Making the Odds on Federate Climate Bills

There are three horses in the race for passing climate legislation this year or next. Let’s handicap these three ponies for the upcoming races at Congress Downs:

Carbon Tax
The favorite of many economists, assorted policy wonks, and NASA climate scientist Jim Hansen for its relative simplicity, a carbon tax is the least likely option to be adopted, but its prospects cannot be dismissed entirely.

Cap-and-Invest
Many of the left-leaning national enviro groups like the idea of selling allowances and giving the proceeds to an ever-growing federal government to bulk up research budgets for energy efficiency, renewables, biofuels, and, with gritted teeth and if-you-insist reluctance, carbon capture and sequestration for coal.

The U.S. Climate Action Partnership, a high-powered group of national groups and businesses, has put out a Cap-and-Invest proposal.

Cap-and-Dividend
Capping emissions, selling allowances, and returning the money to the taxpayers to help them handle higher energy costs is an option that is gaining bipartisan traction. Senator Bob Corker, a Tennessee Republican who is laying down a climate policy marker for his more rational GOP colleagues, is touting this alternative. Centrist California Democrat Dianne Feinstein is said to be working on cap-and-dividend legislation.

President Obama’s 2010 budget proposal puts its money on Cap-and-Dividend to win and Cap-and-Invest to place. He has proposed setting aside $15 billion per year in allowances auction revenue for energy technology research. The remainder, some $63 billion to $68 billion per year, would pay for tax credits to businesses and households.

There is a fourth horse in the race – an old nag, to use a technical term. Its riders are Senator James Inhofe of Oklahoma and other members of the denial lobby who are still insisting that climate change is a figment of Al Gore’s vivid imagination. It’s not likely that old pony will get far this year.

Looking back at the history of landmark environmental legislation, it’s clear that such legislation gains the most buy-in and works most effectively with bipartisan support. Which of the three horses is the most likely to form the basis of a bipartisan deal?

Carbon Tax’s champions say that any of the cap options would be complex, difficult to administer, and prone to gaming by practitioners of Wall Street’s dark arts of financial manipulation.

Opponents say a tax is prone to political manipulation. Anyone who doesn’t believe that should spend a weekend afternoon trying to make sense of the Internal Revenue Code. Plus, they say, a tax is not an enforceable limit on emissions, which is the underlying goal that we’re trying to achieve.

Anyway, don’t count on many Republicans to put their money on Carbon Tax. They’re upset enough as it is with Obama’s proposals to boost taxes on $250,000-plus households and to can oil and gas industry tax breaks.

Cap-and-Invest is equally problematic for the starboard side of Congress, since it amounts to giving Uncle Sugar another heapin’ helping of dollars to further engorge the federal budget.

Cap-and-Invest proposals like the Climate Action Partnership's have sticky permutations to resolve, such as the number of free allowances that would be handed out, to whom, for how long, and use of offsets.

Cap-and-Dividend could be the middle ground for shaping a bipartisan climate deal.

On Jan. 21, Senator Corker circulated a “dear colleague” letter that described a simple framework for a climate policy. Set a cap and auction all the allowances. Return all the proceeds to the taxpayers. And keep it simple. No offsets.

A month later, Congressman Chris Van Hollen, a Maryland Democrat and hardly an ideological soul mate of Corker, circulated a similar letter to his colleagues. Cap emissions, sell the allowances, require first sellers of fossil fuels to surrender them annually, and use at least 90 percent of the sale proceeds to send a check to everyone with a Social Security number.

Climate legislation will be the heaviest legislative lift in a long time. Keeping it simple and making it bipartisan will improve the odds of success.

Put your money on Cap-and-Dividend.