As I said the other day, I’m going to be asking a few questions about cap-and-dividend. Today’s question is about public investment.
As people around here have heard a million times by now, climate policy is a three-legged stool: carbon pricing, public investment, and regulation/regulatory reform. All of these will be necessary given the size and urgency of the problem.
C&D doesn’t include anything from the regulatory leg (which is why Joe Romm criticizes it), but I want to focus on the investment leg. I’m working here on the presumption that we need something on the order of $15-$50 billion of green investment a year (maybe more) to boost energy R&D, retrofit millions of buildings, improve and expand the electrical grid, build public transit and rail systems, and directly incentivize efficiency and clean energy (carrots!).
Carbon pricing and public investment are often yoked together: When people talk about taxing carbon (or auctioning permits under cap-and-trade), they frequently talk about using the revenue for green investments. By returning all the revenue to citizens on a per capita basis, however, C&D forgoes that revenue. In fact, C&D contains no provision for public investment at all.
What should we make of this?
I have had trouble getting a clear sense of what C&D advocates think about it. I’ve heard three sorts of responses, all of which are problematic.
Response one: So what?
Sometimes C&Ders talk like a price on carbon is sufficient—that the comparative market advantage clean tech gains via the carbon tax will be enough to incentivize a shift to green. No need for additional "carrots."
A variant is to cast the lack of investment as a virtue. Indeed, this is what makes a fully refunded carbon tax attractive to some conservatives—it doesn’t put money in the hands of government bureaucrats, which as we all know are myopic, corrupt, and stupid. This helps explain why arch-conservative Bob Corker (R-Tenn.) sponsored a cap-and-dividend amendment to the Lieberman-Warner bill last year.
Response two: We’ll skim some revenue
Another response, which James Boyce offered on the call [mp3], is that auction revenues will be so enormous—possibly up to $200-300 billion a year—that it won’t be hard to peel off enough of it to spend on green energy and still have the vast bulk left over. Later in the call he said something similar about assistance for particularly hard-hit communities (think coal miners).
This is problematic. Once you start dipping into a pot of revenue that huge, are you not opening Pandora’s Box? If constituency X sees constituency Y getting money, how does that not set off a lobbying war and get you right back in the middle of the special-interest muck that brought down Lieberman-Warner?
It’s possible that you could set up a program that fully refunds the bottom 60-70 percent of consumers and sets aside enough money to invest in a green economy. But once you start doling out the revenue here and there, you rapidly lose the system’s vaunted simplicity and transparency.
Response three: Get investment revenue somewhere else
The idea here is that you leave C&D a simple, transparent, free-standing program and get your money for green investment from other sources. One frequent idea, offered by Boyce on the call, is that the money could come from redirecting current fossil-fuel subsidies, which depending on how you count add up to around $50 billion a year. Another, championed by our own Gar Lipow (and Jon Rynn), is to get the money from the bloated U.S. defense budget. Yet another is old-fashioned deficit spending—which is where the revenue for Obama’s initial stimulus package is coming from.
Now, deficit spending is fine in the midst of a downturn, but I take it as uncontroversial that we don’t want to be doing $50 billion in deficit spending every year for the next 40 years. That’s not a stable or reliable source.
You won’t find anyone more enthusiastic about cutting fossil fuel subsidies and military budgets than me, truly, but that’s problematic as well. One of the principle benefits of C&D, according to its backers, is that it’s politically viable. Voters can understand it; if it’s clear to them that they’ll be more-than-compensated for rising energy costs, they’ll support it. The broad support of ordinary voters will be enough to overcome the concerted resistance of fossil fuel and other industries.
I find that fairly dubious to begin with, but imagine if you told fossil-fuel companies not only that they’d face a stiff new tax, but that they’d lose tens of billions of subsidies on top of it. They would view it as the apocalypse—it would make the lobbying against Lieberman-Warner look like patty-cakes. Or what if you told the military, pro-military legislators, and the enormous defense industry that they’d be paying for a green economy because all the other revenue was being handed out to taxpayers.
You’d be directly taking on two of the largest, best funded, and most powerful lobbies in U.S. politics. You would take a politically dicey proposition and double, triple, quadruple the political difficulty.
Anyway, so that’s the question: What’s the Official C&D Advocate take on the need for green public investment and possible sources thereof under their program?
