"Never again."

Those ought to be the words coming from the White House right now on global warming. Never again can we tolerate a year like 2009, where attempts to cap carbon pollution experience such profound stagnation. Already this month President Obama has confirmed two painful truths. First: Congress will not complete work on a global warming bill in 2009. And second, the corollary blow: There will be no international climate deal in Denmark next month, dashing years of international hopes.

So now Obama's message ought to be "never again." The planet just can't endure another year of inaction. Obama should travel to the Copenhagen climate conference in December and guarantee dramatic action from the U.S. in 2010 even if it means blowing everything up in Congress and starting over. If a "cap and trade" bill won't fly in the Senate in 2010, then let the Environmental Protection Agency explore maximum-strength carbon regulations while, legislatively, we switch back to Obama's original presidential campaign plan: "cap and rebate."

Apologists, of course, are rushing to defend the president this week, explaining away the now-official climate failures of 2009. There was never enough time, they say, to fix in a few months all the global warming harm George Bush created in eight long years.

Maybe so. But we can't blame Bush forever. What's the plan for 2010? The only strategy the Democrats seem to have is borrowed from 2009: Get the Senate to finally pass the cap and trade bill. That would be the 1400-page bill narrowly approved by the House in June and loaded with subsidies for "clean coal" and likely big profits for Wall Street traders. It's been stagnating in the Senate for most of the autumn. Centrist Democrat Jim Webb of Virginia -- a vitally important vote -- all but condemned the bill this week in a press conference. What if the bill simply never passes? What will Obama take to the international treaty talks in Germany in June 2010or Mexico next December?

As long as Obama sticks to a principle of "never again," then Plan B should become relatively clear. Allow the EPA to move rapidly forward with its court-sanctioned ability to mandate carbon reductions across the economy under the Clean Air Act. This has always been the shotgun in the closet. No one really wants to proceed this way, unleashing messy regulations from a bureaucratic agency. But if the Senate won't act, then the EPA must.

But while that closet door is opening, we should all ask why the Senate has had trouble acting. The most obvious -- but least discussed -- problem is the concept of "cap and trade" itself. The bill treats our life-giving global atmosphere as if it were the property of private corporations. Up to 85 percent of the pollution permits under the bill would given away free to polluters in addition to loopholes that allow, for example, coal companies in America to avoid carbon reductions by paying faraway Zambian farmers to stop tilling their fields. Two prominent EPA attorneys -- both with extensive experience implementing federal pollution regulations -- have recently asserted that the cap and trade measure before Congress simply won't work and shouldn't be tried.

So what will work? For starters, we must rightly view the atmosphere as a shared resource, belonging to all people, not as a commodity owned by polluters. Obama had this idea in mind when he campaigned for president. His global warming proposal then would have required all polluters to pay for emissions permits. And at least 80 percent of the money raised would be rebated to American households. The rest -- over ten billion dollars per year -- would be invested in clean energy projects.

By rebating almost all the permit money to American households, this policy approach robs Republicans of their cherished ability to call a carbon cap a "carbon tax." And by making all polluters pay, the approach relieves many Democrats of their nervousness over corporate welfare. These features alone will provide afresh and popular boost to the climate debate should the cap and trade approach stall completely in 2010. A rebate approach -- especially one that gives all Americans an equal refund every month -- will also create the political space necessary for the kind of deep emissions cuts scientists say are needed to save the climate.

Unfortunately, after Obama's election, thanks to big lobbying from Big Oil and Big Coal, Congress went down the dubious trading path that now finds the clock running out in 2009. But if Obama wants to succeed as a politician and truly earn his Nobel Peace Prize, he'll embrace "never again" as a guide and prepare now to move the country toward his better, original instincts in 2010.

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Bob Corker

Sen. Bob Corker came out swinging against the climate bill that the House passed in June.

"I didn’t think it was possible, but the Waxman-Markey climate bill appears to be even more problematic than the climate bill that tanked in the Senate last spring," he said, referring to the Lieberman-Warner bill that he voted against in 2008. "I don’t know of many special interests that don’t receive a pay-off in this [Waxman-Markey] legislation, and if it comes to the Senate floor in this form, I’ll vote against it."

Yet Corker understands that climate change is a problem and has called for legislation to address it. In 2007, he traveled to Greenland with a bipartisan group of senators to observe the impacts of climate change, noting upon his return that the U.S. has "a unique opportunity to marry concerns ... like carbon dioxide emissions and energy security." He said he was "leaning in the direction" of supporting a carbon-trading program.

Lately Corker has been insisting that he won't accept anything short of a climate plan that auctions 100 percent of pollution permits and returns the money directly to Americans, and his preferred approach would be a carbon tax.

"I want to tell you that I wish we would just talk about a carbon tax, 100 percent of which would be returned to the American people. So there's no net dollars that would come out of the American people's pockets," Corker told Al Gore during a hearing of the Senate Foreign Relations Committee earlier this year.

Track the debate and take action >>>

When the Obama administration rolled out its first budget this year with a framework for a cap-and-trade plan that would have returned roughly 80 percent of the revenues from pollution permits to citizens, Corker bashed it. He called the proposal "slight of hand" and said it is a "massive climate tax increase all Americans will pay."

His office put out a press release shortly thereafter, noting, "Corker has worked to ensure that whatever Congress implements, be it a cap-and-trade system that acts as a tax or a transparent carbon tax, that 100 percent of the tax revenue is returned to the American people and is not used to increase the size of government."

So it looks like Corker won't accept anything short of a complete cap-and-dividend approach, which doesn't seem to have much traction with most other members of Congress. Don't count on him for a "yes" vote on whatever climate bill emerges from the Senate.

