A Free-Market Energy Blog

Climate/Energy Statism: An Inside Conversation (Part I: pre-Trump plans that went awry)

By Robert Bradley Jr. -- July 2, 2018

“Over the last year or so, I have tried to advise the progressive community that we should be open-minded about a carbon tax.”

Greg Dotson, Center for American Progress

“The bottom line here is that the distributional effect of a carbon tax could really be anything you want, depending on how you use the revenues. We think it is shortsighted to only think of the direct effect of the tax.”

– Eric Toder, Urban-Brookings Tax Policy Center

“[Trump] … is going to be utterly decimated in November….  Then the question is, what does that do to the Tea Party? …. Is the Tea Party really something to fear now, after a decimation in November? 

– Jerry Taylor, Niskanen Center

It is rare that one gets to follow the talk and reasoning of climate/energy alarmists/activists. Below, the (leaked) transcript from a  February 2016 meeting provides an interesting look at statism on the drawing board.

Energy Future Coalition Steering Committee Meeting Notes
February 23, 2016

Steering Committee
Richard Cizik, New Evangelical Partnership for the Common Good
Greg Dotson, Center for American Progress
Mike Finley, Turner Foundation
Maggie Fox (via phone)
Boyden Gray, Boyden Gray & Associates
Adele Morris, Brookings Institution (via phone)
Mark Safty, UC Denver (via phone)
Steve Symms, Parry, Romani, DeConcini & Symms
Jerry Taylor, Niskanen Center
Tim Wirth, United Nations Foundation

Jon Barton, Service Employees International Union (via phone)
Roger Dower, Johnson Foundation
Shelley Fidler, Van Ness Feldman
Antonia Herzog, Natural Resources Defense Council
Michael Obeiter, Office of Sen. Brian Schatz
Chad Stone, Center on Budget and Policy Priorities
Eric Toder, Urban-Brookings Tax Policy Center
Tom Stokes, Pricing Carbon Initiative (via phone)

Carbon Pricing: Progressive Views – Opening Comments

REID DETCHON: (United Nations Foundation)  Tim [Wirth] will be joining us shortly. We have an unusual number of people calling in today – Mark Safty, Adele Morris, Jon Barton, and Tom Stokes. Adele has bronchitis, otherwise she would be with us in person. I thought Greg and Adele would start us off.

GREG DOTSON (Center for American Progress)
I would start by saying that for progressives who work on climate change, 2015 was a really remarkable year – from state actions, like California saying they were going to move to 50% renewable energy by 2030 and the state of Hawaii saying they were going to move to 100% renewable energy by 2045, to a myriad of federal actions, like the federal coal plan basically being put on hold pending an environmental review.

We also had congressional action, where the investment tax credit and production tax credit were extended in December. The National Renewable Energy Lab tells us this is going to drive an additional 50 gigawatts of renewable deployment in the early 2020s.

From a technology development perspective, we now see wind and solar are cost-competitive with natural gas in many locations throughout the country. We see batteries for electric vehicles hitting price points that were not expected just a few years ago. Of course, from an international perspective, the Paris Agreement gives us the first indication that we might have a global response to climate change. The crown jewel of all the Administration’s efforts was the Clean Power Plan, which would have a 32% reduction in carbon pollution from power plants by 2030.

I highlight this success because the last few weeks have been a rollercoaster with the surprise stay of the Clean Power Plan and the loss of Justice Scalia – there is now more of a question mark on the policy than there was previously. Given the Administration is very confident the Clean Power Plan is ultimately going to be upheld, and there have been many positive statements from political leaders and leaders in the electric sector, I would not count it out yet.

Let’s say the Clean Power Plan is upheld and goes into effect without delay – the country still needs to do a lot more on climate change. We need to get more carbon emissions reductions. We need to do that to comply with the commitment we made in Paris, but even more fundamentally, we need to do it simply to avoid the worst impacts of climate change.

