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cap and trade, deficit, climate change


Pending legislation to address carbon emissions would include large subsidies for existing emitters. These subsidies make little sense economically or politically. Worse, they divert resources needed to address two crucial issues that the proposed legislation largely ignores: the impact of raising carbon costs on low-income people and the massive structural federal deficit. A carbon tax or cap-and-trade system would increase costs substantially not only for transportation but for food and housing. With poverty rising even before the current economic downturn, these price increases’ consequences could be dire. The structural deficit will require deflationary tax increases or spending cuts. Combining carbon regulation with these measures could do severe damage. Although few challenge their merits, these proposals may nonetheless fail if a consensus emerges that they are extraneous to climate change legislation. Overly complex legislation often does bog down, and we lack coherent normative principles for “issue joinder” in public policy debates. Such principles can be derived and counsel addressing both low-income subsidies and deficit reduction as part of climate change legislation. Another challenge is finding efficient means to deliver subsidies without disrupting incentives to conserve. Energy companies are likely to divert proposed allocations for this purpose to writing off bad debt. Funding energy assistance programs similarly will crowd out existing resources. Prior piecemeal efforts to address high energy costs provide invaluable lessons on designing a system to offset rising carbon costs without distorting consumers’ incentives. The large majority of proceeds not needed for low-income subsidies should be reserved for deficit reduction.


Environmental Law | Law and Economics | Legislation | Social Welfare Law