McCain gave a major policy speech on climate change yesterday. Politically, we might consider this a lower bound on potential federal action next year, so here is a rough assessment of its hits and misses.
1. Sizing up the problem: McCain is forthright on much of the science of climate change. He recognizes it is happening now and is likely to intensify, that human alterations of the carbon cycle are responsible, and that it is imperative to reverse this trend. To put it mildly, this constitutes a big shift away from the doctrine that currently rules Washington. He can be faulted, however, for failing to draw attention to the very real threat of catastrophic climate change Weitzman, among others, has been calling attention to.
2. Mitigation: Many of the consequences of climate change, like sea level rise and disruptive changes in precipitation patterns, are already in the pipeline. McCain recognizes this and accepts a federal role for helping communities defend and cope. I give him credit for this.
3. Instituting a carbon cap: McCain, as he has for several years, endorses a nationwide carbon cap. He is a bit vague on how far upstream he would impose it. This is a rather wonkish topic for a campaign speech, but it has a lot of practical importance: the further upstream the cap, the less scope there is for playing politics with coverage.
4. Emissions target: McCain wants a 60% reduction by 2050. Mainstream opinion, reflected in the Clinton and Obama proposals, targets an 80% reduction, and even this may not be enough in light of the evolving understanding of positive feedback mechanisms in global carbon cycling. In my opinion, however, this is the least significant shortcoming of McCain, since the cap mechanism would readily enable progressive tightening as the political will materializes.
5. Offsets: This is a big problem. McCain headlines his enthusiasm for offsets, suggesting that 40% of the emissions target can be reached simply by trading off for carbon sequestration in domestic farmland. Despite his assurances, it is highly unlikely that offsets will achieve true additionality, not to mention the still uncertain state of our understanding of long run carbon cycling in forests, farms and soils. In my opinion, one should deduct the amount of offsetting allowed to estimate the true cap. If McCain will accept offsets up to, say, 50% of his cap, he is guaranteeing a reduction of no more than 30% by 2050. Obama and Clinton, by contrast, eschew offsets. And offsetting is a political nightmare, dangling billions of dollars in manufactured profits in front of business interests and creating the biggest rent-seeking operation in human history.
6. Allocation: This is another big problem. McCain will simply give away all the permits at the beginning, and in his speech he offers only the vaguest of promises that some portion will be auctioned in the future. Every citizen should know that a cap will causes consumer prices to rise for carbon-intensive products, and if producers get the permits for free they keep the difference. Giving out permits is giving out profits. Every permit should be auctioned from the get-go, and Clinton and Obama are both in accord with this principle.
7. Recycling: If some of the permits are eventually auctioned, McCain would have the government keep the revenue and use it to make infrastructure and other investments. It is easy to see the rationale for this approach, but it is nevertheless a mistake. As much of the revenue as possible should be recycled to households. There are three reasons for this. First, the price increases resulting from the cap will take the form of a highly regressive sales tax, hitting low-income families the hardest. This effect needs to be countered by progressive recycling. Second, the price increase, like any tax, will have a depressive effect on the economy. In theory, if the government could spend the money as fast as it takes it in there would be no problem, but experience shows this is difficult to achieve. It is better to reinject it back into households. Finally, we are talking about a concentrated effort that will have to continue for over 40 years—at least two generations, without so much as a pause. To make the political support for a rigorous climate policy bulletproof, household incomes have to be protected. The climate plan of the future has to be like Social Security, so financially beneficial for so many people that its most rabid ideological opponents will not be able to dent it.
8. Border adjustment: McCain explicitly supports a carbon adjustment tax to prevent leakage via international trade. This is a necessary and important feature.
9. Nuclear energy: A lot of environmentalists are going to focus their ire specifically on McCain’s enthusiastic support for the nuclear option. At the risk of alienating all of my green friends, and the green half of my own brain, in light of the extraordinary risks of catastrophic climate change I think nuclear power has to be given an unbiased look. On the other hand, if it is to have a future, it must be one that does not depend on artificial subsidies, such as the Price-Anderson cap on liability and the failure to safely close the fuel cycle.
10. Regulation and public investment. McCain talks as though, once we’ve set the right price signals via a carbon cap, the magic of the marketplace will take care of the rest. Would that it were so. For better or worse, however, a nationwide cap will require complementary policies at all levels to make adjustment smoother and more manageable. Fuel, appliance, and construction standards will all have to be raised. Government will have to make large investments in research and development. Above all, we need a crash program in new, energy-saving infrastructure in our electrical grid and especially mass transit. These policies are not alternatives to a cap: they make it possible to meet the goals of the cap without bringing the economy to a standstill. Because the investment portion of this program will not begin to pay off for several years after it begins, there is a strong case for starting it before the cap goes live.
So here is my overall assessment: McCain’s approach represents a real improvement in some respects, but it falls far short in others. I’m not worried about the weak target; we can fix that as the need becomes clearer. The permit giveaway and the offsets are much worse, because they will create powerful constituencies determined to keep the spigot open and flowing. Failure to recycle will poison the political climate, creating the impression that to be for a responsible climate policy is to be against the living standards of working class America. And we can’t afford further delay on the wide range of regulations and investments we need to make a carbon cap succeed.
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