Lieberman-Warner amended but still flawed

As the Lieberman-Warner Climate Security Act heads to a vote, Senator Barbara Boxer has offered an amendment that would return 14% of carbon revenue back to households. The money would be recycled through tax credits that would be enacted at a later date.

While a step in the right direction, Boxer’s amendment doesn’t fix the bill’s major flaw: it takes trillions of dollars from ordinary families and hands much of it to polluting corporations.

According to a Senate summary, the Lieberman-Warner bill would allocate $5.6 trillion over the next 40 years to private companies, states and Indian tribes, and now, thanks to the Boxer amendment, consumers. Yes, that’s $5.6 trillion, or $5,600,000,000,000. This makes Lieberman-Warner not just a carbon cap, but one of the biggest wealth transfers in history.

The $5.6 trillion Lieberman-Warner would redistribute isn’t free money; it will be paid by consumers in the form of higher energy prices.

Boxer’s amendment would return about $800 billion of the $5.6 trillion, or 14%, as partial compensation for the higher energy prices households will pay. The money would come in the form of tax relief, the precise details of which are left for future Congresses to decide. (The one detail included in the bill is the timing: to allow for front-end handouts to industry, most of the tax relief for households wouldn’t come until after 2030.)

Though vague, insufficient and late in coming, the amendment at least recognizes that without some form of revenue recycling, carbon capping will make tens to hundreds of millions of Americans poorer.

The question it raises is whether 14% of the money paid by households is enough to protect American families. According to a recent study by the Center for Budget and Policy Priorities, 14% of carbon permit revenue would be just enough to compensate the poorest 20% of American families for higher carbon prices. If used in this fashion, it would do nothing for the middle class. If the middle class were included, the poorest Americans would be made even poorer.

A better carbon cap would not be a regressive sales tax on consumers, nor would it pit the middle class against the poor in order to enrich private corporations. Rather, it would return the extra money families pay in higher energy prices in an equitable fashion (refundable tax credits or per capita monthly dividends are two options here). Other climate-related investments — such as worker training, mass transit and clean R&D — would also be made, but out of other revenue sources.

Comments

some arguments

Submitted by eve isk (not verified) on December 26, 2008 - 8:04am.

I am confused and disappointed. The bill would have been a lot simpler if it addressed just the carbon cap-and-trade.

The idea of “emergency off-ramps” and “borrowing” is ripe for abuse. In the 1990’s, U.S. car companies essentially disregarded California zero emission mandates and federal fuel efficiency standards by postponing legislative mandates. Putting such devices into the climate bill itself formally accepts the possibility of such procrastinating behavior.

While cap-and-trade works in theory, I’ve been skeptical that it would work in practice. Cap-and-trade is an economic (”market forces”) model of emissions regulation, and thus, subject to all of the economic shenanigans that are so often exercised in the financial industries (anybody remember subprime mortgages?).

If we’re going to make cap-and-trade work, we have to eliminate loopholes and make the rules clear and simple.

Thanks for your overview

Submitted by war gold (not verified) on October 14, 2008 - 11:00pm.

The vote of the Environment and Public Works Committee in favor of the Climate Security Act was a historic moment for our country and for my Committee.

For me, it was the greatest legislative accomplishment of my political career of thirty years.

Finally, America is taking bold steps to avert the catastrophe that awaits our children and grandchildren if we do nothing.

Our bill has two goals…to fight global warming and to do it in a way that keeps our economy strong. That will be my focus in the coming weeks and months as we move the bill forward to the Senate floor.

Politics of a carbon tax

Submitted by Peter Monroe (not verified) on July 30, 2008 - 1:23pm.

I find it very hard to support any sort of a tax on carbon... per se. It's political suicide, and analogous to taxing the air we breathe out. Isn't the American public taxed enough. Maybe if it were just for corporate entities?

Better to Enact a Carbon Tax

Submitted by Reid F. Capalino (not verified) on May 29, 2008 - 2:05pm.

Peter Barnes justly critiques the giveaways and inefficiencies in the L-W bill; James Handley, however, makes an even better argument by pointing out that advantages of a carbon tax - phased in and revenue-neutral - over any form of cap-and-trade. Why do all the big environmental groups support cap-and-trade when it is clearly a second-best policy; do they think it is more politically feasible because it avoids the T-word and will create a new profit source for commodities traders and investment banks? Where is the virtue in opacity and rent-seeking?

I worry that under a new Democratic administration, climate policy will suffer the same fate as health-care reform under Clinton: in the name of political expediency, Dems will craft a complicated policy that aims to co-opt special interests - though not identical, the Clinton effort to preserve a role for private insurers resembles the method of cap-and-trade advocates, who claim the advantage of cap-and-trade is that "businesses can make money of it" (presumably this means emissions traders). For all this delicate design, utilities and other fossil-fuel intensive industries will still lobby heavily against cap-and-trade (see recent Club for Growth ads), just as pharma/insurers lobbied heavily against Clinton health reform.

If it is going to be a fight anyway, why not enact the policy which delivers the biggest benefit? Cheaper emissions reductions (because more flexibility over time as to when reductions can occur), reduced price volatility, a regime that could actually be extended internationally - there should be a chorus in favor of tax-and-dividend, not cap-and-dividend.

All that said, Peter Barnes' version of cap-and-trade is at least better than L-W's.

Dividend and 100% Auction! But Carbon Tax / Dividend is best

Submitted by James Handley (not verified) on May 29, 2008 - 6:56am.

Would Boxer-Lieberman-Warner auction ALL permits issued under the cap? Friends of the Earth says: Auction 100% of permits or DITCH it! Giving permits to past polluters is outrageous.

The Congressional Budget Office concluded that a carbon tax would be FIVE times as effective as a fixed cap. CBO suggested ways to make a cap more effective (and more like a carbon tax and dividend):

FIRST, auction ALL permits.

SECOND, (as Peter advocates) recycle the revenue as a DIVIDEND or a tax shift (reducing other taxes) so TAXPAYERS get the money. DON'T HAND OUT REVENUE for technologically-bankrupt "Clean Coal", Ethanol, and other corporate subsidies.

THIRD, limit price spikes (which have crashed other cap-and-trade programs) with a "safety valve" (price ceiling).

FOURTH, regulate the profits and speculation of traders who stand to gain from price fluctuations.

Even with those important fixes, cap-and-trade is not as effective or easy to implement as a carbon tax with dividend. (The current bill wouldn't even go into effect until 2012 and requires an enforcement bureaucracy at the already over-burdened, ineffective and corrupt EPA!)

Economists ranging from Rob Shapiro (former Clinton undersecretary of Commerce), Bill Nordhaus (Sterling Prof. of Econ. at Yale), to Kevin Haslet and Ken Green (AEI) all recommend a CARBON TAX. Better for the economy and more effective at reducing greenhouse gas emissions.

A tax would create incentives for our trading partners to enact their own carbon taxes, while a cap would put U.S. business at a disadvantage and has been firmly rejected by both India and China.

Why not go for the best? Carbon Tax Now!

Visit the Carbon Tax Center at www.carbontax.org.

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