Obama is right to return most carbon revenue to taxpayers
As a climate change policy, President Obama’s carbon cap is a winner. It gets greenhouse reductions at the lowest possible cost and spurs the innovation and invention that will drive us to a clean-energy economy.
But if folks are eyeing the carbon cap as a way to raise money to pay for clean energy programs, they are barking up the wrong tree. Unless these funds are returned to the American public, the cap will have severely regressive effects on lower-income Americans. And in the end, it would come back around to bite us by sapping support for environmental spending in the future.
The most important principle of the President’s plan is that it keeps working families financially whole as we transition to energy efficiency. It’s a piece of the puzzle that shows that it is both unnecessary and unwise to sacrifice equality to reach green goals.
If Obama’s plan is adopted, a carbon cap will be set and 100 percent of pollution permits will be auctioned off to energy companies (rather than giving them billions in freebies as some have suggested). The vast majority of the revenue from the auctions will be refunded back to the American public through a tax credit for 95 percent of working individuals — essentially reimbursing them for the increases on their energy bills. Each year, $15 billion would be set aside for investments in green infrastructure, clean energy, job training, and research and development.
Of course, we could always do more green investment. But, to avoid an unfair burden on those who have the least, additional spending should come from general revenue, not the auction proceeds.
With any carbon cap, energy companies will recoup the value of their pollution permits by passing the cost on to consumers. Americans on the lower rungs of the economic ladder will be disproportionately hurt by these increases in price because electricity accounts for a bigger percentage of their expenses. So if they don’t get the auction revenue as a refund, they end up with a painfully regressive burden.
Environmentalists should not accept this terrible compromise. Burdening the poor is not the right way to raise money for environmental programs. Beyond being unfair, it is a deal that would drain the political capital right out of the green movement. We need to pay for our programs through progressive taxes or risk contributing to inequality and eroding support for environmental spending in the future.
The president’s stimulus plan included over $80 billion to upgrade the energy grid and other green energy infrastructure improvements and incentives. Coupled with the $15 billion per year set aside from the auction revenue, there is already significant green investment on the table. Toss in the flood of private investment in clean energy and energy efficiency that would come in when we have a price on carbon and we will be in pretty good shape. Certainly there will be enough investment that we will not need to raise money on the backs of low-income Americans by keeping more of the carbon auction revenue.
It’s clear we need to put a price on carbon, but who should pay? Obama answers the question correctly: we must all share in cleaning up our mess, but we cannot push the brunt onto those who can least afford it. If anything, his plan should be augmented with protections for non-workers, not trimmed down to pay for additional spending.
By auctioning off 100 percent of the pollution credits under a carbon cap, and returning most of the money to working Americans, the President strikes a good balance: driving incentives for energy efficiency and renewables for all businesses and individuals while protecting lower-income families from the shock of increases in prices.