By James K. Boyce
President Obama's Clean Power Plan rule, announced to much fanfare last summer, was cheered by supporters as a turning point and jeered by critics as overreach. But in basketball terms it was neither a slam dunk nor an air ball: it was a lay-up.
The rule will cut carbon emissions from power plants by 32% against 2005 levels over the next fifteen years. This will lock in a trend that's already happening thanks to rising investments in wind, solar and energy efficiency and to the switch from coal to natural gas.
For states like Massachusetts and California that have their own climate policies, Obama's rule is no big deal. They're already on track to achieve these reductions and more. But for states that have lagged in the clean energy transition, it will make a difference. The attorneys general of 27 states, led by West Virginia and Texas, are suing to overturn the rule on behalf of their pals in the fossil fuel industry - excuse me, in the name of their constituents.
The post-Scalia Supreme Court is likely to repel this shot-block attempt. Assuming it does, count the basket and score two points.
That doesn't mean the rule is a game changer. Power plants account for only one-third of the nation's carbon emissions. The rest come mostly from transportation and industry. And while a 32% cut sounds impressive, it's a soft target for 2030. To reach the final rounds in the climate tournament we will need bigger reductions, and we will need them across the board, not just in electricity.
So, what should be the game plan? The smartest policy option in the playbook may be the Healthy Climate and Family Security Act of 2014, introduced by Congressman Chris Van Hollen (D-MD). The Van Hollen bill mandates a 40% economy-wide cut in carbon emissions by 2030. It would achieve this by capping the amount of fossil carbon allowed to enter our economy, and by auctioning permits up to this ceiling to energy firms (not giving them free permits, as in the failed cap-and-trade proposals of the past). It would return all the revenue from the permit auctions directly to the people in equal dividends for every woman, man and child with a valid Social Security number.
Something similar would happen under the Managed Carbon Price Act, sponsored by Congressman Jim McDermott (D-WA). His bill would institute a carbon tax - in effect, carbon permits with a fixed price - and again return the revenue equally to all Americans.
Carbon dividends would make climate policy a financial plus for most Americans. The higher prices they pay for fossil fuels - the source of the money that firms pay for permits - will be more than covered by the dividends for two reasons.
First, the outsized carbon footprints of the one-percenters at the top of the economic pyramid - which go along with their outsized incomes - mean they will contribute more to the dividend pie than they get back. They can afford it. Middle class and lower-income households, in contrast, will get back more than they pay. Meanwhile everyone will have an incentive to burn less carbon.
Second, it's not only consumer spending that will fund the dividends: government accounts for about one-quarter of total spending on fossil fuels. In other words, these proposals would tax government and return the money to the people - a novel idea that ultimately may help recruit some Republicans to the team.
Carbon dividends are founded on the principle that we the people own the natural environment in common and in equal measure. When we charge for dumping carbon into the atmosphere - rather than letting polluters dump for free - the revenue should go to us all, not to corporations and not to the government.
The good news is that the Van Hollen and McDermott bills have attracted more than two dozen co-sponsors in Congress. The bad news: they're all Democrats.
The big question is when Republican politicians will start listening to their own voters. A Yale University study reported last year that a solid majority of rank-and-file Republicans support regulation of carbon emissions. A whopping 64% favor tax rebates for energy efficient vehicles or solar panels. Even more can be expected to support a policy that puts carbon dividends in their pockets.
To combat climate change, we need an economy-wide price on carbon. Putting this in place, and keeping it for the decades necessary to complete the clean energy transition, will require broad and deep support across the political spectrum. Carbon dividends can help to secure this support.
In the hoopla over the power plan rule, we should keep our eye on the ball. Lay ups are nice, but the clock is ticking. What we really need to beat climate change is a full-court press.
James K. Boyce teaches economics at the University of Massachusetts Amherst.
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