Whom the Cap Fits

The budget and the environment: A mighty dust-up awaits the president's plan for cap-and-trade.

America’s hard-nosed politicians are not always moved by lofty rhetoric, but talk about money normally gets them going. That, at any rate, must be what Barack Obama is assuming, judging by the approach to climate change outlined in his ten-year budget plan.

Throughout his campaign for the presidency and again in his inaugural address, Mr. Obama said that it would be necessary to limit America’s emissions of greenhouse gases. In his first address to Congress, he was even more specific. “Send me legislation that places a market-based cap on carbon pollution,” he pleaded. Under such a law, the federal government would set an overall limit on emissions each year, and then auction tradable permits to pollute up to that level. Firms responsible for emissions, including utilities and oil producers, would either have to cut them or compete to buy a steadily shrinking number of permits.

Many members of Congress, however, fear this sort of cap-and-trade scheme might dramatically increase the price of energy, and so compound the current recession. Others are turned off by the prospect of the government raking in huge dollops of cash from auctioning emissions permits, which they worry will not be well spent. John Boehner, the leader of the Republicans in the House of Representatives, complains that cap-and-trade “will increase taxes on all Americans who drive a car, who have a job, who turn on a light switch, pure and simple.” Some of the idea’s opponents have dubbed it a “tax on everything”.

In his budget plan, Mr. Obama has tried to turn these arguments round. He does call for a cap-and-trade scheme that would reduce America’s emissions by 14 percent from the level of 2005 by 2020 and by 83% by 2050. And he does assume the federal government will be taking in lots of money from permit auctions: roughly $80 billion a year from 2012, for a total of $646 billion by 2019. But he also suggests that most of these revenues should be handed straight back to America’s poorer workers, in the form of tax breaks. He also promises help for the hardest-hit industries.

Mr. Obama also proposes to eliminate various tax breaks for oil firms, a step that his budget plan calculates would raise about $30 billion over the next decade. That is logical: there is no point in calling for cleaner energy while subsidising the dirty kind. It also serves a political purpose. Mr Obama can now label opponents of his plans as corporate lackeys, not to mention enemies of the working man.

The only big new spending scheme would be for research into cleaner forms of energy, which would receive $15 billion a year. But here and there throughout the budget Mr. Obama suggests spending a little bit more on various programmes related to climate change, from NASA’s monitoring of greenhouse gases to the Department of the Interior’s efforts to protect vulnerable wildlife.

Simply including all these measures in the proposed budget is no guarantee that Congress will approve them. Mr. Obama still faces an almighty dust-up over cap-and-trade, in particular. But by including it in his budget plans, he sends a more tangible signal of his determination to take on global warming than he could with a score of uplifting speeches.

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