Trading Up (recession and climate legislation)

[babylonsister]

http://www.tnr.com/politics/story.html?id=ddacb89c-51d1-4d56-ac31-4df5234602f6

Trading Up by Bradford Plumer
The recession's here. Let's tax carbon!
Post Date Wednesday, December 03, 2008


The first hundred days of any presidency rarely go off as planned, but, for now, Barack Obama seems to know what's at the top of his to-do list. In late October, he told Time's Joe Klein that "a new energy economy" would "be my number-one priority when I get into office." But then, as if to cut off a lurking objection, Obama quickly tacked on a qualifier: "assuming, obviously, that we have done enough to just stabilize the immediate economic situation." The caveat seemed to nod at a nascent conventional wisdom: Now that the United States is staring down the barrel of a nasty recession, many Washington types wonder if Obama will have to tear up that to-do list and rein in his ambitious climate and energy proposals.

snip//

As it turns out, a recession isn't a bad time to get started on climate legislation. Even if Congress raced to pass a cap-and-trade bill in 2009, it would take some time--likely a few years--just to set up a complex new regulatory regime. Moreover, as David Wheeler, a climate-policy expert at the Center for Global Development, points out, an economic slump actually offers a prime opportunity to start trading: If Congress sets the initial economy-wide cap at pre-recession levels, then pollution permits will be exceedingly cheap as long as the economy--and hence energy use--is still shrinking. (Indeed, the downturn in Europe has caused the price of carbon to hit rock-bottom levels.) This would give companies time to learn the system and plan for the future without being assailed right away by high prices.

Congress could then use the interim years to go full speed ahead on a green stimulus package. Both Obama and Al Gore have stressed the need for a new electric grid that could link up to faraway wind and solar farms and better manage electricity demand. It's a good idea: According to a new report by the North American Electric Reliability Council, any attempt to make major emissions cuts could put unbearable strain on the grid unless it's revamped. Other programs to boost the energy efficiency of the economy--retrofitting buildings, say, or capturing and using waste heat from factories--are also needed. All these measures would help utilities and businesses make reductions more cheaply once the cap does start clamping down.

Granted, no cap on greenhouse gases will be totally cost-free. But it's important to be clear about what those costs really are. One recent survey of five respected economic models from academic and government groups found that cap-and-trade policies like the Lieberman-Warner bill considered by Congress this summer would shave off about three-hundredths of a percentage point of the country's annual GDP growth. (The size of the U.S. economy, in other words, would reach $26 trillion in April rather than January of 2030.) Jay Apt, a professor at Carnegie Mellon's Electric Industry Center, explains that the bulk of cuts under a cap-and-trade regime would likely come from the country's electric utilities--and he estimates that the electric-power sector could avoid or capture 80 percent of its emissions for about $65-$90 billion per year, on average. That, he notes, is comparable to the cost of compliance at the peak of the original Clean Air Act, which, contrary to doomsday predictions from industry lobbyists, didn't put any noticeable dents in the economy. (The law did, however, help midwife new businesses that sold scrubbers, particulate matter filters, and flue gas desulfurization technologies to the rest of the world.)

Of course, it's one thing to suggest that emissions restrictions won't be half as crippling as opponents claim, but is it possible that cap-and-trade could actually bolster the economy? Perhaps. If, for instance, the revenues raised by auctioning off pollution permits were rebated to consumers, most families could see their incomes rise, according to one University of Massachusetts study. What's more, the certainty that clear rules on carbon are finally on the way could help get private investment flowing again. As Chuck Gray, the executive director of the National Association of Regulatory Utility Commissioners, explained, "climate-change legislation is essential no matter what the economic situation," because "it will remove many of the uncertainties that are preventing state regulators, utilities, and others from planning and financing new electricity investments." Venture capitalists have lately been dipping their toes in the clean-tech pool--investing $2.2 billion in more than 200 deals in 2007--but many financiers, as a recent New York Times Magazine story made clear, are still waiting for a more supportive policy framework to emerge. Sounds like cap-and-trade should be at the top of someone's to-do list after all.



Bradford Plumer is an assistant editor at The New Republic.