Climate Change vs. Deficit Reduction?

Next February, President Obama will unveil his 2011 budget. Over the past few days, the news media have begun to speculate about some of the steps that he might propose in order to tame our growing deficits.

Over at Politico, Mike Allen and Jim Vandehei suggest that one policy casualty ought to be the effort to combat climate change:

The big question for Obama – and the country – is whether the sudden concern about deficits will be more rhetoric than reality once his first State of the Union address concludes.

All presidents promise deficit reduction – and almost always fall short. There is good reason to be skeptical of this White House, too, on its commitment.

For starters, the White House has not dropped plans for an aggressive global warming bill early next year that will be loaded with new spending on green technology and jobs – that would be paid for with tax increases. Democratic lobbyist Steve Elmendorf says the White House focus on deficit reduction could easily kill the cap-and-trade effort. “I think this means cap-and-trade has to go to the backburner,” he said.

This line of argument makes no sense to me. And its mere existence reinforces my concern that the politics of climate change are completely dysfunctional from a budget perspective. As I have noted before, the government could combat climate change in a way that would also combat our out-of-control deficits:

A carbon tax, for example, could raise revenue and reduce carbon emissions at the same time.

Alternatively, the government could auction off allowances under a cap-and-trade system and then designate some or all of the resulting revenues for deficit reduction.

Unfortunately, that is not the way our Congressional leaders are approaching this challenge. The House, for example, passed a climate change bill that would create allowances worth almost $1 trillion over ten years. The net reduction in the deficit? A paltry $9 billion since Congress would give most of the allowances away to industries with good lobbyists and would spend almost all of the rest.

Senate leaders, meanwhile, are touting their climate change bill as “not worsening the deficit” — a ridiculously low standard in this new era of trillion-dollar deficits.

My recommendation to the President is quite different from that in the article. If the President is committed to both climate change legislation and reducing the deficit, he should tell Congress to levy a carbon tax or designate a large fraction of the carbon allowances for deficit reduction.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

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3 Comments on Climate Change vs. Deficit Reduction?

  1. 2008 saw what NASA called the Sun’s “blankest year” where 266 of the year’s 366 days, there were no sunspots. Sunspot counts for 2009 have been very low, too. This all begs the question: does solar activity have a long-term effect here on Earth? Times of depressed solar activity correspond with times of global cold. From 1645 to 1715, few if any sunspots were seen and Western Europe entered a virtual deep-freeze known as the Little Ice Age. Times of increased solar activity have corresponded with global warming. The 12th and 13th centuries, when the Sun was active, European climate was quite mild. Experts predict that the current solar cycle will peak in 2013 with a below-average number of sunspots. The Sun should remain calm for at least another year. Of course, all this disruption is caused by the lighter-than-air carbon dioxide America has produced in the past few decades. These light gases rise to the sun and disrupt the magnetic causes for sunspots, altering the averages of sunspot activity. The effects on the under developed world is extreme, causing wars, famines and revolutions which disturb the compassionate dictatorships and the order they provide. It must stop! America must be shut down by the Obama Administration, beginning with elimination of the middle class and all its outrageous demands for goods and services.

  2. I could not agree more that a carbon tax is a superior alternative to a fundamentally-flawed cap and trade system. Not only is a carbon tax straightforward and transparent, it avoids the evasion and market manipulation inherent to cap and trade while incentivizing green R&D and returning the revenue to the people. It’s what the vast majority of economists and scientists believe we need to effectively stem the tide of global climate change and I sincerely hope that Congress starts paying attention before it’s too late.

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