What the Thune and Ensign Amendments mean for the cap-and-trade agenda.
We are now witnessing the inevitable entailment of putting pollution caps and climate at the center of the political proposition.
Everyone is all for capping carbon until it comes time to pay for it. Then it is a consumption tax and few politicians and voters are prepared to support it. It inevitably leads to a debate centered on the costs and regulations, not the social benefits of the policy.
The Apollo approach, which puts the immediate social and economic benefits - a clean energy economy, energy independence, new industries that can create good jobs - at the center of the debate and uses modest carbon price revenues to pay for it has always been vastly more robust to the kinds of political attacks that we are seeing this week. The debate becomes about whether or not we are going to make these investments in America's future - not whether or not we are willing to take our medicine in order to avoid the end of the world. But making this move requires more than simply swapping out the picture of the polar bear on the front page of your newsletter for a picture of a construction worker. It requires taking the investment agenda seriously and making it the central objective of policy.
The choice that greens and sympathetic policy makers will have in the coming months will be whether to move to this kind of plan B or accept a cap and trade bill that is likely to provide neither a very significant price signal nor any serious money for RD&D.
What the political maneuvering of the last week suggests is that the current cap and trade effort, if it succeeds at all, will get us a compromise reflective of both the Thune and Ensign amendments - a cap and trade bill that severely constrains the carbon price signal and refunds all or most of the revenues that it does raise to consumers.
Whether the allowances are auctioned or allocated, the Thune and Ensign amendments virtually assure that there will be significant, and probably multiple mechanisms in any bill that passes the Senate to very substantially contain the costs of the program to consumers and other end users. Cost containment means the caps aren't binding - the maximum allowable cost determines what the maximum emissions reductions will be (more on this dynamic here). Without RD&D to develop cheap substitutes, and with significant constraints on maximum cost, you get neither price increases nor emissions reductions.
We are thus heading on a crash course for a compromise that would constitute the worst of both worlds, lacking both a price signal sufficient to drive up the cost of fossil fuels very much if at all and an RD&D strategy sufficient to drive down the cost of clean energy alternatives to the point that they might be competitive.
I wish I were optimistic that greens now setting the climate agenda were capable of coming to terms with this reality and making the shift but all evidence to date points to the contrary.
