03/20/2009 12:03 pm ET Updated May 25, 2011

Powering A Green Economy

by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, Ryan Powers, and Brad Johnson

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As he promised during his campaign, President Obama has laid out a new direction on energy policy with his long-term budget proposal, making polluters pay to reduce global warming pollution, build a green economy, and deliver tax credits to 95 percent of working families. This plan has come under withering attack by conservatives, who have focused on the cap-and-trade carbon market component. After former House speaker Newt Gingrich told the Conservative Political Action Conference that cap and trade is a "code word" for an "energy tax," Senate Minority Leader Mitch McConnell (R-KY) called it a "light switch tax" and House Minority Leader John Boehner (R-OH) said it was a "code for increasing taxes and killing American jobs." Moderate Democratic senators have also expressed concern: Sen. Ben Nelson (D-NE) worries cap and trade "could have a negative impact on our economy by raising utility rates on consumers," Sen. Mary Landrieu (D-LA) is "against forcing petrochemical companies" to "bear the brunt of new costs," and Sen. Kent Conrad (D-ND) "said that it would be a 'distant hope' to expect the climate change plan to pass unless it includes help for industries that would be hit hard by limits on carbon emission production." In reality, Obama's proposal would directly increase or leave untouched the incomes of most Americans when the system begins in 2012, powering a clean job engine that makes work -- instead of pollution -- pay.

CAP AND TRADE 101: Because the "future of our society depends on effectively managing and reducing greenhouse gas emissions," the goal of cap and trade is to "steadily reduce carbon dioxide and other greenhouse gas emissions economy-wide in a cost-effective manner." The "cap" is an annual limit on total pollution; large emitters (such as power plants and petroleum refineries) must acquire pollution allowances from the government. These allowances can be traded, "rewarding the most efficient companies and ensuring that the cap can be met at the lowest possible cost to the economy." Because the United States has not had an emissions policy, there's a lot of low-hanging fruit -- ways to achieve significant reductions in pollution at low cost or even net gain. California's experience with greening its economy is perhaps the best model of our national future. Despite higher electricity rates than much of the nation, total energy costs have gone down, allowing "more job creation from Californians for California." Economic models find that any downward economic impact of the transition to a clean economy through cap and trade is dwarfed by the high volatility of fossil fuel prices.

A CLEAN JOB ENGINE: As McKinsey and Company has found, putting a cap on carbon emissions corrects market failures by driving investment into efficiency and fuel economy improvements that actually save everyone money. Then it spurs investment into the expansion of renewable energy, creating new jobs and a competitive advantage in the international marketplace. Despite conservative claims, environmental protection creates economic growth. When a cap-and-trade program to stop acid rain pollution from power plants was established in 1990, as Center for American Progress Senior Fellow Daniel J. Weiss explains, industry studies included "hysterical predictions" about "the loss of tens of thousands of jobs, and compliance costs totaling tens of billions of dollars." In reality, pollution reductions cost "one quarter of original EPA estimates," electricity rates fell 10 percent, and the U.S. economy added 16 million new jobs." "American ingenuity and American entrepreneurship and inventiveness," Obama told industry executives last week, "created options that ended up being much cheaper than anybody had imagined." The scope of a carbon cap-and-trade system is much greater. Instead of a billion-dollar-a-year market, it's a $50 to $100 billion market. Conservatives say this size should instill fear about the future of our economy, but history tells us it's a reason for optimism.

FROM GRAY ECONOMY TO GREEN: The economic, security, and climate crises are interlinked by our unsustainable dependence on fossil fuels. Failing to halt global warming "will have severe economic consequences," Obama has explained, "as well as political and national security and environmental consequences." However, "I think we can handle this problem." The Congressional Budget Office has found that a cap-and-trade plan along the lines of Obama's proposal -- making industry pay for pollution permits in a full auction and returns revenues to working families -- would make the most vulnerable "better off as a result of the policy (even without including any benefits from reducing climate change)." Critics are also looking at one element -- the mandatory emissions reductions -- and ignoring the whole. Because a coherent energy policy is critical to our nation's future, Obama's proposed plan goes far beyond capping emissions to reform the transportation and electricity infrastructure, prioritize energy efficiency, transform the housing industry, and create millions of new high-paying jobs.