Friday, January 22, 2010

Getting Political on Clean Energy: A Proposal

We progressives need to take a page from the Republican playbook. It’s time to re-package the American Clean Energy and Security Act of 2009 (HR 2454) as the American Tax and Deficit Reduction Act of 2010. Let me explain.

Let’s begin by stripping everything out of the Clean Energy Act except for bare-bones cap and trade and the existing schedule of carbon emissions caps. Require that all cap-and-trade emission allowances be auctioned off with the revenues deposited in the U.S. Treasury. Use the revenues for three purposes: across the board income tax reductions, increases in earned income tax credits (so the poor benefit), and deficit reduction. From 2012 through 2050 under the existing caps in the Clean Energy Act, on the order of 5 to 8 trillion dollars in revenue will be generated from allowance auctions assuming reasonably that the allowance price will increase to somewhere around $100 a metric ton by 2030 and persist near that level through 2050. Front-load the tax reductions and credits to help along our sputtering economic recovery from the Great Recession. Require that a fixed share of the total of all revenues collected go to deficit reduction, but delay action on this requirement until after 2020 or later to allow economic recovery plenty of time to take hold. The economic burden of rising fossil fuel costs will not be noticeable for a decade or more because of the projected slow rise in carbon allowance prices from shrinking caps, but the benefits will kick in right away. Taxpayers will get economic relief immediately and political concerns about deficit spending should melt away. By the time carbon allowance prices rise to significant levels, an economic boom should be underway sparked by the creation of an entirely new domestic clean energy industry located within the borders of our own country. No longer will we be shaken down by Arab oil sheiks to the turn of $400 billion annually for imported oil. This money will instead be diverted to American businesses and workers. A shift to clean energy of such a magnitude will cause economies of scale to kick in and prevent significant increases in the typical consumer’s total energy bill. By 2050 we will have gotten ourselves unhooked from fossil fuels, and if other countries follow suit, the problem of global warming will have been stopped in its tracks.

The immediate political benefits of such an approach are obvious. Democrats get to deliver what Republicans love best of all—tax cuts. On top of this, the Democrats will be able to point to concrete achievements on reducing the national debt as well as stimulating job growth and economic recovery. I honestly don’t see how Republicans or fossil fuel industry lobbyists could gain much political traction opposing cap and trade set in the context of income tax and deficit reduction. Who says there is no such thing as a free lunch?

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