In the News

Details about the forthcoming Kerry-Graham-Lieberman climate bill are still as hazy as the smog over the San Fernando Valley. But one tidbit has already trickled out: The Senate proposal would, in all likelihood, eliminate the EPA’s authority to regulate greenhouse gases under existing law. This is something industry groups have demanded in exchange for the creation of a CO2 cap-and-trade program set by Congress. Environmentalists, by contrast, see the EPA’s Clean Air Act authority as sacrosanct. It’s possible, however, to find a compromise here.

Strictly from an economic efficiency perspective, you’re better off with either an economy-wide cap-and-trade policy or an economy-wide carbon tax,” says Michael Livermore, executive director of the Institute for Policy Integrity at New York University Law School.

Unless the carbon tax on fuel is exactly equal to the price of the permits traded between power plants — in which case it’s no different than an economy-wide cap-and-trade system — electrical companies and oil companies will have different financial incentives to offset the same quantity of emitted carbon, Livermore says.

The most important addition that Senators Kerry, Graham, and Lieberman can make to the climate bill is a refund provision similar to the Cantwell-Collins proposal. Without some mechanism to compensate Americans for rising energy prices, middle and lower income families will be stuck with the tab for our transition to cleaner energy, which is both bad policy and bad politics.

But some economists are wondering whether the attempt to gain political traction is coming at the expense of what makes the most sense policy-wise.

The majority of 144 economists polled by New York University’s Institute for Policy Integrity, or 84%, agree that global warming’s effects “create significant risks” to the economy, and 94% agree that the United States should join climate agreements to limit global warming.

The Obama administration has made very clear that they want Congress, rather than EPA, to take the lead in creating a national response to climate change. Despite their oft-repeated preference for congressional action, recently, EPA head Lisa Jackson had to once again reiterate that the agency had no plans to do a carbon cap.

Though lawmakers are contemplating scrapping cap-and-trade on carbon as “political poison” its flexible market-based structure makes it the most efficient and business-friendly way to reduce pollution. That is why Republicans proposed the idea in the 1980s.

An important addition to any new climate bill is a refund mechanism to protect lower and middle class families from increased energy prices. No matter what road Congress takes to control our greenhouse emissions, energy prices will rise to some extent. The costs businesses incur in their compliance of any new rules will be passed on to consumers.

“For all regulations that have an impact on the climate, either good or bad, they’re going to use these numbers to value those effects,” said Michael Livermore, executive director of New York University’s Institute for Policy Integrity, a nonpartisan advocacy organization and think tank. The work group notes, however, that most federal regulatory actions would only marginally affect the cumulative global output of warming gases.

Since the EPA has no choice but to regulate greenhouse gases, and could come under serious legal fire if it does not, it is a good idea for EPA to act. The Supreme Court decided in Massachusetts v. EPA that the agency had two options: either determine that greenhouse gases are not a danger to human safety, or do something about them. So what is the best way for Administrator Lisa Jackson to proceed?