Do you know more about this senator's stance on climate legislation? Tell us.

Find out about other senators by clicking on their names in the right column.

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Approaching Copenhagen with a Portfolio of Domestic Commitments

Obama headed to Copenhagen, sets the bar for success

We all know that the devil's in the details when it comes to legislation, and the American Clean Energy and Security Act, a.k.a. Waxman-Markey, is no exception. This 900-plus page proposal tackling climate change and clean energy is chock full of such fiendish facets.

We at Sightline Institute carefully studied the climate portion of the ambitious bill from Representatives Henry Waxman of California and Edward Markey of Massachusetts and prepared our new-and-improved Cap and Trade 101: A Climate Policy Primer to take a close look at what the bill proposes.

The primer will run you through the basic concepts of capping emissions and issuing tradable, carbon-pollution permits; it explains in (relatively) simple terms the moving parts involved in regulating carbon dioxide pollution; and it gives an assessment of Waxman-Markey's likelihood of tamping down emissions while investing in renewable energy and protecting American consumers struggling to pay rising fossil fuel prices.

Download a free copy of the primer or two-page executive summary here.

In brief, here's what we learned.

Waxman-Markey sets annual goals for US greenhouse gas reductions, calling for a decrease to 17 percent below 2005 levels by 2020, and a drop of 83 percent by 2050. We get there through a cap-and-trade program with these features:

Overall, the bill is a mixed bag of proposals we like and dislike. (Sightline director Alan Durning dissects and grades the bill in his blog post "14 Things I Love -- and 6 I Hate -- About Waxman-Markey"). What's next with the legislation? It was approved by the House Energy and Commerce Committee on May 21. The House Agriculture Committee held a hearing on the legislation last week, spending much time on the offsets issue. House Speaker Nancy Pelosi previously said she wanted the bill voted out of the relevant committees by tomorrow. And Politico is reporting that the White House wants action on Waxman-Markey by next week. 

But what will happen in the US Senate is far from clear. Point Carbon has reported that Senator Barbara Boxer, chair of the Senate environment committee, wants to propose amendments to the bill before the summer recess, which could be as early as August 3, while other senators don't expect the full Senate to vote on a bill before the end of the year. 

Nationals cap photo courtesy of Flickr user nonsooth under the Creative Commons license.

This post originally appeared at Sightline's Daily Score blog.

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Approaching Copenhagen with a Portfolio of Domestic Commitments

What to make of the new climate poll

On May 21, following months of work, the House Energy and Commerce Committee passed the American Clean Energy and Security Act of 2009, a 946-page piece of climate legislation. There have been mixed reactions from environmental and climate groups, but most groups are in agreement that it needs to be strengthened going forward. For some groups the problems they see with the bill have led to their public withdrawal of support. These groups include Greenpeace USA and Friends of the Earth. The Chesapeake Climate Action Network also does not support the bill in current form.

Below is a summary analysis of the main features of the bill.

-Cap and Trade System: The bill would establish a "cap-and-trade" system which sets mandatory and declining limits on greenhouse gas emissions over the next 40 years. By 2050 it projects reductions of 83% from 2005 levels for the United States. It does this primarily through the establishment of 1) a "cap" on emissions and the annual issuance by the government of permits to emit greenhouse gases, both of which -- the cap and the emissions permits -- come down steadily year after year, and 2) a tradable market to buy and sell those permits to emit global warming pollution. That’s why it’s called a "cap-and-trade" system.

-Wide-Open Buying and Selling: Significantly, this market is open to anyone, not just those entities which emit greenhouse gases. For example, Wall Street firms whose primary purpose is to make money for their investors can buy and sell pollution permits. Anyone, whether Goldman Sachs or John Q. Public, can get into this newly created market. From page 430 of the bill: "The privilege of purchasing, holding, selling, exchanging, transferring, and requesting retirement of emission allowances, compensatory allowances, or offset credits shall not be restricted to the owners and operators of covered entities, except as otherwise provided in this title." Especially following the sub-prime mortgage/credit/banking crisis, there is concern among many people, including some on Capitol Hill, about the potential for this system to be abused by those out to make quick and big profits.

-Goals and Targets: The document states that one of its prime objectives is to help the world "avoid atmosphere greenhouse gas concentrations above 450 parts per million carbon dioxide equivalent; and global surface temperature 3.6 degrees Fahrenheit (2 degrees Celsius) above the pre-industrial average." However, a growing number of scientists, journalists and climate activists believe that we need to reduce emissions more deeply if we are to have a good chance of avoiding climate catastrophe.

-2020 Targets: It projects a 17 percent reduction in greenhouse gases (GHGs) from 2005 levels by 2020. This is about 3 percent below U.S. GHG levels in 1990; 1990 is the baseline year used by the nations of the world. There is an additional 10 percent reduction of GHGs projected via investments in the prevention of deforestation outside the United States, and there could be a few percent more reductions through other means. This could add up to about a 20 percent reduction by 2020 compared to 1990 levels. The world’s international climate negotiators have called for industrialized countries to reduce their emissions by 25 to 40 percent below 1990 levels by 2020.

-Upstream, Downstream: It appears that the cap is a mix of "upstream" and "downstream."  "Upstream" means the earliest point at which carbon fuels (coal, oil, natural gas) or other global warming pollutants enter the economy; "downstream" means at a point further along. An "upstream" cap reduces the number of covered entities and makes it easier to reduce or eliminate leakages from the system. A summary of the document says that it "establishes a market-based program for reducing global warming pollution from electric utilities, oil companies, large industrial sources and other covered entities that collectively are responsible for 85% of U.S. global warming emissions." It describes a "covered entity" as one which emits at least 25,000 tons of GHG emissions annually.

