Warming Proposals

Monday, May 14, 2007

ONE OF THE benefits of being in the second tier of presidential candidates is feeling freer to promote worthy ideas that might seem too risky to a front-runner. That may be the case with Sen. Christopher J. Dodd (D-Conn.), whose plan to tackle climate change involves a bold move for any politician: a new tax -- in this case, on carbon emissions. "You cannot be serious about acting on the urgent threat of global warming, about making us less captive to Middle East oil, or investing in renewable energy, unless you have a corporate carbon tax that eliminates the last incentive there is to pollute -- that it's cheaper," Mr. Dodd said in a speech last month.

He would spend the $50 billion in annual revenue on research into renewable technologies. And he would couple the tax with legislation to mandate reductions in greenhouse gas emissions and raise automobile fuel economy standards to 50 miles per gallon by 2017. Mr. Dodd's tax proposal in particular goes far beyond the standard fare of the better-known Democratic candidates, who advocate a cap-and-trade approach to spur companies to reduce emissions combined with other incentives to increase production of renewable energy and to cut consumption.

Under a cap-and-trade system, government would set a limit on the total amount of carbon dioxide that could be emitted. It would issue allowances to companies that emit CO{-2}, which would be able to buy and sell these rights. The theory is that the market would reward those able to reduce their emissions and make money from selling the rights. This has been a promising approach, and Sen. John McCain (R-Ariz.) in particular deserves credit for pushing it, especially within a party of global warming skeptics and 2008 opponents who have little to say on the subject.

In theory, a well-designed cap-and-trade system -- one that does not simply hand out allowances but auctions some off, that applies across all sectors of the economy and that has some flexibility to keep energy prices stable -- could achieve the same ends as a carbon tax. In practice in Europe, cap and trade, at least in its early stages, has proved ineffective and susceptible to manipulation. Those who advocate this approach -- including not only Mr. McCain but Democrats Hillary Rodham Clinton, Barack Obama and John Edwards -- ought to explain why this cumbersome system is better than a straightforward tax.

Conversely, Mr. Dodd and other backers of a carbon tax need to address its drawbacks, which are a matter of both political feasibility and conceptual design. What happens to particularly emissions-intensive sectors such as the coal industry, for instance, when an across-the-board carbon tax is imposed? Is a political system in which tax hikes are electoral poison capable of adopting a carbon tax, or is cap-and-trade more likely to win support? Would a tax end up being so riddled with loopholes as to be ineffective?

Mr. Dodd would combine a tax with emission caps, which he says are necessary for certainty in emission reductions, but the details of how those two approaches would work together are fuzzy.

Neither a U.S. cap-and-trade system nor a U.S. carbon tax will, in itself, deal with the daunting truth that the greatest growth in greenhouse emissions is in the developing world, particularly China and India. But a domestic policy that encourages the development of alternative technologies could reap a double benefit, generating U.S. sales of these innovative products overseas and helping address greenhouse gas emissions there as well.

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