From the perspective of the Center for American Progress, we take the approach that we cannot pass on any viable proposal that would have the possibility of achieving substantial greenhouse gas emission reductions. As much as climate scientists now have a consensus that human pollution has contributed to climate change, there is also a consensus among economists that taxing carbon would be an efficient way of reducing greenhouse gas emissions, which is why we are happy to hear from today’s guests.

Over the last year or so, I have tried to advise the progressive community that we should be open-minded about a carbon tax. What we should care about is cutting the amount of carbon that enters the air, and if a carbon tax can achieve that, we ought to figure out how to engage in that conversation in a constructive way to yield results.

In 2014 we put out a report called The Middle-Class Squeeze, which examined data from 2000 to 2012 and found that median incomes had dropped by 8% during that time frame. During the same time, the price of rents increased 7%; the cost of medical care increased 21%; the cost of childcare increased 24%; and the cost of higher education increased 62%. We can come up with policies to protect the low-income folks, but we need to think about the middle class, too.

I know in the carbon pricing dialogue there are some environmental groups that raised concerns focusing on the trade-off between cap-and-trade and carbon pricing. With cap-and-trade you have a guaranteed environmental result, and with a carbon tax you have a guaranteed price.

How do we ensure we are going to get the environmental result that we want with a tax? That is a conversation many around this table have already started to engage in. Labor has also asked the question: Will a policy change like this create opportunities to address our deficit in investment in the nation’s infrastructure? These are all important questions, and I hope people can be constructive and find ways to bridge any ideological gaps and solve this important problem.

REID DETCHON: Thank you, Greg. Adele, if you would like to say a few words, then we will move over to Eric.

ADELE MORRIS (Brookings Institution)
Greg and I have a number of points of agreement. I am really glad to hear his messages about encouraging the progressive community to be open-minded about taxing carbon. I am probably less optimistic than Greg about the prospects for tax credits and other subsidies and mandates, and the future of the Clean Power Plan to substantially reduce U.S. greenhouse gas emissions relative to what is happening otherwise.

The problem with the Clean Power Plan – even if it goes forward as envisioned – is that the targets do not start until 2022, the targets themselves are not super ambitious, and I think there is a substantial likelihood that at least part of the Clean Power Plan could be struck down by the courts. The delays and uncertainties about how much of the rule will stand, and the fact that it is only one sector of the American economy, suggests to me that the environmental community cannot put all of its eggs in that basket, or really any basket under existing law.

I think we need to work more concertedly on the potential for new authority. Greg is exactly right, a carbon tax is probably the most promising comprehensive, economy-wide approach. I would note that almost none of the major environmental groups is actively advocating for a carbon tax. World Resources Institute has done some good work recently, but it is just cracking the door open. If the environmental community is going to be serious about climate, they need to be serious about policy. Short of pricing carbon across the economy, we are just not serious.

Relating to some of the issues around how the some of the revenue from the carbon tax might be used, I want to point to a new paper I am releasing today, which is coauthored by Donald Marron at the Urban Institute. We illustrate our logic that there is a case to use the revenue to protect low-income households, to make sure they are no worse off. We also point to helping coal workers and coal-reliant communities make their transition to a more diversified economy. We estimate it would take about 15% of the revenue to do all of those things.

The question then is what is the best way to use the rest of the revenue? I think there are many good reasons to use that revenue for other tax cuts – some of which could be targeted to middle-income families. When people talk about the burden on households from the carbon tax, you have to ask, relative to what? If we have any kind of regulatory policy, it has burdens on households and energy-intensive trade industries. The beauty of a carbon tax relative to a regulatory approach is that we have revenue we can use to offset those burdens. It is important when you think about the economic impacts of the tax, you are not just comparing it to having a no-climate policy, but also more costly alternatives.

I want to conclude with the issue of the environmental results. Again, you need to compare the environmental results of the carbon tax with alternative policies. If you look at EPA estimates, for example, of the Clean Power Plan, what levels of price signals the targets would be equivalent to – Michael Wara at Stanford Law School did a nice map on EPA’s modeling, suggesting that by 2030 the effect of price signals will probably be no higher than $25.