-Offsets: There is a very large provision made for "offsets." An "offset" is when a company contributes money for a renewable-energy, energy-efficiency or other "clean energy" project somewhere else instead of reducing its own greenhouse gas emissions. This piece of legislation allows for up to 2 billion tons worth each year, which is more than 27 percent of the U.S.’s total annual GHG emissions. The offsets would happen in both the U.S. and in other countries; up to three-quarters of them could be in other countries. There is much controversy over offsets; a recent study, for example, reported that between one-third and two-thirds of them under the Clean Development Mechanism of the Kyoto Protocol, an international treaty, were for projects that likely would have happened anyway. If fossil fuel companies used all of the offsets, there would likely be no, or very little, actual reductions of carbon emissions by these companies until the middle of the '20s. This would be the case even if GHG emissions permits were auctioned.

-Free Pollution Permits: A huge percentage of the permits to emit GHGs will be given away rather than sold via an auction. Only 15 percent of the permits will be auctioned for roughly the first 15 years or so of the program, despite President Obama’s strong support for a 100 percent auction during his campaign and for the first couple of months of his presidency. Coal companies are the big winners; "local distribution companies," which are overwhelmingly coal-related, and "merchant coal" companies receive 35 percent of the permits, also known as "allowances" (as in an allowance to emit global warming pollution). The 30 percent to "local distribution companies" represents 90 percent of total electric utility emissions. This system will remain in place until 2030, with a five-year phase out between 2026 and 2030. Other global warming polluters who receive free allowances are local natural-gas distribution companies (9 percent of the permits), "energy-intensive, trade-exposed industries" like steel, paper, aluminum and cement (15 percent), oil refiners (2 percent), and coal companies to "cover the costs of installing and operating carbon capture and sequestration technologies" (2 percent from 2014-2017 and 5 percent after that). This adds up to about 65% of the allowances being given for free to carbon polluters, 50% to the fossil fuel industry directly.

-Consumer Protection?: Interestingly, most of these free allowances to carbon polluters are described as "consumer protection" even though no consumer organizations were advocating for this plan. The advocates for it were representatives like Congressman Rick Boucher of Virginia who received over $176,000 from the coal industry for the 2007-2008 congressional election cycle. Since the passage of this bill out of committee, Boucher has said publicly that that the legislation will "create the opportunity for increasing coal production." The legislation assumes that coal companies and other large corporations can be trusted, or regulated, to pass along to consumers the savings they will gain from the free permits they will be given. And remember that they can sell these emissions permits, or allowances, on the cap-and-trade, carbon/GHG market that is being set up.

-More on Consumer Protection: A statement by Public Citizen on this bill contained this sentence: "The committee’s plan to distribute allowances to coal utilities will set up a legal fight in all 50 state utility regulatory commissions over how exactly the money will be returned to families and how much utilities can skim off the top -- a fight that anti-poverty and consumer groups lack adequate resources to wage, given the army of lawyers utilities hire and the millions in campaign contributions that they make."

-Coal Wins: Coal companies are big winners under this legislation. They receive 35 percent of emissions permits for free via local distribution companies and merchant coal. They also receive 5 percent of the funds raised by the overall legislation by 2018, following a 2 percent allocation from 2014-2017, which will cover the costs of installing and operating carbon capture and sequestration technologies. CCS is a technology that 1) barely exists, 2) is roughly a decade from perhaps being commercially viable on a large scale, 3) is surrounded by serious safety questions as far as leakage into underground drinking water, earthquake-caused massive releases, etc. It involves the pumping of billions of tons of liquefied carbon dioxide into the earth, or under the sea. New coal plants built from 2009-2020 would be required to capture 50 percent of their carbon emissions but not until 2025. Plants built after 2020 must capture 65 percent. It is certain that, a dozen or so years from now, if these provisions are not changed, the coal industry will be expending tens of millions of dollar in advertisements, campaign contributions and lobbying to extend those deadlines if it turns out that extensive carbon capture and sequestration is not possible.

-Other Free Allowances: In addition to the free emissions permits (allowances) given to polluting industries, others will receive free allowances that can then be sold on the cap-and-trade market:  1.5 percent will go to states for programs to benefit users of home heating oil and propane; approximately 7 to 8 percent per year through the '20s will go to states for renewables and energy efficiency programs; approximately 2 percent per year through 2025 will go to the automobile industry for electric vehicles and other advanced technology and deployment; 1 percent for "Clean Energy Innovation Centers"; 5 percent for preventing tropical deforestation; 2 percent for domestic adaptation and 2 percent for international adaptation to the negative impacts of a changing climate; and half of a percent for worker assistance and job training. These figures are generally for the first 10 years of the program; most are increased after that first 10 year period.

-Penalties: There is a penalty established for any covered entity that does not have sufficient emissions credits to cover its actual emissions. The penalty is "twice the fair market value of emissions allowances established for emissions occurring in the calendar year for which emission allowances were due." It is possible, given the ups and downs of markets and product prices, that there could be years when fossil fuel companies can make more money by using more carbon-based fuels than they have permits for and then paying the penalty.

-National Academy of Sciences Review: Provision is made for an overall review of the entire program and how well it is working by the National Academy of Sciences. This is a good thing, but not so good is that this is projected as happening every four years. Given the accelerating pace of climate change, as indicated most dramatically by what is happening with Arctic sea ice, a more frequent assessment by NAS seems called for. After the NAS assessment, the president is charged with submitting legislation to Congress based on NAS recommendations as far as any acceleration or adjustments to the overall program.

