Monday, April 5, 2010;
OPPONENTS OF health-care reform like to point out that it will reshape one-sixth of the U.S. economy. But there's another big legislative push, overshadowed by health care, that would directly affect an even larger chunk: the effort to pass a climate-change bill.
The action is in the Senate, where Lindsey O. Graham (R-S.C.), John F. Kerry (D-Mass.) and Joseph I. Lieberman (I-Conn.) are preparing a proposal. The outlines are becoming clear: The package is expected to contain a cap on carbon emissions that will grow stricter over time and a slew of provisions to promote certain types of energy. Unlike the cap in a House-passed bill, the Senate's cap at first would apply only to the electricity and perhaps the transportation fuels sectors, with industry to phase in later.
First, the encouraging part about this. If America is to deal with climate change, it has to reduce carbon emissions -- the pollution caused by burning oil, gas and coal. The most cost-effective way to do that is by placing a price on carbon that gradually rises, which a cap could achieve. If well-designed, carbon pricing will attract private capital into the clean-energy effort and spur the technological innovation that will smooth the transition to a cleaner economy. Even a weak cap can be strengthened later, as long as the structure is in place. Though this seems obvious, it is a small miracle that a carbon price of any kind is still on the table in the Senate following Republican demagoguery about "cap-and-tax" proposals.
There is pressure in the Senate to forget about pricing carbon and just pass a bill filled with clean-energy subsidies. That would be both wasteful and inadequate given the scale of reductions needed.
The Senate triumvirate's carbon-pricing mechanism probably would not auction all of its "allowances" -- securities that give the holders the right to pollute a certain amount, the price of which should increase as the cap tightens and the allowances become scarcer. Rather, it would probably distribute many of these allowances to groups that the legislation affects so that, among other things, electricity prices would be lower than they would be otherwise under the cap. Sounds nice. But it would be more efficient to allow prices to rise, sending a strong and clear signal to consumers that encourages energy conservation, one of the least onerous ways to cut back on emissions. Though energy prices would rise, the 100 percent auction option need not hurt most Americans' budgets; Congress could rebate most of the revenue from allowance auctions directly to Americans, making the vast majority of them whole -- or better. Cutting a check to every one of your constituents: Now there's something lawmakers straddling the fence on climate-change legislation should be able to cheer.
As the Senate begins to look beyond the health-care fight, the question legislators should be asking is not whether to put a price on carbon. It's how to do it best.