This is not the kind of ambition that we could achieve with a carbon tax, because by 2030 I think we could be higher than $25 at times, and we could also have an economy-wide price signal on all fossil fuels and greenhouse gases. In addition, the tax would not stop at 2030, it would keep going.

So the expected price signals would drive earlier capital stock turnover that would be much more emissions-efficient. There are so many reasons to think about the dynamic properties of a tax that we just do not have in the regulatory system. All that taken into account, I think it makes a very compelling environmental case for an emphasis on a carbon tax.

Carbon Pricing: Progressive Views – Economic Perspectives

REID DETCHON. Thanks, Adele. It is a little unusual for us to have the Steering Committee speak ahead of our guests, but we have been having this conversation for many months now. I think what you heard from Greg and Adele, and Jerry who will come in later, gives you a sense of the conversation we have already had, which illustrates we are not starting from square one here. Eric was very nice to join us with relatively short notice. Donald Marron was going to be here, but ultimately was unable to join. Eric, I welcome your thoughts on the questions that have been raised by Greg and Adele, but also your general sense of setting the scene here.

ERIC TODER (Urban-Brookings Tax Policy Center)
Thank you for inviting me, I am pleased to be here. I have worked most of my career in tax policy – and usually we talk about ways we can design taxes to minimize harm to the economy, so it is nice to think about a tax that can actually do some good. What I am saying is not going to be much different than what Adele said, but I suppose it does not hurt to hear things twice.

Given the framework of this meeting, I want to start by talking about the legitimate concern that a carbon tax is regressive and would hurt low-income households and maybe even middle-income households. How do we think about and adjust for that? I would frame this in terms of thinking about three different perspectives:

The first is the one that is usually looked at – we have the current law, the current economy, and things are going on as usual, and then we layer a carbon tax on. We may give back the revenues from that, but this is looking at a stand-alone carbon tax relative to business as usual.

The second perspective, which Adele addressed, is that we take the current economy, but we have some regulations – whether they be restrictions on new coal plants, fuel economy standards for cars, or other things that help the economy in raising energy prices to consumers in a more indirect way. We use a carbon tax as a substitute or supplement to those regulations. How do we think about distributional effects in that case? That can be quite different. It is not as if we would be doing nothing without a carbon tax, we would have to do something else.

The third perspective is to look at the baseline economy we are facing – one in which there is no action, and we suffer increased losses from environmental degradation, those would happen both in the United States and worldwide. Then we have to ask ourselves, “Who suffers from this degradation, and who is benefited, and what is the distribution of the harm from that?” I will comment more on the first scenario, less on the second, and even less on the third.

The first perspective is the current situation – a stand-alone carbon tax. We know a carbon tax is regressive, the way we look at it at the Tax Policy Center – which is different than others, but similar to the Treasury – is that any excise tax, including a carbon tax, lowers real wages. In the long run it also lowers the real value for transfer payments that are indexed to wages. Although it is not a tax directly collected from workers, it is really a tax on workers. For the most part – there are some qualifications to that – it exempts capital income, and it does not change the rate of return on capital.

Since capital income is more highly concentrated among high-income households, the carbon tax is going to be less progressive and more regressive than an income tax. Also, it is not collected from individuals, where you could apply graduated rates at the individual level. A third effect is what we call a relative price effect, and that depends on what people spend their money on. Data seems to show that low-income households are relatively high consumers of carbon-intensive goods, so they would suffer a loss from the changes in relative prices in this economy, in which carbon-intensive goods are more expensive.

However, depending on how the revenue is given back to households, a carbon tax could actually end up being progressive. For example, if you gave the money back in terms of lump sum transfers, such as refundable per capita credits, when you combine that with the carbon tax, you are actually benefiting low-income households; on balance, high-income houses are actually paying more. Parenthetically, that is what the carbon tax in the Sanders plan does.

Donald and I estimated a scheme – because we are concerned about the economic harm of corporate income taxes – where half the revenues went to corporate tax cuts, and the other half went to refundable credits, which ended up with a net tax cut for the poor and the rich and a net tax increase for the middle. Of course you could design other givebacks, such as payroll taxes, which help people in the middle to even out that problem. You might also want to spend some of this money helping low-income communities, funding research, and so forth. The bottom line here is that the distributional effect of a carbon tax could really be anything you want, depending on how you use the revenues. We think it is shortsighted to only think of the direct effect of the tax.