-Renewables and Efficiency: There is a renewable electricity/energy efficiency requirement for states of 20 percent by 2020, a minimum of 12 percent renewables and 8 percent efficiency. This is a reduction from a roughly 40-percent-by-2025 proposed renewables/efficiency standard in the initial draft discussion document put out by Henry Waxman, chair of the committee, on March 31. The Energy Information Administration, a government agency, has estimated that as a result of existing state laws and other factors, there could be more renewable energy generated without this federal renewable energy provision than with it. If this provision is passed, it would supercede existing renewable energy and efficiency laws which exist in about half the states. Concerns have also been expressed about the exemption of nuclear power and coal with carbon capture and storage from the baseline against which renewable energy increases are measured. A more positive feature is that the bill does call for the development by several federal departments of plans for the siting of offshore renewable energy facilities, a potentially huge source of clean energy.

-Hybrids and Electric Cars: The document calls for various kinds of infrastructure support for the development of plug-in hybrids and electric vehicles, such as plug-in hybrid charging stations, retooling factories to manufacture electric vehicles, and purchase of batteries.

-Energy Efficiency: There is a broad program of support for energy efficiency standards and investments across the economy and society. This seems to be one of the strongest aspects of the overall piece of legislation. Building codes are improved 30% by 2010 and 50% by 2016.  $500-$3000 per household is provided for families which weatherize their homes to reduce energy use at least 20%. Similar financial support is also provided for weatherization of commercial buildings. Up to $10,000 per house is provided for installation of renewable energy technology. Natural gas utilities must use 1/3 of the value of their free permits for energy efficiency programs.

-EPA Restrictions: There are serious restrictions on the power of the Environmental Protection Agency to do its job. According to an analysis by the Sierra Club, the bill "eliminates EPA authority under the Clean Air Act to set performance standards for CO2 from sources covered under the cap, including coal-fired power plants. The bill does set modest standards for new coal plants. Additionally, the bill eliminates the existing requirement that new and modified sources of GHGs undergo a case-by-case review process that requires stringent GHG limits." The bill prohibits any greenhouse gas from being listed as a "criteria pollutant" or a "hazardous air pollutant." These are all very problematic provisions.

-Green Jobs and Worker Assistance: There is little in the bill that is directly about green jobs or worker assistance. There is an increase in funding for the Green Jobs Act from $125 million to $150 million. A half a percent of the funds from the program for the first 10 years will go to help workers displaced as a result of the transition away from fossil fuels.

-Smart Grid: The bill enacts various measures to strengthen the development of a "smart grid," which means the modernization of our electricity and transmission system so that it can better use digital information and technology, better integrate small-scale renewable energy, incorporate "demand response" and energy efficiency mechanisms, and in other ways strengthen the capacity of the electrical grid to be more energy efficient, consumer-friendly and effective.

-Mass Transportation: There is very little in this legislation that is directly supportive of mass transportation. It does require states and localities with more than 200,000 people to establish goals for reducing GHGs in the transportation area, with little clarity about the financing available for this work or accountability mechanisms.

-State Powers: The bill bars states that have already passed such legislation to implement or enforce a cap on greenhouse gas emissions between 2012 to 2017, but it does allow regulation of emissions by other means during this period.

-Adaptation: Funding for both domestic and international adaptation to the negative impacts of a changing climate is provided for. For the first 10 years, 2 percent of the funds raised from the program will go for international adaptation and the transfer of clean energy technology to developing countries. Another 2 percent for the first 10 years will go to domestic adaptation, including in the areas of public health, state programs, safeguarding wildlife habitats, protecting endangered species and preserving freshwater and coastal ecosystems. A number of environmental groups believe these percentages are too weak, particularly for international adaptation and technology transfer.

There is no question but that there are positive things in this piece of legislation. There are also many negative things, some of which environmental, climate, labor and other groups will attempt to correct as this bill moves through various House committees and onto the House floor.

There are alternative approaches to the cap-and-trade model. One of them which the Chesapeake Climate Action Network supports is what is known as cap-and-dividend. The other main one is a carbon tax-and-dividend approach.

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What to make of the new climate poll

Rep. Chris Van Hollen (D-Md.) thinks he's got the key to passing a climate bill this year: send every American a rebate.

It's not a bribe, but a dividend -- and one he thinks will help grow support for legislation to cap carbon.

Van Hollen, an up-and-coming Democratic leader and chair of the Democratic Congressional Campaign Committee, has introduced a cap-and-dividend bill -- a type of cap-and-trade bill that would take all of the proceeds from selling pollution permits to industries and return that money directly to "every American with a Social Security number" in the form of a monthly check.

The momentum in the House is behind a different cap-and-trade bill sponsored by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.), but that's fine with Van Hollen. He just hopes that the key component of his legislation -- returning money to Americans -- can be incorporated into whatever climate bill moves forward.

"We don't see this as in conflict with many of the other ideas out there," Van Hollen told Grist during a recent interview in his House office. "The Waxman-Markey bill left open the whole question of what to do with the revenue generated by the sale of permits. Our proposal is, let's return 100 percent of the revenue generated from the permits to consumers."

A climate bill will be a tough sell -- especially in the Senate -- but if citizens get a direct financial benefit from it, Van Hollen argues, they'll be much more likely to support it -- and to support the legislators who vote for it.

Rep. Chris Van Hollen"You need to get something that will be politically supported on an ongoing basis. You don't want somebody coming through three years from now and undoing something," said Van Hollen. "If you want sustainable clean energy, you need sustainable political support for clean energy, and you need sustainable support among the American people."

"I think by doing this simple, fair thing of returning an equal amount to every consumer, you help generate support for that effort," he continued. "Everyone feels like they're a part of that process, everyone has a stake in the success of the enterprise."

