., so we’re not going to have a carbon tax. And, needless to say, any carbon tax bill that actually made it through congress would end up a bit more than 17 pages in length.
    I read the Friends of the Earth document. The kindest thing I can say about it is that I agree that financial markets should be appropriately regulated.

  7. Paul S. - April 8, 2009

    Um, not so fast Adam:
    In an interview published in the New York Times in February 2009, Secretary Chu [of the Obama administration] said “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.”
    And check out the many others who have openly discussed taxing carbon at:
    http://www.carbontax.org/who-supports/public-officials/
    And remember this is a democracy. We the People can, and must, say what we think is best for us.

  8. Adam Stein - April 8, 2009

    Um, really. Carbon taxers have been playing this game for as long as I’ve been paying attention to this issue. Every time some official makes some statement that could possibly be construed as favorable to a carbon tax, then a tax is “gaining momentum.” Every time a congressman floats some ignored proposal for a tax, then “the tide is turning.” This stuff riles up the people at carbontax.org, and in the meantime, all the actual legislative attention and effort flows to cap-and-trade.
    I personally don’t really care whether we wind up with cap-and-trade or a carbon tax. Either could work fine. But I find the premise that we the people are clamoring for a simple, effective carbon tax and evil financiers are clamoring for convoluted, ineffective cap-and-trade to be utterly tedious. They’re just different ways of pricing carbon.
    And…I’m out. It’s Passover, I’ve got horseradish to grate, and frankly I’d rather drink gefilte fish jelly than rehash the debate over carbon taxes.

  9. Chad - April 8, 2009

    I agree with most of the posters here: a tax is a much better policy. And I do think that it can be pushed through the political system. Republicans in general vastly prefer the tax option if it is coupled with lower taxes elsewhere. We can turn this into a win-win situation.

  10. Paul S. - April 8, 2009

    No need to yell, Lee.
    The “cost” of a carbon tax would be balanced by a reduction in payroll taxes, so your taxes would be lower.
    We must raise the cost of energy to encourage everyone to use less, and to encourage the alternative energy folks to figure out how to make alternative energy more cost competitive.

  11. James Handley - April 8, 2009

    Check out Thom Friedman’s column today:
    “Show Us the Ball” at http://www.nytimes.com/2009/04/08/opinion/08friedman.html?_r=2
    “Since the opponents of cap-and-trade are going to pillory it as a tax anyway, why not go for the real thing

  12. Erik Blachford - April 9, 2009

    There is another way to look at cap and trade. Think of the cap as straight up regulation – a company or sector’s emissions will be limited by law; exceed the emissions limit, and break the law. That would probably be a pretty effective way to get emissions down.
    Is it likely to be cost-efficient? Probably not. Which is the whole point of the “trade” part of “cap and trade.” Let the emissions reductions happen where they can be made to happen cheaply, to lessen the downstream economic impact. The atmosphere doesn’t care where the reductions happen, nor how much it cost to make them happen. If we then want to find a way to make that impact go away by auctioning permits and issuing dividends and so on, great, but that’s all secondary to the main idea.

  13. Tax time - April 16, 2009

    US residents have been burning up artificially under priced fossil fuels for decades. The poor and middle class tax payers have been subsidizing Big Oil and coal production in a variety of ways that most of us don’t see or understand. What the economists call “externalizing costs” and the producers do by disposing of their waste products into the public domain is otherwise known as air and water pollution. There there are all the special incentives in the tax code.
    How many readers of this site remember Pop-Eye’s friend Wimpy, who was always saying, “I will gladly pay you tomorrow for a hamburger today”?
    Some of us kids laughed then at this preposterous idea. Others made fortunes by encouraging people to adopt that proposition as their way of life.
    Pogo said the unthinkable in a cartoon published about the time of the first Earth Day: “We have met the enemy…….And it is us!”
    Is it fair, or just, or moral, to leave our children and grandchildren with the task of paying the actual price of our energy intensive lifestyles?
    It’s long past time to raise taxes on fossil fuel consumption and end the “free ride”!

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