Why Are Climate Change and Deficit Reduction Considered Mutually Exclusive?

Next February, President Obama will unveil his 2011 budget. Over the past few days, the news media have begun to speculate about some of the steps that he might propose in order to tame our growing deficits.

Over at Politico, Mike Allen and Jim Vandehei suggest that one policy casualty ought to be the effort to combat climate change:

The big question for Obama – and the country – is whether the sudden concern about deficits will be more rhetoric than reality once his first State of the Union address concludes.

All presidents promise deficit reduction – and almost always fall short. There is good reason to be skeptical of this White House, too, on its commitment.

For starters, the White House has not dropped plans for an aggressive global warming bill early next year that will be loaded with new spending on green technology and jobs – that would be paid for with tax increases. Democratic lobbyist Steve Elmendorf says the White House focus on deficit reduction could easily kill the cap-and-trade effort. “I think this means cap-and-trade has to go to the backburner,” he said.

This line of argument makes no sense to me. And its mere existence reinforces my concern that the politics of climate change are completely dysfunctional from a budget perspective. As I have noted before, the government could combat climate change in a way that would also combat our out-of-control deficits:

A carbon tax, for example, could raise revenue and reduce carbon emissions at the same time.

Alternatively, the government could auction off allowances under a cap-and-trade system and then designate some or all of the resulting revenues for deficit reduction.

Unfortunately, that is not the way our Congressional leaders are approaching this challenge. The House, for example, passed a climate change bill that would create allowances worth almost $1 trillion over ten years. The net reduction in the deficit? A paltry $9 billion since Congress would give most of the allowances away to industries with good lobbyists and would spend almost all of the rest.

Senate leaders, meanwhile, are touting their climate change bill as “not worsening the deficit” — a ridiculously low standard in this new era of trillion-dollar deficits.

My recommendation to the President is quite different from that in the article. If the President is committed to both climate change legislation and reducing the deficit, he should tell Congress to levy a carbon tax or designate a large fraction of the carbon allowances for deficit reduction.

Comments

[Ferdinand E...:]

A tax on carbon for the purpose of merely raising revenue sounds goofy to me. Somehow that revenue should go back to the people who pay it, only the price of carbon would be higher. The details - well, too complicated for me right now, given the rotten weather in this country..

Nov 15 08:33 AM

[BlueOkie:]

Climate change is just another way that our gov't wants to control us. It was not that long ago climate change was the next coming of the ice age, the world was cooling. Now it is heating. It is all about controlling our lives. I doubt if the emerging countries are going to stop. Let's get facts not opinions that change with the winds. I suspect the sun has more effect than the methane gas from the cows. (EPA considered taxing cow gas). Get the gov't off our backs so we can get this economy growing again.

Nov 15 08:38 AM

[randomrabbit:]

Sincerely doubt the altruism of the US Govt. Big oil is here to stay regardless of what people might say. We all leave a carbon footprint and its hard to stop overnight. In the meantime, deficit reduction sure is tough when you got to feed your bankers ;)

Nov 15 11:02 AM

[huangjin:]

Higher energy costs means a much weaker economy, so the carbon tax must be offset with other tax cuts. That still leaves a $1.4 trillion deficit, which can be solved by eliminating two of these three programs: Social Security, Medicare, Defense.

By itself, the climate change legislation would turn a strong economy into the 1970s stagflation. Given the current state of the world, it would lead to a depression.

Nov 15 01:27 PM

[Sharon Merkle:]

Yet another "climate" policy with no reference to what the ideal climate is. When hysteria is high, science is low. Eugenics, cosmic ether, music of the spheres, the world is flat, the body is made of four humors, spontaneous generation. All proven science, all promulgated by unimpeachable experts.

For the very best analysis of this question, see the summary of Nordhaus here:
www.nybooks.com/articl...

Nov 15 01:54 PM

[Asicem:]

The deficit is the real threat to our way of life, man made global warming is just a bad joke on so many levels.

Nov 15 09:53 PM

[CLH:]

Like most things coming from the Democrats, man caused global warming is not science.

Nov 16 12:01 AM

[Windsun33:]

Ok here is how Cap and Trace will work under the Obama plan.

1. Big taxes on carbon, which will hit electrical generation hardest.
2. Electrical rates go up, in some cases about 40%.
3. Poor people, that is anyone earning less than $250,000 a year revolt.
4. Obama gives a 40% subsidy to everyone but the rich to pay for their power.
5. That money obviously comes from taxpayers, so we are being taxed to get an energy rebate.
6. The power utilities will break even because the energy subsidy is basically a subsidy for them, the consumer does not keep any of it.

See anything wrong with that picture?

Nov 16 12:23 AM

[dondon:]

Climate change regulation will crush the average citizen and make a bundle for those that know how to game it. Just ask Al Gore.

Nov 16 12:25 AM

[Sleddawg63:]

Global Warming has the potential to become the biggest scam ever. Unlike Y2K it is supported by the ruling government which means costs have an unlimited reach.
Add to that my belief that green technology will not make a difference until the average homeowner can afford wind, solar or geothermal alternatives. That's the level that the government needs to play at. I cannot believe that we have had residential solar technology for over thirty years and we are still discussing this.

Nov 16 06:18 AM

[Living4Divi...:]

huangjin - the first part of your comment is beautifully written and I agree that Cap-N-Tax will hurt the economy, but I do not think it will be as drastic.


On Nov 15 01:27 PM huangjin wrote:

>
> By itself, the climate change legislation would turn a strong economy
> into the 1970s stagflation. Given the current state of the world,
> it would lead to a depression.

Nov 18 04:58 PM