The House Energy and Commerce Committee held a round of hearings on the Waxman-Markey bill last week, and will start serious debate on it next week. In the meantime, Van Hollen is working to convince House leaders to incorporate his approach.

Break it down

A cap-and-trade bill would put a limit on the amount of carbon dioxide emitted in the U.S. and then offer a gradually declining number of pollution permits to industrial emitters, which they can buy or sell amongst themselves. The point is to make polluting more expensive so there's incentive to pollute less, which would inevitably drive up energy costs.

Electricity generators, distributors, and other energy-intensive industries are pushing hard for most or all emission permits to be handed to them free of cost, at least initially, to help them adjust to the new regime. They say this will allow them to keep consumer energy costs from rising too much.

But many others believe permits should be auctioned off to the highest bidders, and the proceeds from auction put to good use. Van Hollen wants all of the proceeds handed directly to Americans, to help defray rising costs -- whether from home utility bills, gasoline, or food or other goods that would become more expensive to produce and transport if energy costs went up.

President Obama has called for 100 percent auction, on the campaign trail and in his first budget proposal. His plan would return roughly 83 percent of auction revenues to Americans through an annual tax rebate, with the rest of the money -- he estimates $15 billion per year -- to be used for clean-energy investments. But in recent weeks his advisers have suggested they can be flexible on this issue.

Van Hollen says he can see political reasons for giving away some pollution permits, but he argues that 100 percent auction would be the most economically efficient. "When you start providing some [permits] for free, what it does indirectly is drive up the costs of the permits you're selling other people within the system," he said. "It's like a balloon -- if you squeeze it in one place, the costs will simply flow elsewhere."

The dividend fan club

Van Hollen's dividend approach has a growing cadre of enthusiastic supporters.

In February, Peter Barnes, arguably the country’s leading proponent of cap-and-dividend, called Van Hollen’s bill "beautiful" and promised that he and other advocates of the method would "push it as hard as we can."

Mike Tidwell, founder and director of the Chesapeake Climate Action Network, spoke in support of the Van Hollen bill to reporters a few weeks ago, saying it "offers the best mechanism" to address climate change and has the best chance of passing. "We're concerned about having the best carbon cap possible," said Tidwell. "You have to deal with the political issue -- can you get the votes to pass it?"

Michael Noble, executive director of Fresh Energy, a Minnesota energy and environmental organization, argued that the cap-and-dividend idea is superior because of its simplicity. "If we don't have a bill that we can explain to Grandma, I don't know how we can sell it at the door," said Noble. "I am very enamored with the simplicity of Van Hollen's bill."

Robert Greenstein, executive director of the Center for Budget and Policy Priorities, a think tank that focuses on policy impacts on low-income Americans, testified in favor of dividends during last week's climate-bill hearings. He argued average Americans would benefit more from direct payments than from the government giving emission credits to utilities so they'll keep their prices lower. "Relief that only focuses on home electricity and gas bills leaves a major hole," Greenstein told the Energy and Commerce Committee. In a recent report, his group found that rebating 55 percent of auction revenue could compensate the majority of low- and middle-income individuals, leaving another 45 percent for other purposes, like research and development of renewable energy, energy-efficiency measures, adaptation, and green-job training.

Van Hollen says that even if not all auction revenue is returned to citizens, refunding some of it will help make a bill more palatable.

"I don't think anybody should be drawing any real lines in the sand right now, other than that we've got to accomplish this objective of passing a climate bill," said Van Hollen. "We're working hard in the House. Obviously the concern right now is that the Senate won't move, but that's a topic of a whole other conversation."

Van Hollen suggested earlier this week that House leaders might actually wait to bring a climate bill to a floor vote until the Senate gives signs of being willing to act too. On Wednesday, however, he told National Journal, "We are not waiting for the Senate."

Bank on it

Van Hollen is also promoting a separate bill he introduced last month, the Green Bank Act of 2009, which would create a national Green Bank to fund clean-energy and efficiency projects. The bank would be an independent, tax-exempt corporation of the federal government, and would issue $10 billion in “green bonds” through the Department of Treasury each year.

During testimony last week, Al Gore praised this proposal, calling it a "very imaginative, very excellent idea."

Van Hollen hopes the bank bill can be passed this year, either as an add-on to a climate bill or as stand-alone legislation.

"It's a way to put a down payment down that will generate huge dividends for the economy and clean energy in the future," said Van Hollen. "There's a lot of capitol on the sidelines right now that would flow into clean energy projects if there was better financing, better alternatives. So it would certainly help jumpstart the economy at the same time that we help boost clean energy projects."

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What to make of the new climate poll

It’s easy to understand. We’ve had eight years of across-the-board hostility to sustainability investments by Bush & Co., and before that eight years of promises with no follow-through by the Clinton crowd. Now green groups are dazzled by the prospect of hundreds of billions of new dollars for mass transit, energy efficiency, and other projects, courtesy of carbon auctions. Their websites overflow with starry visions of how all this money can be spent, reminding us of all the pent-up needs from decades of neglect.

This strategy is deeply mistaken, and it risks pushing serious action against climate change many more years into the future, a delay we earthlings can ill afford.

Granted, the mainstream organizations are fighting the good fight on several key points. They recognize the need for strong action to reduce carbon emissions as soon as possible. They know that a central piece of the policy package must be a system of carbon permits, without which no one would have the legal right to extract carbon fuels from the earth or import them into our economy. These permits would be capped, and the cap would be tightened over time. Finally, the green groups have lined up behind the necessity of auctioning off the permits, rather than giving them away. All of these are laudable positions.

It is at the next stage, what to do with the auction revenue, that they go seriously wrong. Consider, for instance, the Sierra Club. Their website describes the sort of programs auction revenues should fund:

Similarly, the Natural Resources Defense Council website says, “The sale of pollution allowances would bring in new government revenue, allowing funds to be redirected toward infrastructure improvements and incentives for innovation."

