The president released his plan this morning and will give a speech about it at Georgetown University at 1:30 PM.
The plan is a laundry list of carrots and sticks to encourage people to emit less carbon into the atmosphere. Most importantly, he is directing the Environmental Protection Agencies to limit emissions from existing power plants, which account for 40% of U.S. carbon emissions. He would provide a variety of subsidies for clean technologies and impose new restrictions on existing, dirty ones.
This approach can work. But it will be less effective and have greater economic costs than an approach that simply raises the price of emitting carbon and then leaves it to consumers and businesses to react to higher prices.
Unfortunately, a carbon tax can't pass Congress. Cap-and-trade, a similar but more cumbersome approach in which the government imposes an economy-wide limit on carbon emissions and allows people to buy and sell the right to emit carbon, is also a non-starter.
Republicans are skeptical that climate change is even a real problem and they don't want any new taxes. Many congressional Democrats aren't exactly brimming with enthusiasm for these approaches either.
Congress' unwillingness to act leaves Obama with two options: do nothing, or use his existing legal authority to impose a top-down, regulation-heavy approach that creates economic distortions while cutting carbon. The latter is the better option, and he's going with it.
That said, there are three reasons to be especially pleased with Obama's plan, given the constraints he's working within.
- His approach to regulating existing power plants will harness market forces. Obama says he will direct the EPA to "build on state leadership, provide flexibility, and take advantage of a wide range of energy sources." That sounds like a reference to this plan from the Natural Resources Defense Council which would impose state-by-state limits on carbon emissions from existing plants and give states broad leeway in deciding how to implement those cuts. Power utilities could average emissions across new and existing plants and use a mix of strategies to produce energy more cleanly and encourage users to consume less. In other words, the government wouldn't be telling utilities which specific plants to close, and power producers and consumers would be allowed to find the most cost-effective ways to cut emissions.
- Obama will probably approve the Keystone Pipeline. There's no reference at all to Keystone in the White House's report this morning, another sign that it is getting out in front with plans to cut carbon in order to tamp down anger from environmentalists when it allows a major new oil pipeline from Alberta's tar sands. This is why the Washington Post is wrong to call the President's plan a "kitchen sink" approach. Of all the roundabout ways to cut carbon emissions, one of the least cost-efficient is to block the construction of specific pipeline projects. By making clear that it has a plan to get Americans to emit less carbon, the White House frees itself to allow imports from wherever is most cost-effective, including via Keystone.
- Costly new regulations could breathe life into a carbon tax. " The economic consequences of Obama's pure regulatory approach, overall, are almost certain to be much, much worse than those of a carbon tax," said Eli Lehrer of the R Street Institute, a free-market think tank, in an email. "These regulations are likely to have such negative consequences that many Republicans will realize that their only hope of getting rid of them is to establish a workable, limited government alternative." Lehrer wrote with former Rep. Bob Inglis (R-S.C.) last week that conservatives should embrace a carbon tax. That's still going to be a tough sale, but if the alternative is "hugely costly regulations" instead of "no regulations," the sale should be a little bit easier.
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