THE VINE FEBRUARY 26, 2009
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Ooookay, let's scrunch up our sleeves and talk accounting for a bit. (Wait! Don't click away!) As mentioned earlier, the White House's newly unveiled budget proposal plans to raise $646 billion in tax revenue between 2012 and 2019 by auctioning off carbon permits under a cap-and-trade regime—about $80 billion per year. But what sorts of assumptions are they making here? What, exactly, are they envisioning for climate policy? On a White House conference call just now with reporters, a handful of senior administration officials unspooled their thinking a bit.
First, the basics: The White House is assuming we'll have a cap-and-trade system up and functioning by 2012, which might be feasible if Congress finalized legislation this year or early next, though we're talking breakneck speed. ("It's an optimistic calendar," one official admitted.) The proposed cap would aim to slash U.S. greenhouse-gas emissions 14 percent below 2005 levels by 2020, with an 83 percent cut by 2050. Officials were quick to note that the conversation on this "was just beginning," but that may not entirely placate green critics, because those targets are actually fairly timid. Indeed, recent climate science suggests we should shoot for a 20 percent cut below 1990 levels by 2020—a far steeper reduction than Obama's contemplating.
On a related note, the White House is expecting the price of carbon will settle at around $20 per ton. That's actually cheaper than the price under Europe's emissions-trading regime (before the financial crisis hit), and it's cheaper than the $28 per ton predicted under last year's Boxer-Lieberman-Warner cap-and-trade bill, which was lambasted by many environmentalists as far too flimsy. Administration officials did, again, caution that this figure was just a "placeholder" and a "fairly conservative number" at that.
The White House is also assuming that all of the carbon permits issued under the cap would be auctioned off, with zero free giveaways for select industries. For a quick primer on why auctioning is a good idea, see this old op-ed by Peter Orszag, the guy who... now runs the White House budget office. Orszag's key point is that handing out free permits to utilities and manufacturers actually does nothing to shield consumers from energy price hikes, since companies wouldn't actually pass on the savings. So, if we want to mitigate any pain from a carbon cap (and we do), it's better for the government to auction off the pollution permits and use that revenue to cut taxes or offer rebates. And that's exactly what Obama's proposal does: Of the revenue that's raised, the vast bulk (about $60 billion per year) will go toward the "Making Work Pay" tax credit (which offsets payroll taxes for about 95 percent of workers), while $15 billion per year gets set aside for various clean-energy technologies, energy efficiency, clean-car development, and so forth.
Now, the officials on the conference call kept emhpasizing that this was all a rough sketch. Congress has yet to write a cap-and-trade bill. That's going to take time. Details will change. The frenzy of climate lobbyists circling 'round the Capitol has yet to start feeding. If the carbon cap ends up being stricter than what the White House is budgeting for, then they'll raise even more revenue, since fewer permits will get issued and the price of carbon will go up. Still, this is the starting point.
--Bradford Plumer
9 comments
Save the economy first. Otherwise H. will be a one-term president.
I'd very much like to see more proposals for green ways to increase economic growth such as your idea the other day for, IIUC, encouraging more rapid depletion of oil reserves as a way to fund, and speed up, the arrival of renewables. Win-win. Anything that's not win-win will not get popular support.
There will be one helluva backlash by middle- and upper-middle class (sorry, but $250k isn't fat cat status for small business owners in super-expensive coastal metro areas) Americans if we rush headlong into badly thought-out green schemes which kill economic growth. With growth, plenty of things are possible. Without it, hardly any. The political support won't be there.
- teplukhin2you
February 26, 2009 at 5:56pm
Tep, agree 110%, but I don't think cap-and-trade is going to be bad for the economy. In many ways, it will help:
www.tnr.com/.../story.html
The main point I'd note, though, is that the White House doesn't see this kicking in until 2012 at the earliest, which means that they definitely plan on fixing the economy first and relying on stimulative energy policies in the short run (spending on grid upgrades and the like) *before* ever getting around to the business of capping and regulating and taxing. (Plus, since the vast majority of revenues are used to cut payroll taxes, the price on carbon envisioned here is more of a tax shift than a tax increase—raising the taxes on a negative externality and lowering the tax on work by a nearly equal amount.)
- Brad Plumer
February 26, 2009 at 6:12pm
Today, President Obama’s new budget was officially released. Those interested only in the energy provisions can skip here, although a look at the actual draft budget is extremely informative. As usual, more industrious and well-connected sorts have
- Anonymous
February 26, 2009 at 6:27pm
I think a lot of Americans in the middle - middle class, middle age, middle of the spectrum running from urban secular hipster to small town religious observer -- would love very much to support win-win, increased growth + decreased CO2 solutions.
They/we don't want our children to choose between a sh*tty environment and a sh*tty economic future. Call them naive but we Americans have a way of achieving hugely ambitious goals considered impossible by more cynical people.
I'd dearly love to see a Green/Growth alliance-- provided it isn't strangled by Villaraigosa-esque cronyism, corruption, favors for politically-connected VCs and private equity guys etc.
- teplukhin2you
February 26, 2009 at 7:32pm
In addition to sketching the course of future climate legislation, Obama's budget proposal today
- Anonymous
February 26, 2009 at 7:38pm
What is green is technological progress and its twin, economic growth. Government subsidies for expensive, inefficient so-called green technologies are counterproductive in both economic and environmental terms.
- bulbman1066
March 1, 2009 at 3:49am
2012 may be the soonest Obama can get cap-and-trade through. I accept that. But that's too late. Hell, it's already too late. The fact that 2012 is probably the soonest he can get anything at all meaningful done is just one more piece of evidence that human societies do not function in such a way as to permit robust preemptive action on climate change. The earth will get hotter, and either such heating will wreck civilization or it won't. Not a lot BHO can do about it either way.
- aeromonas
March 1, 2009 at 8:07am
Sadly, I haven't been following the waltz steps in Congress over energy and climate legislation as
- Anonymous
March 10, 2009 at 9:16pm
Noteworthy scoop from The Wall Street Journal : Back in February, it turns out, White House economic
- Anonymous
March 18, 2009 at 2:26pm