To be clear, I fully understand why these folks want to funnel carbon revenues into green projects. We need these investments desperately, and a fully auctioned carbon permit system would mobilize hundreds of billions of dollars soon after takeoff. But the money won’t be there if the carbon cap isn’t established in the first place, or if the political will to auction the permits falls short, and the strategy of spending auction revenues on environmental projects makes it less likely that there will be money to spend.

Face it: the carbon cap is a tax. Those megabucks have to come from somewhere, and where they will come from is us, in the form of higher prices for goods and services that use carbon inputs. Gas will become much more expensive, and so will heating oil and cement and a thousand other things. In effect, we will be paying an enormous sales tax on top of the taxes we already pay. So far as it goes, there is nothing wrong with this: it’s a feature, not a bug. It’s the way we will commit ourselves to consuming less of the stuff that’s endangering the planet. But it’s still a tax.

The political and business interests fighting a carbon cap will make this their central argument. They will concede that climate change is real and needs to be addressed, but they will say a cap is the wrong way to go, because such a large tax would be financially crushing. Worse, as a sales tax, the cap would be regressive, with larger impacts on the budgets of the poor than the rich. The Sierra Club goes part of the way to recognizing this in their proposal to use some of the revenues to help those on the lower end of the income scale. Creating a special benefit program, however, would hardly undo the regressive effects of the tax as a whole: the Club doesn’t promise (nor could they) that the full financial effect for the hardest-hit families would be offset, nor that the impacts for the great majority (who are also voters) will be offset, nor, above all, that anyone could guarantee that this benefit program will be well-funded year after year. Realistically, their reassurances will not be enough to assuage the fear of most households that they are about to get soaked.

But it’s even worse than this. We are in a serious economic downturn. Opponents of the cap will say this is no time for a major tax hike, and they will be right. The worst kind of tax to impose right now is a regressive sales tax -- like the one a carbon cap would produce -- that eviscerates family budgets and makes it more difficult for them to cope. It’s all well and good to promise that the government will spend this money wisely and reinject it back into the economy, but this takes time and, in any case, households trying to scrape through this crisis are not going to be reassured by visions of green jobs that only some will get. If you think they will ignore the anti-cap arguments and happily vote to tax themselves during an economic emergency for the good of the planet, you’re wrong.

Moreover, there is every indication that this financial mess will be with us for years. We can’t afford to wait until the economy recovers to put a lid on our carbon emissions.

And there is still another problem: why do the green groups assume that the government will spend these new carbon dollars any better than they spend the ones they already have? For an early indication of how political reality may differ from fantasy, see the design recommendations of the Western Climate Initiative, which propose such guidelines as “promoting economic efficiency."

There is an overwhelming message to all of this, which environmental groups need to confront: it is absolutely necessary, for political reasons alone, for carbon legislation to be written in such a way that the auction revenues are given back -- all, or virtually all, of them. Take the money and, several times a year, distribute it equally among all citizens. Only in this way can people be convinced that the cap will not hit them like a monster tax increase, imposing an extra burden during a period of economic hardship. Over time, if we get a carbon cap, and if the price carbon-intensive goods goes up dramatically, there will be much more support for redirecting government spending toward energy efficiency and sustainable infrastructure.

This is a time for leadership by environmentalists. They need to transcend the role of lobbyists, angling for a bigger share of the spending pie, in the struggle to get meaningful carbon legislation. By trying to use a carbon cap as a revenue stream for their own agenda, they are making it much more likely there will be no cap at all, or that businesses will be given the permits for free. Even during a time of deep economic distress, we can do what needs to be done for the climate, but only if the financial burden on households is kept to the minimum possible level. There are plenty of other opportunities for funding green projects out of existing taxes and economic stimulus.

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America's electric utilities (PDF) are waging a no-holds-barred campaign to get 40% of carbon emission permits allocated free to local distribution companies and merchant coal generators. They argue that free allocation will protect consumers better than auctions and cash back. Just give us free permits, they say, and we'll pass through the savings to our customers.

Sounds appealing. But beware: this is not what happened in Europe. There, utilities got free permits and raised rates anyway, earning billions in windfall profits. See the study by the Energy Research Center of the Netherlands (PDF), which found that a significant part of the value of freely allocated pollution permits resulted in higher electricity prices for consumers and windfall profits for power producers.

And be aware that to get a different outcome in America, 50 state public utility commissions, which regulate over 3,000 local distribution companies, will have to perform with exceptional vigor. Don't hold your breath.

Also recognize that, even if utilities do pass through the value of free permits by not raising electricity rates, that defeats the purpose of a pollution cap. The purpose of a pollution cap, let's remember, is to send a price signal that spurs conservation and innovation throughout the economy. To send that signal, the cap must actually raise prices. Without higher prices, we just keep burning cheap, polluting coal.

And here's another fact: electricity accounts for only about 25% of the average household's carbon use -- the rest comes from gasoline and the carbon embedded in a multitude of products. Giving free permits to utilities does nothing to protect families from price increases outside the electricity sector. Indeed, it may actually raise prices outside the electricity sector and simply shift the economic pain around. That's because, as economist Dallas Burtraw recently told the House Ways and Means Committee, "The protection of one sector of the economy from changing prices means greater emission reductions must be achieved in other sectors. This raises the cost of using other fuels even further."

A favorite utility argument is that cash rebates or tax credits don't address the disproportionate hikes in electricity prices that consumers in coal-dependent states will face, an alleged inequity that only utility-based relief can remedy. But this claim is muted by the relatively even distribution of non-electric energy costs, and the likelihood that these costs will rise faster if electricity is shielded.