When we get into other frameworks, it looks even more different. If you look at regulations, they raise prices to consumers, but the government does not collect any revenues from the regulation. Who does collect revenues? It is really the firms who are still being allowed to produce the polluting goods that benefit from the higher prices.

You can think of regulations as equivalent to a tax and rebate, and it is a very regressive way of doing the rebates. I would argue that even less progressive rebate schemes under a carbon tax would be more progressive than a series of regulations that provide the same benefit to the environment. When you think about it in that framework, you get a somewhat different answer.

What is the distributional effect of the pollution that would occur if you did not have the carbon tax? I am not aware of any studies that have looked at this, but I think it is terribly important to consider. Going in, my presumption is that low-income and middle-income people are least likely to change the way they live in response to the changes in climate, agriculture, and other changes in prices that will take place as a result of environmental damage.

I would assume, but have not done a study, that doing nothing is probably the most regressive outcome of all. So if you think a carbon tax avoids that, it is probably another progressive effect that is not considered.

The bottom line is that you cannot look at the carbon tax in isolation. I think you could easily think of ways in which a carbon tax is a net benefit to low-income communities.

REID DETCHON Thanks, Eric. I realized once you started that I did not give you a proper introduction as the co-director of the Urban-Brookings Tax Policy Center. Thank you for being with us. Are there any questions or discussion points for Eric before we move on to Chad?

As an administrative lawyer, I am intrigued by your suggestion that regulation is quite regressive, and it is hard to fix because there is no income to redistribute. I do not think that is a statement unique to this particular set of issues. It is a statement across the board, and it shows you that a market incentive can work better. That is just a personal comment.

I think that is right. I would be a little cautious about generalizing too far because depending on the particular regulation it might have a different effect.

Chad Stone is with us from the Center on Budget and Policy Priorities, which we have known for many years for their expert work on income inequality, among other things. Chad has been at the Joint Economic Committee, before that on the Senate Budget Committee, and before that on the Council of Economic Advisers; and he also has an affiliation with the Urban Institute. Chad, please come in on some of the questions we have been discussing.

CHAD STONE (Center on Budget and Policy Priorities)
Thank you very much for inviting me. I think this is a good conversation to be having. The Center on Budget and Policy Priorities got involved in climate change legislation in 2007, when people came to us and said, “This is a budget issue and low-income issue – and nobody really knows how to deal with the low-income issue.” People know that for political and other reasons we need some protection for those households, but most do not know how to do it. We did – it bore fruit in Waxman-Markey when the low-income protections were largely the kind of proposal we developed and worked on.

Before going into that, let me just say a few things feeding off the previous conversation about regulation versus a carbon tax. There may be distribution issues associated with a regulatory approach, but there are also efficiency issues. A regulatory approach is more costly to the economy to pursue than a carbon price approach. This is standard economics; it gets more complicated when you get into the details. Most of the revenue from a carbon tax, most of the impact on consumers from a carbon tax or cap-and-trade with auction allowances – any pricing scheme is redistributional. It is stuff that gets transferred from one to another and not a loss to the economy as a whole. Because you have the maximum opportunities for achieving emissions reductions in the most effective way under the pricing scheme, the net cost to society is lowest – which is another advantage of a pricing scheme.

We have been supportive of price-based approaches. Our low-income approach also pays attention to cost effectiveness. Our overarching goal was to ensure that the effects on low-income households, in their role as consumers or recipients of income, were not driven into, or deeper into, poverty. It is not designed to make things better at the bottom, but to prevent things from getting worse. Of course it could be expanded in that direction. We have this revenue to deal with low-income households. They are hit, as a group, with about a 12 to 15% total increase in consumer costs, or loss in real wages. To make them whole, if you can do it really effectively, you only need 12 to 15% of the allowance value, which leaves a lot for other purposes.

