SOCIAL STUDIES

Bush Can Still Play a Green Card

A carbon tax is relatively straightforward. Raise the tax, reduce the emissions. The higher the tax, the more competitive alternative-energy sources become.

by Jonathan Rauch

Sat. May 31, 2008


Republicans yelled Mayday this May, after losing a congressional special election in what has long been a solidly GOP district in Mississippi. For good reason: Their brand has become toxic. If Republicans were dog food, as retiring Rep. Tom Davis, R-Va., recently told E.J. Dionne Jr. of The Washington Post, "they'd take us off the shelf and put us in a landfill."

Meanwhile, the party's two national leaders, President Bush and Sen. John McCain of Arizona, were promising more of the same in Iraq, ignoring the economy and health care coverage, hawking tax cuts for which the public showed no appetite, and equating diplomacy with appeasement.

Hey, good luck with that, guys.

House Republicans reacted more introspectively, setting up a special meeting, according to The New York Times, "to air their views on a new policy platform and share ideas on how to define themselves to better advantage." Here is an idea that they, and President Bush, might want to consider: a revenue-neutral carbon tax.

When he first ran for the presidency in 2000, Bush presented himself as a warm-hearted innovator, a far cry from the flinty curmudgeon he would become. Among his promises was to limit power plants' carbon dioxide emissions. An early turning point in his presidency came in 2001, when he repudiated that promise while also formally renouncing the Kyoto climate treaty.

Both decisions were justifiable on policy grounds, but the opinion polls flashed red. The public disapproved of the Kyoto withdrawal by a ratio of 2-to-1, and of the CO2 decision by a walloping 3-to-1. Even Republicans disapproved.

Bush then made what proved to be a lasting mistake: He failed to propose credible alternatives. The result was to define the GOP as the party of environmental obstructionism, and to define Bush as Dick Cheney.

The most famous Republican dissenter was McCain, who in 2003 co-sponsored legislation limiting CO2 emissions. He has brought that stand with him to the presidential campaign. "Time is short and the dangers are great," he said in a May 12 speech on global warming.

This stance may help him in the fall, and it certainly separates him from Bush. The problem is that McCain does not speak for the Republican base, and everyone knows it. McCain can distance himself from the Republicans' environmental image, but he is not well positioned to repair it.

At a Republican congressional retreat in February 2006, Rep. Bob Inglis of South Carolina approached Bush and suggested a change of course. His pitch was that accumulating scientific evidence warrants action on CO2 emissions and that, as he said in a recent interview, "conservatives have much to offer here." By putting a price on carbon emissions instead of using command-and-control regulation, conservatives could turn the greenhouse-gas problem into a showcase for market-based solutions.

"Especially for young folks," Inglis said, "environmental protection is a value with them, not an issue. You don't want to get on the wrong side of future voters. We want to be leading with market principles, showing solutions that really work. If we do that, I think we can attract voters of all age groups, especially younger voters who don't have much confidence in Big Government."

Bush's reaction? "He seemed to take it in. He seemed to understand," Inglis said. But nothing happened. Inglis has had the same conversation with Vice President Cheney, "but I didn't see the lights go on." This year, when word got out that Bush might be considering endorsing CO2 limits, conservatives shot the idea down. (See NJ, 5/17/08, p. 20.)

Partly that was because conservatives are wary of what's known as cap-and-trade, which was embraced in Kyoto and has since established itself as the politically correct way to control carbon. The government would distribute tradable quotas on greenhouse-gas emissions. The quotas would limit emissions; the trading would help to ensure that reductions were made efficiently.

Republicans' wariness, however, is justified. Quotas create artificial scarcity, which can lead to sharp price fluctuations. "If you have a cap on emissions and you have a summer which is unexpectedly hot or the economy grows faster than expected, the price of those permits soars," says Robert J. Shapiro, a Washington-based economist and the author of Futurecast: How Superpowers, Populations, and Globalization Will Change the Way You Live and Work.

"It introduces the prospect of enormous national-level volatility in energy prices," says Shapiro, who served in the Clinton administration's Commerce Department. Distributing quotas, moreover, invites political logrolling and favoritism. Trading them requires setting up large new markets and giving traders a cut.

By comparison, a carbon tax is relatively straightforward. Raise the tax, reduce the emissions. The higher the tax, the more competitive alternative-energy sources become. Artificial scarcity and price volatility are not problems.

True, cap-and-trade can be set up to mimic a tax, but this is not easy to do. You need to auction quotas instead of giving them away (controversial among conservatives), place upper and lower limits on the quota price (controversial among environmentalists), and allow lending and borrowing of quotas. Raise your hand if you believe that Washington will get all of that right. Even if it did, the result, as the Congressional Budget Office noted in a recent report, would still be "somewhat less efficient than a tax."

"There's no economic saving under cap-and-trade; there are only additional economic costs," Shapiro says. "Its only advantage is, it's not called a tax, so the public will not perceive that it costs anything." Of course, the public will sooner or later discover the truth. Then, says Shapiro, "you could have a very strong adverse reaction that could cripple it."

A carbon tax has one further advantage: If it were revenue-neutral, the proceeds could be recycled to reduce taxes on labor and capital. This would embody classic supply-side doctrine: cut taxes on things we want more of (work effort, business productivity); raise taxes on things we want less of (greenhouse gases, dependence on oil).

Analysts at the American Enterprise Institute, a place with unimpeachable conservative credentials, have been promoting this idea for several years now. AEI's David Frum, a commentator and former Bush speechwriter, features it prominently in his recent book Comeback: Conservatism That Can Win Again. (Memo to conservatives: Read this.)

So far, however, the idea has remained a political orphan. Liberals prefer command-and-control regulation. Conservatives hate anything called a tax. McCain and both of the Democratic presidential candidates, Sens. Hillary Rodham Clinton and Barack Obama, support cap-and-trade. The leading cap-and-trade bill, sponsored by Sens. Joe Lieberman, ID-Conn., and John Warner, R-Va., may win passage in the Senate in June, giving the idea further momentum. Unless someone puts a revenue-neutral carbon tax on the agenda soon, it may never get a hearing.

Who might such a someone be? Ideally, he would be president, thus commanding the national stage. He would be on his way out of office, free to be bold. He would be a card-carrying conservative whose advocacy could move the Republican base. He would be in need of a dramatic stroke to repair his reputation, for his own sake and his party's. Anyone come to mind?

No carbon tax will get through Congress while Bush is in office, but that is not the point. By proposing one, Bush could shatter the tax taboo, reposition his party, and give a good policy a fighting chance. The Senate debate on the Lieberman-Warner bill would frame an announcement nicely.

Anti-tax conservatives will protest that Congress might hoard rather than recycle carbon-tax revenues. They forget that cap-and-trade also offers the potential for a large federal windfall because Washington would auction off emissions quotas worth many billions of dollars. In April, CBO estimated that the Lieberman-Warner bill would increase both federal revenues and spending by $1.2 trillion over 10 years, a sizable increase in the size of government. This is the policy track if Bush and conservatives continue to sit on their hands. If anything, a tax is less prone to abuse than quotas because it's more transparent.

Time is running out for the stalling strategy. If conservatives do not move soon on global warming, they may miss the opportunity to offer a pro-environment, pro-growth, pro-market alternative to carbon quotas. Bush could tee one up for them. In doing so, he could undo on his way out some of the damage to his party's brand that he did on his way in.

Or he could stand pat and send Cheney out to campaign. Look how well it worked in Mississippi.

  •  
  •