Moreover, there are better ways to address regional differences than by giving free permits to utilities. For example, transition assistance could be focused on coal-dependent states, or residents in such states could receive more cash back.

In short:

What's most disturbing about the utilities' campaign isn't that they're waging it -- that's what you'd expect them to do -- but that the opposition has been so feeble. Barack Obama during the presidential campaign came out for auctioning 100% of pollution permits, and recently his budget director, Peter Orszag, declared, "If you don't auction the permits it would represent the largest corporate welfare program that has ever been enacted in the history of the United States." Obama's budget calls for auctioning 100% of permits and returning most of the revenue to consumers through tax credits. But now the White House seems to be waffling on auctions, and the silence on Capitol Hill has been stunning.

So we may be heading for yet another giveaway of public wealth to private corporations -- first banks, then auto companies, now utilities. The irony is that utilities aren't failing and won't be hurt by a carbon cap with auctions -- they'll surely pass permit costs through to customers. What we're seeing here is simply a well-organized interest group trying to draw cash from the public till, and almost no one in Washington minding the store.

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The other day, I used the fanciful example of $50,000-utility bills to illustrate how cap-and-rebate schemes can inspire energy efficiency and conservation. The numbers were deliberately exaggerated, but they highlight one of the features of cap-and-rebate that I like: the robustness of the system in the face of higher carbon prices.

The political battle over climate change legislation is mostly a battle over cost. Who pays and how much? Even the arguments that seem to turn on fine policy points (safety valves, offsets, circuit breakers, permit auctions, etc.) really boil down to cost. While a high price of carbon isn't per se a goal of effective climate legislation, a high price may nevertheless be necessary to bring down carbon emissions quickly and steeply. A good system will accommodate high prices without exploding.

Americans have an average carbon footprint of 24 tons per year. As a thought experiment, imagine I offered you the following deal: every year, I'll charge you $2,000 per ton of your personal emissions. I'll also offer you a guaranteed $48,000 annual rebate. Would you take the deal?

I bet most Americans would. Think about the behavioral changes that would follow. Every gallon of gas now costs you about $20. Of course, you'll be able to afford it because I'm handing you a huge check every year. But that Prius is starting to look a lot more attractive, to say nothing of your bicycle. A single cross-country flight is now going to set you back about $2,500. Again, you can swing the expense. But is there something else you'd rather spend $2,500 on? Maybe it's really important for you to spend Christmas with your family. Or maybe you can send them an e-card.

Of course, we're not going to see a $2,000 per ton carbon price in my lifetime, which is a good thing. For lots of reasons, such a high price would in fact cause the system to explode. But, at least in theory, most consumers could bear it pretty well under a cap-and-rebate system, and might even end up significantly richer. Given that $100 per ton of carbon might not be too far off, a rebate will not only ease the pain for taxpayers, it will also ease the pressure on our political system to sacrifice the environment for short-term relief.

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David Roberts asks:

Short answer: everyone.

Let's say I'm your utility, and I raise your energy prices so that, at present rate of consumption, your bill will rise to $50,000 per year. Pretend that energy here means everything: heating oil, electricity, natural gas, everything encompassed in a carbon cap. Then I hand you an annual rebate check for $50,000. You can do two things.

This is, obviously, a toy example, but it helps to show where the "money shuffling" criticism of cap-and-rebate goes wrong. When you change the relative prices of things, people shift their consumption patterns, even if they have more money to spend.

Update: Note, also, that your behavior doesn't really depend on getting that rebate check. If I raise your annual energy bill to $50,000, you'd be a fool not to install the solar water heater and clothesline regardless. The rebate just changes the distributional consequences of the carbon cap. Under a rebate scenario, you actually wind up richer. Under a permit giveaway scenario, the utlity winds up richer.

Another problem with the money-shuffling theory: it ignores the action of the cap. If for some reason people don't change their energy consumption patterns when they get their rebate checks, then the cap is going to bite. Carbon permits will become more expensive. Prices will rise until people do change their consumption patterns.

A third problem: David says, "Business costs rise, but they get that money back by raising prices for consumers." This is the persistent fallacy that businesses can pick whatever price they want, so they don't care about costs. In the real world, businesses care about costs an awful lot. Fortunes are made and empires built on the ability to squeeze costs out of the supply chain. When carbon carries a price, businesses that can find efficiencies or switch to non-carbon sources of energy will be able to pass those savings on to their customers. Then their competitors will go out of business. Then environmental bloggers will do little happy dances, writing about the smart green companies that are growing rapidly, hiring new employees, and wringing a profit from the new green economy. Hoo-ray!

(Note that the logic above also applies to David's Netflix example. Most people would quit Netflix, pocket the $5, and either join a competing service or watch something on cable. The key thing here is that, under cap-and-rebate, you get to keep the rebate even if you're no longer a Netflix subscriber.)

Update 2: Other bloggers are piling on. We're all saying the same thing, but for the record, I was first.

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There are lots of people who want to return money raised by a carbon program back to taxpayers via rebates.

(A "revenue neutral carbon tax" is one way to do this; "cap and dividend" is another; Obama's proposal is to auction pollution permits and return roughly 80 percent of the revenue via payroll tax rebates.)

I have a very basic question for such folks.

Say you put a price on carbon and rebate the revenue.

Business costs rise, but they get that money back by raising prices for consumers.

Consumer costs rise, but they get that money back via rebates.

Who, in this scenario, has any new incentive to shift to low-carbon electricity or efficiency?

It's like if we put a $5 monthly tax on NetFlix use, and then sent every NetFlix customer a $5 check each month. Who would ever rent any fewer movies? It looks like you're just moving money around to no end. Can someone explain what I'm missing?

