How Does Our Fiscal Security’s Fiscal Blueprint Work For Climate Hawks?

I consider myself a climate hawk, and one thing I really like about the term is that it emphasizes a multiple-front strategy on issues related to climate change. One front in the battle will definitely be budgetary policy. How does the Our Fiscal Security’s Investing in America’s Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility (pdf here) handle issues important to climate hawks? Very well, it turns out. From the document:

Further, one of the greatest challenges facing the United States and world economies going forward is global climate change, and this is a pure public bad – it is completely non-rival and non-excludable. This argues that carbon mitigation to stop (or at least slow down) climate change is a global public good and hence a prime candidate for addressing (at least partially) through public investments…

Green revenue: cap and trade or carbon tax
Savings in 2015: $52.0 billion

A carbon tax would level a charge on energy based upon the carbon content of the fuel source. A cap-and-trade program would either allocate or auction a set quantity of permits to “upstream” energy producers (such as electrical power plants or oil refineries). The president’s budget included a deficit-neutral allowance for climate policy with unspecified revenue intended to fully offset the cost of mitigating the impact of climate change and funding investments in a green-energy economy. Our Fiscal Security’s path, on the other hand, recommends enactment of a climate change bill in which half of the revenue is recycled back to consumers in a way that offsets the regressive nature of rising energy costs. The remaining half is used to fund general deficit reduction and green investment…

Eliminate fossil fuel production credits

The president’s budget proposed eliminating a handful of tax expenditures that have been carved out over the years for the oil, natural gas, and coal industries, but these cuts met opposition in Congress. Presently, the tax code allows for the expensing of some oil drilling costs and provides deductions for the highly profitable production of oil, natural gas, and coal. According to JCT, eliminating all preferential tax treatment of the fossil fuels industry would save $4.3 billion in 2015 and $40.7 billion over 2011-20 (JCT 2010). Eliminating these preferences would also help clean energy industries compete on an even playing field, thus helping to create sustainable, green manufacturing jobs. Along with enacting a cap-and-trade system of carbon emission allowances and increasing the excise tax on motor vehicle fuel (see Our Fiscal Security’s revenue path), this proposal is endorsed by Our Fiscal Security as a means of rebalancing the economy away from dependence on fossil fuels and toward clean energy…

Transportation

With more people driving than ever before, the transportation infrastructure needs to be both repaired and revamped. Investing funds into a modern, interconnected, and affordable public transit system could both reduce our dependency on fuel and increase productivity by reducing the amount of time people sit in traffic. Investment in repairing existing roads and building new and modern public transit systems could also create a significant number of jobs. Because transportation costs are regressive (low- income families on average spend a higher share of income on transportation), rising gas and oil prices have hit lower-income earners hardest. Public transportation systems cost less to use than owning, operating, and parking a private vehicle, yet millions of people have no access to mass transit. In places where these systems do exist, ridership is disproportionately high for people with lower incomes, youths, the disabled, immigrants, and students. Those making less than $20,000 annually, in fact, make up 63% of the riders in small transit systems, 51% in medium-sized systems, and 41% in large systems (Litman 2010).

Studies have shown that urban transit travel produces about 5% as much carbon monoxide and half as much carbon dioxide per passenger mile compared to the average car (Shapiro, Hassett, and Arnold 2002). Thus, if Americans made more frequent use of public transportation systems, we could reap greater energy savings and environmental benefits.

Finally, a deficit-reducing proposal that takes concerns of climate hawks seriously. For some reason, we subsidize the production and exploration of oil. To whatever extent a low price of oil caused us to be strategically underproducing in this realm in the past, this is certainly not the case now with high oil prices from the long-term demand of developing countries.

As others have argued, a carbon tax is far superior to a VAT tax, and the most regressive features of it can be blunted with reimbursed credits. And this vision of what the government should do understands that investment now in modernizing transportation will save us from huge costs in the future that aren’t captured in projected models of GDP costs and the accompanying uncertainty. It’s great to see these issues at the front of a responsible, liberal vision of how to handle the budget.

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2 Responses to How Does Our Fiscal Security’s Fiscal Blueprint Work For Climate Hawks?

  1. bullfighter says:

    I think this is far too little. I want to see a carbon tax that would actually make people seriously try to reduce their consumption of energy from fossil fuels. Based on the effects of price fluctuations in recent years, it seems to me that it takes an increase of at least about $1 per gallon of gas to achieve such effect in transportation. The corresponding carbon tax is about $100 per ton of CO2. Since the main negative externality is climate change, carbon tax should be applied equally to all sources of CO2. If I am not mistaken about our consumption of fossil fuels, that should generate static revenues of about $600 billion per year. Of course, the desired behavioral change will reduce that, but at least in the short to medium run, we are talking about $400-500 billion per year. I don’t see how a proposal that would generate $52 billion per year in “green revenue” can satisfy a climate hawk.

    (And yes, I would rebate a significant part of the 400-500 billion in refundable credits to lower-income people, to offset the regressive nature of the energy tax. But it should still leave a large net deficit reduction, and even more importantly, a more efficient tax system.)

  2. Pingback: Links 12/1/10 « naked capitalism

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