When we first started to think about this, we looked at existing programs, like the Low Income Home Energy Assistance Program (LIHEAP), which is not a program that could be developed into effective low-income relief. We looked at refundable tax credits, but the issue was that among non-filers a lot of them are in the low-income bracket, and therefore you are likely to miss them. Our idea was to have a fixed rebate tied to the average hit to households in the bottom fifth of the population, or a little higher, at the break-even point between the bottom fifth and the rest of the population, and adjust it for household size rather than on a per capita basis because a family of four does not have four times the cost of an individual, but they do have a bigger cost.

We wanted to look for a way to deliver it through existing mechanisms, so we came up with a three-pronged approach. First, use refundable income tax credits for those who are in the system – we have experience with those. Social Security recipients and those who are not necessarily earners, which is the typical way that tax credits have been provided, would get a bump through the Social Security system. Finally, for those who are not in the tax system, we want to take advantage of state human service agencies, which already deliver Supplemental Nutrition Assistance Program (SNAP) food benefits through the electronic benefit transfer (EBT) system. Those are programmable, and you could put the energy credit on there.

You are going to need coordination mechanisms, which we have experience with in the Recovery Act through the ‘Making Work Pay’ credit and the one-time bump to Social Security recipients – where there was a coordination mechanism in the tax code so there would not be a double payment. There is always a tradeoff between double payments and missing people. We think this three-pronged approach with a coordination mechanism can get a very high percentage of low-income households almost automatically. There are a lot of ways of doing this that I will not go into here, but these are the basics of the proposal we developed.

The key innovation from our standpoint is hitting the folks who are left out of the rebate through the EBT system, and the state agencies already have most of the information they need. Many people would qualify automatically by receiving SNAP benefits. Administrative costs are not zero, but they are not overwhelming either. This is a very adaptable approach if you want to go further up the income scale. You have two dimensions to the credit: How big is it (for a given family size), and how far up the income scale do you deliver it? Obviously it gets more expensive if you make it bigger and go further up. The bigger it is, the higher the percentage of low-income households that are protected.

In Waxman-Markey, the Congressional Budget Office estimated the bottom fifth of the population was actually a net winner, largely because of the low-income rebate. As Eric mentioned, lump sum rebates do not have secondary benefits in terms of economic efficiency in the economy. Those are thought to come from cuts in the marginal tax rate, but you only need 12 to 15% to cover low income. If you wanted to do middle class, you could extend that rebate further up or do a number of other things. I think the key message is you can have any distribution you want. There is an adverse impact from the tax, but then there is all that revenue, and how you use it determines the net distributional impact.

Thank you, Chad. I think now would be a good time to get into some Q&A with you. Adele, do you want to come in at this point?

I think you heard a really good summary of the issues and how you design a carbon tax. Obviously there are other parts of the carbon tax policy that matter: border carbon adjustments, what to do with existing authorities, like EPA regulation, etc. In terms of trying to understand the tradeoffs in how you use the revenue and how you compare a carbon tax to regulation, you have heard a good discussion.

TIM WIRTH (United Nations Foundation)
Chad, picking up on what you said, if you were designing a tax, and you have revenue coming in at 100 – you were saying you take 10 or 15%, and I am assuming the biggest battle will be the distribution. Everyone will be lined up trying to get a piece of what is being raised, and you have to have a general sense of what the funding is going to go towards. Most people would probably say the low-income piece is a very important one – so you are taking 10 to 15% for that.

I also think there is a coal industry piece that has been completely devastated in 11 states – a lot of votes in the Senate in all those states – and you have to figure out how you are going to help those communities that are really on their backs. Then you start to get into what Jerry has talked about, which is the cost of regulatory relief and where that comes into the fictitious 100. Another consideration would be how corporate tax cuts figure into this. You do not start thinking about this in pieces, you look at the overall package, and then you start figuring out the smaller parts and put them together into what will be a viable political package at some point down the road. Jerry, how do you think about this?