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I wrote earlier about some Congressional Budget Office testimony before Congress on the "distributional effects of cap-and-trade." There are a few more things in there I want to discuss.

The CBO looked at three options for what to do with carbon revenue: rebate it to taxpayers, use it to lower corporate income taxes, or give it to polluters (by freely allocating pollution permits). They found the tax reduction best for reducing the overall economic impact of the program, but rebating to taxpayers by far the most progressive, shielding low-income taxpayers from the impact of energy price increases.

You see a tension: either use the money to increase economic productivity (by cutting taxes) or use it to increase equity (by putting it in the hands of low-income taxpayers).

Now, I find this irksome, this economic assumption that skewing wealth to top income earners is better for the economy. You see the same thing in arguments against increasing the minimum wage. But put that aside.

Notice a glaring absence from the CBO's list of possible uses for the revenue: using it to encourage renewables and efficiency. You might think -- if you were, say, me -- that plowing all that money into efficiency, renewables, and green infrastructure would both prevent undue energy price increases and boost overall economic productivity. But the economists at CBO don't see it that way.

To understand why, check out this brief and somewhat bizarre discussion of using a portion of the revenue to fund "Increased Incentives for Energy-Saving Investments by Households." Here's why the CBO fears the notion:

This is economese for that old bugaboo: "choosing winners." The idea here is that the market will automatically respond to a price signal by selecting the lowest cost emission reduction options. Any attempt to fund or encourage one or the other of those options will distort the magic of the Invisible Hand, thereby raising total costs. That's free market economics in a nutshell.

It is also, for anyone who has witnessed the behavior of homo sapiens, frakking crazy. Practically the entire field of behavioral economics is a study of the way that market actors do not respond to incentives in rational ways. The list of cognitive biases is extensive, though poorly understood by the public and by most economists. People are poor at comparing the value of disparate options. They value near-term results over (greater) long-term results. They prefer avoiding (smaller) losses to acquiring (greater) gains. They herd with other people, even if the group behavior is subrational. Etc.

Perhaps the most deadly is simply status quo bias. Even if prices go up, people have a strong bias toward doing what they always done, with as little alteration as possible. It takes a great deal of inducement to break those patterns. So if it takes, say, a 20 percent return to induce a behavior or technology change, that means there are manifold opportunities to get 10-20 percent returns going unpursued. These are the low-hanging fruit that every bottom-up study finds and which many economists simply refuse to believe exist.

To the point, many of our cognitive biases work against investing in efficiency -- it's invisible and intangible, it requires substantial upfront investment for incremental long-term gain, it's difficult to compare on fungible terms with energy services, and agents often do not capture the full value of the investment (say, investing in building efficiency when you plan to sell the building).

And that's to say nothing of the institutional and market barriers to efficiency. Those do not vanish when a price is placed on carbon.

Smart public policy, including targeted public investment, can help nudge us toward those opportunities that have not crossed the cognitive threshold or overcome market barriers. They can help induce us to make investments or behavior changes that rational market actors would already have made.

As it happens, the American Council for an Energy-Efficient Economy (ACEEE) has a report on this subject: "Reducing the Cost of Addressing Climate Change Through Energy Efficiency." Here's what they say about the general topic;

The report has a section specifically on use of auction revenues:

That's more money than Obama's budget proposal sets aside for all green investment, just devoted to efficiency. Putting that money into efficiency could serve the dual goal of reducing the total cost of the program and reducing the hit to low-income budgets. But to see how it can work you have to, unlike the CBO, acknowledge the presence of market and cognitive barriers to efficient allocation of capital.

(See also ACEEE's 2008 paper on the role of energy efficiency in federal climate change legislation (PDF).)

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The debate around various climate policies sounds complex, but there's a simple way to understand it: follow the money. When we put a price on carbon emissions, we place value on something that used to be worthless. That means all the sudden there's a big new pot of money. The most important question facing policymakers is: who gets that money?

This question applies equally to a carbon tax or a cap-and-trade system. With a tax, money goes to gov't, and the gov't decides what to do with it. In a cap-and-trade system where the pollution permits are auctioned, the money goes to gov't, and the gov't decides what to do with it. In a cap-and-trade system where the pollution permits are given away for free, the money goes to polluting industries -- that is, the decision about what to do with it is baked into the policy. Either way, a decision about what to do with the money has to be made.

The decision will be guided by a number of considerations, but two of the most important are fairness and efficiency. Fairness means that low-income taxpayers don't get screwed. Efficiency means that that the program produces the smallest possible overall hit to the economy.

The Congressional Budget Office -- most recently in testimony to Congress -- has examined three options for what to do with the money: rebate it back to taxpayers, use it to cut corporate taxes, or give it to polluting industries in the form of free permit allocations.

CBO offers a graphic -- possibly the most important graphic you'll see in the climate policy debate; copy it and use it! -- that shows the effects of those three options (click for larger version):

Up top, you see the five quintiles of household income and how they'd be affected by the three options. On the bottom is the effect of the three options on the overall economy (measured as hit to GDP). On the left, you see the effect of rebating the tax/auction revenue money to taxpayers in lump sum payments; in the middle, a cut to corporate taxes; on the right, pollution permits given away.

Here's the takeaway:

As the debate over climate policy heats up, it's crucial to understand this. Right now Republicans are accusing Obama of using cap-and-trade revenue as part of his "social program" because he proposes rebating most of it to taxpayers. They would prefer that more of the permits be given away. But that's part of a social program as well -- a program to transfer wealth from low-income Americans to the rich.

This is as straightforward as economic justice issues get. Progressives need to be armed for this fight.

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