Help Wanted: Bipartisan climate bill

By JIM DIPESO, REP Policy Director

AN HISTORICAL DOCUMENT: This article first appeared in the C.E.P (Conservative Environmental Policy) Quarterly, spring 2009, Vol 4, #3

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Legislation to limit greenhouse gas emissions is likely to have far-reaching effects on American society for decades into the future.
The long dependence of the world’s largest economy on energy-rich, portable, but environmentally problematic fossil fuels would begin declining. The effects of that change would be deep and long lasting.

There is a strong conservative case for addressing climate change and lowering dependence on fossil fuels. Emitting billions of tons of heat-trapping gases into the atmosphere every year is risky. The impacts on water resources and food production capacity, for example, could be severe. Prudence and our moral responsibility to future generations demand that we reduce those risks.

While a shift away from fossil fuels would be wise, the legislative mechanism for accomplishing it must be thoroughly vetted. The end product needs broad, bipartisan support if it is to succeed in both lowering the risks of climate change and shaping a transition to cleaner energy technologies in ways that strengthen the economy.

The worst thing that congressional leaders could do would be to rush through hastily considered climate legislation on a narrow, party-line vote in an atmosphere of partisan rancor.

That is why conservative Tennessee Senator Bob Corker’s idea for a “cap-and-dividend” approach to climate legislation deserves serious consideration. “Cap-and-dividend” could serve as the basis for a broad, bipartisan compromise that addresses both environmental and economic ramifications of limiting greenhouse gas emissions.

A similar approach has been proposed by Congressman Bob Inglis of South Carolina. Inglis has introduced legislation to levy a carbon dioxide tax that would be fully offset with a payroll tax reduction. His bill would levy a tax of $15 per metric ton beginning in 2010, increasing to $100 per ton by 2040. The tax would be levied at the points where fossil fuels enter the economy—at coal mines, refineries, and natural gas pipelines, for example.

The legislative approaches that Corker and Inglis have proposed are only two of many ways to accomplish one goal—putting a price on emitting carbon dioxide and thereby providing an incentive to reduce emissions.

A price on CO2 would send a market signal that CO2 emissions carry a cost, including the increased risk of harmful climate change. The price would signal that the atmosphere could no longer be treated as a free dumping ground.

Carbon tax proponents argue that their approach would be a simple, easily under- stood, and economically efficient way to put a price on CO2 emissions. The price would be predictable, enabling households and businesses to plan ahead rationally to reduce their fossil energy consumption.

Carbon tax critics argue that a tax would not be an enforceable emissions limit, and that tax revenues would sorely tempt big spenders in Congress. (Inglis’ legislation provides that a two-thirds vote in both houses of Congress would be required to redirect carbon tax revenues away from payroll tax reductions.)

Tax critics point out that politics often turns simple taxes into complicated beasts with a bewildering array of exemptions, exclusions, and deductions.

Cap-and-trade is the leading alternative to a carbon tax. Under this plan, carbon dioxide emissions would be capped and companies would be issued one allowance for each ton of CO2 they are permitted to emit. Over time, the emissions limit would be ramped down in order to stabilize the atmosphere’s CO2 concentration at a level that scientists judge would keep climate change risks outside the danger zone.

If companies emit more CO2 than their limit, they would have to buy more allowances.

If they emit less, they could keep or sell their surplus allowances, giving them an incentive to drive down emissions. A cap would create scarcity, giving value to allowances, whose price would be set by markets.

Cap-and-trade has many possible variations. The federal government could give away or sell some or all emissions allowances to companies subject to the cap. Revenues allowance sales could be spent on whatever Congress sees fit to spend it on— tax cuts, energy technology research, aid for energy-intensive industries, worker retraining, and helping low-income consumers pay their energy bills are among the many ideas that have been bandied about.

Cap-and-trade critics from the carbon tax camp argue that an allowances market would be subject to abuse by financial manipulators.
Another complex issue is offsets. Under some cap-and-trade proposals, companies could meet part of their compliance obligation by buying “offsets” —credits that in essence pay others to reduce emissions elsewhere. Proponents say offsets would provide a compliance alternative to companies facing high costs of reducing their own emissions.

But offsets are a sticky wicket. There are no universally agreed upon standards to assess their quality. One of the major issues is “additionality” —a buzzword for ensuring that purchasing offsets results in emissions reductions that otherwise would not have taken place. A recent Government Accountability Office report concluded that there is no straightforward way to guarantee that offsets provide additionality.

The cap-and-dividend approach that Senator Corker and other lawmakers on both sides of the aisle champion is yet another variation. Corker says his proposal would avoid the complications and problems that can beset cap-and-trade.

Corker described his proposal in a January 23 “Dear Colleague” letter to his fellow senators. His proposal is essentially as follows: Cap emissions and auction all or nearly all allowances to companies facing emissions limits. Send all of the auction proceeds to the taxpayers, compensating them for anticipated increases in energy costs.

Corker’s proposal would not allow use of offsets. “Such provisions compromise the strength of the market system and call into question the integrity of emissions reductions,” Corker wrote. “International and domestic offsets would complicate and diminish the effectiveness of a cap-and-trade program.”

On the other side of the ideological spectrum from Corker, Maryland Congressman Chris Van Hollen supports a similar approach. He has proposed legislation to cap emissions by 2012, sell allowances to “first sellers” of fossil fuels—coal mines, refineries, and the like—and return at least 90 percent of the proceeds to every American with a Social Security number.

Cap-and-dividend proponents argue that their proposal would create a broad, durable constituency for emissions limits.

A broad, durable coalition that transcends ideological divides will be vital if climate legislation is to have a reasonable chance of passing and achieving its goals.

The history of conservation and environmental legislation shows that bills passed with bipartisan support have stood the test of time, even as political winds have shifted. The Clean Air Act and the Wilderness Act are good examples of laws with strong bipartisan support that have delivered significant benefits to Americans, including healthier air and strengthened protection of the country’s natural treasures.

Given the broad reach that climate legislation will have over the country for many years to come, it’s critically important for congres- sional leaders to work with conservative colleagues who want to participate construc- tively in writing the bill.

Senator Corker and Congressman Inglis have offered legislation that look like good places to begin.

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