JERRY TAYLOR (Niskanen Center)
I think it is primarily a political calculation. In the quest of finding support for a carbon tax, you are going to be picking and choosing from various options, trying to maximize the votes. We have been asked by some House Republicans to draft our ideas in legislation that they might consider forwarding next year.

In many of these cases we have left the options blank for them to just fill in. There are many ways you can use the revenue: You can provide all corporate tax cuts, you can provide a 50/50 break, you can go with lump sum rebates, etc. It just depends where they think the political terrain is most fertile, and we will learn by trial and error. The biggest piece we are suggesting is that they embrace Bill Gates’ challenge for tripling funding for research and development. I think that is defensible, there is a case for it, and it is good from a public relations perspective.

On the 10 to 15% scale, how much is that?

Tripling what we currently spend – and we pay $6 billion now – it would bring it to $18 billion, which is not that much. Given the revenues that come in, it is more than affordable. We just published a study about three weeks ago by David Bookbinder and David Bailey, in which they laid out all the opportunities the coal sector would have to extract compensation in the course of a carbon tax. The argument they proferred is that the coal industry would be better off signing onto a carbon tax, and in return getting a certain degree of help, rather than fighting the Clean Power Plan. Again, the mix of assistance you provide is an entirely political matter.

I think you could make an intellectual case for zero, but that is not the way politics are going to work out in this town. I have noticed that when Barack Obama and Hillary Clinton offered packages of compensation to the coal sector, it was not warmly embraced by the coal sector or the Republicans that represent those districts. I do not know what the prospects for that assistance might be. The way we are recommending Congressmen look at this is as a matter of negotiation. The coal industry needs to come on board to provide support.

On that front, we have had good representation from the coal industry. They wanted to be here this morning, but they have their big meeting in California.

For what it is worth, when we talked to the coal industry and the National Mining Association (NMA), they were skeptical and relatively hostile to the idea of a carbon tax under any terms and conditions. The American Coalition for Clean Coal Electricity (ACCCE) has been open minded in private – they are not going to embrace it and take out billboards, but nor are they going to take shots. When our study was released and reporters were calling the coal industry for comments, NMA provided some negative press, but ACCCE stayed out of it. That is suggestively positive.

We also found that with the Republican legislators who represent coal districts, we have been very well received. I think those Republican legislators understand the realities very well. They think this is a promising approach, and they are undertaking the task of trying to sell this to the coal sector.

Eric, where do you and Adele fall on this? Do you do a building blocks piece in your head? Is there some way you are sketching these things out?

I think of the carbon tax as not being stand-alone climate legislation, which is improbable, but rather embedded in tax reform that is moving for other reasons, because you cannot get the corporate statutory rates down as far as many in the Republican Party have advocated for without a new revenue source. I think there is a real deal to be made there.
One point I would make on research and development, while I agree with Jerry, is there is a case to be made for expanding R&D. I would point out that a price on carbon, especially one that is perceived to be long-term and rising over time, will totally change the private-sector business case for R&D. Therefore, I am not sure the entire R&D goal has to be federal dollars, I think we can focus the federal dollars on that basic R&D, but I think private sector R&D will really take off if we send those market signals.

Eric, if I can invite you to amplify a bit: While all the choices are essentially political at some point, in the studies, they all have different macroeconomic effects as you divide the pie. My observation is that the differences are fairly marginal. Would you agree with that? There are some studies showing that if you deliver the revenues back to reducing taxes on capital in particular, you have a better macroeconomic effect. Is it enough to be a dispositive reason for acting in this area, or are the choices similar?

Actually, I would agree with Jerry and Adele – I think this is primarily a political issue, and not an economic one. The studies, as you say, do favor things like capital income tax reduction. I think one of the problems, of course, is if you took away the carbon tax issue, and use those same models, they would favor reducing capital income taxes and raising other taxes, and that has not happened. I do not think you can see that as an occasion for doing it one way or another. I have some technical issues with some of the studies, anyway. I am not sure that it is really dispositive in a major way.
To amplify Adele’s comments on the corporate tax, I do think the corporate income tax is way out of line with the rest of the world now, and there is going to be tremendous pressure to bring that rate down. I have looked at various ways to broaden the business base, but you really cannot get there – so you really need to think of other revenue sources, as Adele said. It is not the whole thing, and you certainly do not want to use all of the revenue for that.

