In the News

A new study by the Institute for Policy Integrity praises climate legislation sponsored by Sens. Maria Cantwell (D-Wash.) and Susan Collins (R-Maine) — a bill that has received less attention than the upcoming proposal by Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.).

Climate legislation from Sens. Maria Cantwell (D-Wash.) and Susan Collins (R-Maine) would give industry a consistent, predictable price signal for releasing greenhouse gases while also creating new demand for construction jobs, according to a study by the Institute for Policy Integrity at New York University School of Law. (Requires subscription.)

This week, the Environmental Protection Agency will do more than set new fuel efficiency standards for cars. It will put a price on carbon. Within this historic climate change regulation is a powerful new way of thinking about greenhouse gas emissions: as costs that will borne by society. Burning oil in cars imposes a steep price tag, from dirtier air now, to more expensive flood insurance in a decade, to potential climate catastrophe for our grandchildren.

“The countries that move first to a low-carbon economy are definitely going to have a head start in terms of relative growth rates,” said J. Scott Holladay, an economics fellow at New York University School of Law’s Institute for Policy Integrity. “In the not-too-distant future there is going to be a huge market for green energy, and it feels like the Scandinavian countries and Germany are leading that charge, and China is quickly catching up. In the U.S., it doesn’t seem to be a huge policy priority.”

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.