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Comments
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2wheeler Posted 5:28 am
19 Dec 2008
Either we make the difficult changes ourselves in advance, as thinking anticipatory beings able to control our own destiny and using the precautionary principle to our own and ecosystem's survival advantage, or we face the other more difficult music of a lack of viable ecosystem services as the rest of the impact waves come crashing ashore.
Peak oil's coming and the oil companies realize it, they've already been moving to reinvent some part of their base into other energy including some renewables. They may not see this as an armageddon as much as a new business opportunity to shift into domination of a new energy sector (unless it takes the form of distributed local renewable energy... the true grassroots form that would be inherently more secure for our nation to adopt).
The term "emergy revolution" may not be too strong in terms of the type of dramatic paradigm shift that is needed in order to achieve a sustainable future not just for us top third human inhabitants but the rest of the planet and its ecosystems.
Note Dave, I'm just sayin', not as THE official C&D advocate but somebody who thinks the idea has merit.
Moving toward sustainability with hopefulness, one revolution at a time.
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Jon Rynn Posted 5:36 am
19 Dec 2008
There are a couple of other places to get big bucks, both of which are problematic politically: first, roll back the upper marginal tax rates, not to Clinton-era rates, but to pre-Reagan rates, which I believe were about 50%. Or better yet, go back to JFK rates of 70% -- which by the way were cut from Eisenhower-era 90% rates, which were, however, full of loopholes.
Second, during that socialist Eisenhower's regime, corporations paid 22% of Federal revenues, which is now down to about 7%; actually I believe during or just after WWII it was up to 35%. Anyway, 22% - 7% is 15%, of the 2 trillion dollar budget, that would bring in $300 billion.
By the way, just to clean up the infrastructure, according to the American Society of Civil Engineers, would take $1.6 trillion over 5 years, or about $300 billion per year. Trying to construct a national rail system, retrofitting, feed-in tariffs, it seems to me, would be more in the multiples of 100 billion dollars range, not multiple of 10 billion dollars.
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Ken Johnson Posted 6:01 am
19 Dec 2008
What we really need is something more like $100/ton - actually, $133 per metric ton according to CARB - that's the projected incremental cost of California's 33% RPS. That's just the technology cost, not the regulatory cost. If you want to also fund dividends to consumers, you're going to have to suck more money out of the industry in addition to the $133/MT.
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GRLCowan Posted 11:16 am
19 Dec 2008
The group they will have to contend with instead, the group that is enriched by the D in C&D, is everyone who burns less fuel carbon than the average. Although very numerous, they are much less influential a group, and the per-person monies they stand to lose are small.
--- G.R.L. Cowan (How fire can be domesticated)
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Gar Lipow Posted 2:15 pm
19 Dec 2008
Simple fairness. Emissions pricing will hit the poor harder than the rest of the working class, the working class harder than the middle class, and the middle class more than the poor. Why the hell should people least responsible for creating the problem take the hardest hit for solving it, and those most responsible take the smallest hit. Also it is hitting people hardest in reverse order of ability to pay.
In any auctioned permit system with a tightening cap, at some point emissions will drop enough that revenue from permit auctioning drops, even if the price per permit continues to rise. (If at no other time, this will happen when the number of permits sold is close to zero.) If, as I suspect, there is a lot low-hanging fruit available in the form of efficiency improvements this drop in revenues will happen long before some of the most expensive investments have been completed. If most experts are right that the pattern of an emissions drop will consist of efficiency improvements that cost less than the current price of fossil fuels, and and renewable sources that cost more than the current price of fossil fuels, then relying on permit revenue will strand us about halfway through the transition.
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setb Posted 10:48 pm
19 Dec 2008
Private: 10's of billions are already being invested in green tech & that's without a carbon cap or price. Set a cap & the money will flow.
Public: Why think so small? The money will need to go into housing, transportation, research, et. etc. etc. Why are we worried about being the first major government project that needs to payfor itself.
Finally, this is an argument that could only come from someone who grew up post-Reagan. Green investment is just that--an investment, something that, I think, will save the planet(!) and pay-off finacially for generations to come. Why in the world would we stop and figure out how exactly to pay as we go?
Imagine if we had done that during the New Deal, WWII, Revolutionary War, Civil War...
This is a big deal- think big.
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amazingdrx Posted 4:38 am
20 Dec 2008
No new taxes, only use subsidy diversion.
