Why Are Climate Change and Deficit Reduction Considered Mutually Exclusive? 12 comments
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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.
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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.
For the very best analysis of this question, see the summary of Nordhaus here:
www.nybooks.com/articl...
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?
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.
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.
In the months leading up to the October of 2008 Canadian Federal election the taxation of carbon and the recycling of the revenue derived by such taxation became a central focus of that election campaign. There were 5 parties that played a significant role in that campaign and, of these, the Liberal Party presented a very ambitious plan set out at the following link:
cbc.ca/newsatsixns...
In light of the growing general global economic crisis of October of 2008 (and other problems with the Liberal campaign), the Liberal’s lost the election and their plan is no longer on the political agenda. It does, however, address many of the issues in innovative ways.
Independently an interesting and well regarded Canadian economist, Jeff Rubins, has been studying the implications of a radical increase in the price of petroleum, something he believes is inevitable. An article in today’s web version of The Globe and Mail is a good introduction to his thinking.
theglobeandmail.co.../