Going back to my building blocks picture, how much of this goes to some kind of corporate tax relief? It is a political exercise – how do you begin to think about how these pieces go together?

As analysts, we can say, “If you do this, here is what the effects would be.” We can run those scenarios through the models and determine who wins and who loses. I do not have those answers at my fingertips, nor do I think I have a clear answer for how much of each you should do. I think the corporate piece is a big part, and it is an occasion to do something about that.

I will add to the non-responsiveness by agreeing – it is mainly political. The macroeconomic effects of all corporate cuts versus all lump sum favor the corporate, but they are small enough that you really have to consider the tradeoffs: Corporate is the most regressive, and lump sum is the least efficient. There has to be some combination.
It is important to think about what the bricks will look like as we go out and talk about this in a serious way, so you do not get to the point where people stop talking about it. It seems to me, you have to have some general sense when you are talking to people of some here and some here, and there are a lot of goals that get met in this process.

ANTONIA HERZOG (Natural Resources Defense Council)
You are absolutely right, it is a political shell game – and how do you split up the pie of 100? What are the political influences pulling on different pieces? NRDC and other organizations fully supported the Center on Budget and Policy Priorities’ low-income plan and pushed for it as part of that package. The historical precedent, and I hate to put you on the spot, Greg, but you were the architect and in the middle of that, was the Waxman-Markey bill. There was revenue and there were many pulls on that revenue. Greg, maybe you want to say a few words on how that shook out?

There is a lot of intensity around those times and how to deal with that situation. I think if we were to invite a similar conversation for a carbon tax, we would end up with a lot of challenges. We would want to avoid the same kind of drawn-out process where you had to ameliorate all concerns associated with it in order to get a bill. We did the same thing; we had provisions that would have provided for CCS incentives for the coal industry.

We got the United Mine Workers to say that the bill provided for the future of coal, then we got the largest coal-burning utilities to support it. We thought that had largely ameliorated those concerns; however, coal state Senators did not necessarily see it that way. There were a few coal mining companies that made enough of a splash in 2010 that at least one Congressman paid the price for it – Congressman Boucher.

I think these are very challenging deals to make stick and to be politically viable. I do not know that I have a lot of insights, except that what we ultimately showed with Waxman-Markey was that we could reach agreement between the business community, the environmental community, and a variety of other stakeholders that had a very modest environmental effect on the country. We ran into an ideological problem, and that is what stopped us in the Senate. My hope is that the solution to that problem is not to go through the whole process with a different outcome, but instead to try to address that ideological issue.
Can I request that you repeat the ideological problem?
I think it is a partisan issue at the end of the day – that was the crux of the challenge. If the partisan issue can be overcome, the substance will be there.
Boyden, what is your reaction?
I have tried to process what I have heard, but I still think there is a deal to be made – a combination of offsets either to the federal tax or corporate tax, among other things. Obviously, you want to make whole the low-income community that has been hurt by the regressivity of the tax.

As I have mentioned before, there has to be a suspension of the rules while the tax or cap-and-trade is in place, because the regulatory rules are so expensive – and just so lucrative for my profession. There are reams of lawyers feeding off this, and I cannot think it is good for the country. I think there is a possible deal, although it is political as to exactly how you work it out.

I still do not understand whether it is clear that a tax is better than cap-and-trade. You made a point that with a tax you get a price, but you do not get an absolute amount, you do not get the complete target that you do with cap-and-trade. With cap-and-trade you get a target, and that converts into a price.

There was a price on SO2, and we knew what that was; there was a price on NOx, and we knew what that was – it was registered, you could look it up. It was practically on some exchange somewhere – both a carbon tax and cap-and-trade produce prices. Some people think that cap-and-trade is more subject to political manipulation, but I think the tax system is more conducive to political manipulation. We ought to have that debate, though, because it is not unimportant.