Of course the dimbulb limboobs will be screaming, "It's a new tax, the cost of the loss of subsidies will be passed on to consumers!"
But we will claim that it is only fair, since record profit taking fossil fuel corporations no longer need subsidies. We will say that record oil industry profits are a "tax" on consumers. A huge tax doubling the price of gas in under a year.
The only way to end it is to go to renewable electric powered transportation. So government ought to use the subsidy diversion money to order millions of solar panels, ground source heating/cooling systems, and plugin hybrids for government use.
Save our economy from the schock of the oil industry suddenly boosting gas prices to tax us all at their whim. Stabilize energy prices and stop GHG, at the same time.
We have to turn the tax issue back around on the corporatists, "No you, you are the tax men, taxing us without representation, just like the British east india tea company did, by setting prices."
Corporate monopoly "free" trade market manipulation is THE tax that counts in this world. What other entity could get away with raising a "tax" on gasoline by 2 buckes in less than a year? Not an eleced government!
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Peter B. Meyer Posted 6:31 am
20 Dec 2008
CAP - because we need to, and let's recognize that the more successful the cap is in promoting reduced emissions investments and actions, the less revenue there will be from making emissions permits available. (Notice, please, that I have accepted the assumption that we need a cap - a simple, but very high, tax might do the same thing. It, too would lead to questions about uses of the revenues.)
DIVIDEND - A false and crude expression for the objective of minimizing the pain from the cap on those that have to pay for power. Key reminder here: those consumers of power and emitters in the course of their daily activities are NOT all households. They include businesses ... some of which we are intentionally targeting as the payers of the dividends, but others are, perhaps, to be recipients.
Neither of these terms has anything at all to do with new PUBLIC INVESTMENT in infrastructure, new technologies, etc. The sources of those funds could be completely independent of the cap & dividend program -- and capping is a good idea whether or not the public sector is involved in the new investment.
When we discuss what to do with the revenues from selling the emissions rights under a cap, we are mostly confounding two objectives (a) equity, in terms of the impacts of the caps on people, and (b) efficiency, in terms of augmenting the impact of the caps on emissions by stimulating new investment in more environmentally benign energy alternatives.
I don't have a single answer, but I have what may be illuminating questions:
(1) To what extent could the funds from the cap be used to directly aid the poor in reducing their energy usage? In much of the US, one-time weatherizing of homes could hold down the costs to low income families as well as additional annual LIHEAP assistance funds, but vastly more efficiently: the investment could lower power usage and thus bills over time.
(2) To what extent do we want to raise energy costs to the non-poor, who have more alternatives for action, in order to stimulate their demands for more energy efficiency or cleaner energy sources? "No Pain, No Gain" -- but this means we may want to make sure that not everyone is made whole by the dividends.
(3) To what extent does the national economy at a particular point in time need some public sector stimulus? (Case in point, US, December, 2008.) If a stimulus is needed, then 100% debt-financed public green infrastructure investment - and/or some new incentives for green innovations by the private sector - serves both economic stimulus and environmental protection objectives
simultaneously, so why use Dividends for this purpose?
You get the idea ... the key is asking the good questions ... and then framing a policy.
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biodiversivist Posted 8:10 am
21 Dec 2008
"...this is what makes a fully refunded carbon tax attractive to some conservatives -- it doesn't put money in the hands of government bureaucrats, which as we all know are myopic, corrupt, and stupid."
A bureaucracy, be it government or private sector, is a system that does not reward innovation and effort. Sometimes they are a necessary evil because some things cannot be left to a competitive market. As such, you can label a bloated bureaucracy as stupid if a competitive market could take its place. The system (bureaucracy) is stupid, not the people trapped inside of it.
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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hapa Posted 1:40 pm
21 Dec 2008
after local public investment, after business investment, after cooperative investment, after GSEs and development banks, there is the simple fact that the government controls the money supply.
as i've seen them estimated, after all profitable aspects are financed, the costs remaining are pretty small, in relation to economic activity. the worry of inflation would restrain this kind of spending.
whether "farm" or "defense" or "energy" subsidies are sensible or cost effective is another debate. whether taxes need to be more progressive -- and better targeted -- is another debate. likewise who should own the means of energy production.
if no taxes are desired, borrowing is unacceptable, and investors can't be found, gosh, wouldn't it be a shame for work to go undone, when currency is a figment of the imagination?
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