bottom up change

Check out On Point’s program yesterday for an interesting discussion of the cap-and-trade proposals to limit carbon emissions.

In this third post for Budget Week, I’m going to discuss some of the provisions in the 2010 Budget that deal with clean energy.  I want to explore how the spending in this area will help us transform our economy so that we achieve the “post-bubble” economy that President Obama has talked about.  The more I learn about green technology, the more I am starting to believe that the post-bubble economy will be a green energy economy.  Although it is almost becoming conventional wisdom by now, I do believe that the foundation for economic growth over the next several decades will be the new technologies we develop to avert the disastrous consequences of climate change.

Before I go any further, I hope I don’t need to convince anyone who reads this blog that climate change is real and that it’s threatening the future of the planet.  The evidence is almost indisputable at this point.  If you don’t have a solid grasp of climate change and you haven’t seen Al Gore’s film, An Inconvenient Truth, go rent it soon.  To read about Dr. James Hansen’s view that we only have 10 years to take bold action before it’s too late, check this out.  For those who don’t believe that climate change is real and a threat to the planet, nothing I could possibly say would convince you otherwise, so I won’t even try.

Again, my focus for this post is the connection between the clean energy proposals in the budget and building a new economy, so back to it.  There are many positive developments in the budget that will enable the US to change the ways that we produce and use energy.  Here are just a few of the spending commitments that the President seeks for the Department of Energy’s budget:

- Additional funding to the $1.6 billion in the stimulus for support of climate science through the Office of Science as well as an expansion in graduate fellowships in energy-related fields.

-  Loan guarantees to encourage the early adoption of renewable energy technologies.

-  Additional funding to the $3.4 billion in the stimulus for the development of low-carbon coal technologies.

-  Support for the President’s plan to modernize the electric grid, including the development and demonstration of smart grid technologies.

Taken together, the clean energy proposals in the budget would cost $150 billion over ten years.

If you haven’t heard much about these provisions as we’ve watched the budget discussions, there’s a reason for that.  President Obama proposed a cap and trade program in his speech to Congress on February 24, and he followed that up by including the program in his budget.

Cap and trade has been something that people concerned about carbon emissions and climate change have been wanting to see for a long time.  Here is how cap and trade is described by the Environmental Defense Fund:

Cap and trade is the most environmentally and economically sensible approach to controlling greenhouse gas emissions, the primary driver of global warming. It’s the policy solution rooted in the four principles of effective climate policy.

The “cap” sets a nationwide limit on emissions, which is lowered over time to reduce the amount of pollutants released into the atmosphere. The “trade” creates a market for carbon allowances, helping companies innovate in order meet, or come in under, their allocated limit.  The less they emit, the less they pay, so it is in their economic incentive to pollute less.

It’s worth noting that cap and trade is not viewed by everyone as the best way to control carbon emissions, since there are many proponents of a carbon tax.  In fact, I believe that we need to take much stronger action than President Obama is proposing with a cap and trade.  James Hansen made the case for even bolder action than is being proposed in his letter to Obama before the inauguration.  But it seems that with the current economic crisis, phasing out coal plants at this time is simply a non-starter.

In any case, a cap and trade system would be a major improvement over the status quo in decreasing carbon emissions and beginning to fight climate change more seriously.  It would create an incentive for companies to lower their emissions and a mechanism for reducing emissions over time.  In President Obama’s budget, cap and trade would not begin until 2012, so that utility companies would have time to prepare for the reduction in emissions.

Cap and trade would raise an enormous amount of revenue for the government.  That is because the government would sell “allowances” or “credits” to companies at a rate of $20 per ton of carbon emitted.  Here is the Wall Street Journal reporting that the Obama administration believes it may have underestimated the amount of revenue it could raise through cap and trade:

A top White House economic adviser told Senate staff a proposed cap and trade system could raise “two-to-three times” the administration’s existing $646 billion revenue estimate, according to five people at the meeting.

This could mean the cap and trade system could actually generate between roughly $1.3 trillion and $1.9 trillion between fiscal years 2012 and 2019.

Part of the revenue generated by this program would be used to cover the costs of the $150 billion in clean energy initiatives discussed above.  Another part of the revenue would go toward the Making Work Pay tax credit so that it becomes permanent.  Making Work Pay is the tax cut for 95 percent of working families that was included in the stimulus.  It is set to expire in two years.   Finally, some of the revenue from cap and trade would go to help people pay for any increases in the cost of utilities that results from the program.

The cap and trade provision has been a major sticking point for Congress this past week, and there is growing evidence that it will not be included by Congress in the final budget that is sent to Obama.  In fact, Obama may be resigning himself to this reality and choosing to make health care reform his primary battle for 2009.  There is simply a lot of resistance to a cap and trade among Democrats as well as Republicans, and the political will in the country seems to be lacking.  A new poll shows that for the first time in the 25 years that Gallup has asked the question, Americans now believe that economic growth takes precedence over protecting the environment:

Despite the gloomy reports that Congress may drop the cap and trade piece of the budget, Obama may be able to save it after all.  At his blog, Marc Ambinder discusses how the President could empower the EPA to regulate carbon emissions, thus forcing Congress to overrule the EPA with its own regulatory law.  This seems unlikely to me, but maybe Obama’s commitment to fighting climate change is stronger than we all think.  His rhetoric about a “planet in peril” during the campaign suggested that he is very serious about this issue.

It may make sense to wait a year before we tackle this extremely complicated issue.  Despite my belief that we have a short period of time to act, I don’t know if I’d go as far as Dr. Hansen in saying that we only have 10 years to close down the coal plants.  But I do believe we need to do something about climate change as soon as possible, and I hope that Congress keeps the other clean energy components of the President’s budget.  They are a second best option if we can’t get a cap and trade program this year.  We need to start investing in green technologies right away, and not just to avert a climate disaster, but to help build a new economic foundation.

The debate over the potential for green jobs is growing.  These are jobs in renewable energy fields such as wind, solar, and biodiesel.  For a great report on the various kinds of green jobs and how they might change the workforce in several states, check out this report by the Center for American Progress.  Some reports are not all that optimistic about the potential for green jobs to grow rapidly anytime soon.  For example, this piece in US News questions whether all the talk about green jobs is anything more than hype.  On the other hand, the New York Times reports that the Union of Concerned Scientists released a report this week showing that over 200,000 jobs could be created in clean electricity.  This could be accomplished by achieving a national standard for renewable electricity which would require making 25 percent of the electricity produced in the US based on clean sources, such as wind and solar energy.

I haven’t even discussed hybrid cars, electric cars, high speed rail, and ways that our transportation system is going to be changed over the next few decades.  There are clearly many industries that are going to be affected when we finally face up to the challenge of climate change.  If the public is more concerned about the economy than the environement right now, maybe President Obama needs to do a better job of connecting the two issues.  We may end up missing an opportunity with this year’s budget, but it is not clear how many more chances we will have to save “a planet in peril.”