I am speaking at Resources for the Future on March 1, in a debate about whether cap-and-trade is preferable to taxes. My opinions are not necessarily militant on the subject. I agree with Greg completely; the issue is ideological in the GOP – and the Republican Party is not some sock puppet of NAM. That is one of the things we spend a lot of time on – we try to make the case that there is no ideological barrier to protecting the planet from a really dangerous roll of the dice.

That being said, the real issue in the course of trying to put a deal like this together is that there is as much denialism in the Republican Party about the political reality as there is about climate science. There is this idea, not so much amongst elected Republicans (they are perfectly sober about the political realities), but amongst everyone in the right-of-center world below that level, that they can use brute political force to unwind the Clean Power Plan; that the courts will not only kill the Clean Power Plan, but salt the earth beneath it, so nothing else could possibly arise; that politically, they can simply strip, rip, and tear away virtually every market intervention to address climate. So there is no need for a deal.

They say, “You say you want corporate income tax cuts? Well, let’s just deliver them, then,” except you cannot just magically make that happen, you have to put together a coalition. They say, “No, we don’t. We can make a perfectly good case for these cuts and carry our arguments politically.” I find this amazing, but it is probably the consensus view on the right that these are live options. They are better options than a deal, because everything we are talking about is a deal. It is a compromise but 1) they do not trust the compromise would hold; 2) they do not believe there would be good faith with the people they want to compromise with, and 3) they believe the only path forward for them is brute political force. Donald Trump certainly appeals to the base in the GOP for thinking all that is required in Washington to advance an agenda is brute political force – that stuff resonates, and it is difficult.

Again, elected Republicans and senior leadership staff are perfectly adult about this. They understand the politics of this completely, and they understand there needs to be a deal, and that there is a case for one. For them, it is just a question of how you get from point A to point B, given that everyone below their place in the food chain has other ideas that seem a little silly. That is really the political challenge.

So what is the “therefore” then?

I have increasingly come to the conclusion that people on the right who are not in those leadership positions have less influence on the elected officials than I thought. I think there is more autonomy on the part of leadership. It is really just a question now of convincing them there is a deal to be made.

For instance, I have spoken with elected Republicans and told them candidly that I have had conversations with Sheldon Whitehouse (D-RI), who is willing to sit down right now and negotiate a deal that would eliminate the Clean Power Plan and make it more attractive to the right – assuming the price is sufficient and that there are safeguards to ensure the emissions reductions will occur. They just cannot believe that, which tells you there is a tremendous amount of distrust. That is one problem.

The second problem is the Tea Party fear of a challenge, which will go away if the Tea Party goes away, or if someone walks the plank, does a reverse Inglis (R-SC), and survives. Which we may very well see soon, because I know of one Republican who is in a very red, gerrymandered, no fear district, who is ripe to carry this thing – or to contemplate carrying it in 2017. Then again, that is after an election, so we would have to wait two years to see if he can actually pull this off. Many Republicans may be waiting to see what happens.
There has been an obvious earth-shattering quake with Scalia’s death, which has to alter the thinking – particularly, people who think that they can bulldoze their way through to destroy the Clean Power Plan. There has to be some admission of change.

It is hard for me to know how these arguments cohere. I have not heard a lot of buzz from the right since Scalia’s passing, so I am not sure how that has affected them. My own sense of it is that the biggest earthquake is the Donald Trump factor. If things play out the way they look like they will, he is going to get the nomination, and he is going to be utterly decimated in November. It will not be because he cannot appeal to white votes, but because there is not a non-white vote in America that will vote for him. He will not just be defeated, he will be slaughtered.

Then the question is, what does that do to the Tea Party? One case says that the Tea Party has nothing to do with Donald Trump – officially. On the other hand, all the Tea Party votes have gone to Trump. All the Tea Party leaders are appalled by Donald Trump – you have the rank and file all in his camp. What does that mean politically? Is the Tea Party really something to fear now, after a decimation in November? Or do they get energized and just become more annoying very quickly?

One Comment for “Climate/Energy Statism: An Inside Conversation (Part I: pre-Trump plans that went awry)”

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