The Great Debate

Cost of cap-and-trade for U.S. households

John Kemp

Dec 18, 2009 11:29 EST

– John Kemp is a Reuters columnist. The views expressed are his own –

How much are U.S. households prepared to pay to avert the threat of climate change? According to the latest polling data published by the Washington Post, the answer is not very much, probably not much more than $25 per month or $300 per year.

Most respondents (65 percent) believe the federal government should regulate greenhouse gases from sources like power plants, cars and factories, including those who believe this strongly (50 percent) or somewhat (15 percent). Only a minority think the government should not regulate them (29 percent).

While the margin favoring regulation has narrowed since the middle of the year (when it was 75 percent to 22 percent), probably in response to a vigorous opposition campaign, there is still a clear majority in favor of taking some action on climate change.

The problem is that, when respondents are confronted with a range of cost estimates, support starts to fall away rapidly.

When asked if they would be prepared to pay for a scheme that cut emissions significantly but raised monthly energy bills by $10, the 65-29 percent margin in favor of regulation shrank to just 60-37 percent. If the cost was $25 per month, the margin was just 55-42 percent.

The poll did not ask respondents about higher charges beyond $300 per year. But if support continues to fall away at this rate, survey respondents would probably not be prepared to pay more than $400 a year in total.

A stimulating energy policy

- Robert Engle is the Michael Armellino Professor of Finance at New York University Stern School of Business and a Nobel Laureate. His views are his own. -

We have faced energy crises before. The last energy crisis was about running out of oil. This one is about the fear that we might not. The future health of our planet is jeopardized by the greenhouse gases emitted by our industrial society. But can we afford an expensive energy policy in this time of economic distress?

The simplest and best solution to reducing emissions is thought by most economists to be a comprehensive tax on the emission of greenhouse gases. Only in this way will individuals and businesses that avoid the tax be doing what is socially desirable. Only in this way will it become profitable to find substitute energy sources; no longer would it be necessary to subsidize alternatives. The price of oil will rise naturally when we begin to run out, but in this proposal, the price would rise before we reach the bitter end. It is only a matter of timing.

However, a tax is generally considered politically impossible and in this time of deepening recession, it is especially unpalatable. But what about the money – what happens to the money that is raised by this tax? This revenue could be divided evenly among all U.S. residents and sent out in a periodic cheque. This check could even be sent before the tax revenue was received. A substantial emission tax would generate a substantial check. This could be used for anything but might well be used to buy a more fuel efficient car, insulate a house, move closer to work or otherwise reduce the impact of the impending tax.

Because this tax would be returned to consumers, it would stimulate the economy. The sectors that might expect benefits would be automobiles, construction and real estate. These all can use good news. Because of the per capita redistribution, this would be particularly beneficial to low income groups who would pay less than an equal share of the taxes. Because the tax would reduce our consumption of oil, we would be sending fewer petrodollars abroad and instead returning it to Americans.

We already know that high oil prices induced dramatic changes in our economic behavior which had clear benefits for reduced emissions. Driving miles fell, sales of SUVs fell and the only growth areas of automobile sales were in small cars. Housing prices fell more in the distant suburbs than in the central cities, and public transportation rider ship increased. But these gains are now being reversed as the price of oil has dropped dramatically.

First 100 Days: Obama’s first climate change target

– Mary D. Nichols is Chairman of the California Air Resources Board, the lead agency for implementing California’s landmark climate change law, the Global Warming Solutions Act of 2006. The views expressed are her own. –

After eight years of inaction on climate change by the federal government, we can now look forward to the Obama administration tackling global warming head on. With not a minute to lose, Lisa Jackson, the soon-to-be new head of the EPA, should move quickly to capitalize on the momentum of states that have so far been the leaders in fighting global warming. There is no better place to start than by establishing a national greenhouse gas emission standard for automobiles based on California’s landmark clean car law.

California has always been a pioneer in setting tough automobile emission standards. Our regulations paved the way for lead-free gas, the catalytic converter, and many other innovations that were later adopted as the national standard. As a result, we have eliminated 99 percent of harmful pollution pouring out of autos today compared to a 1960s era car, leading to clearer skies and cleaner air in our cities.

In 2002, California continued its track record of pioneering environmental legislation when it passed a law that directly addressed greenhouse gas emissions from cars. Personal vehicles produce 20 percent of the nation’s greenhouse gases, and so are increasingly being addressed by governments that are serious about averting catastrophic climate change. Thirteen other states have formally adopted and three states are considering adoption of California’s cost-effective and technologically doable program.

Indeed, the motivation is not only environmental – owners of these cars will save thousands of dollars over the vehicle’s life because cars that meet the standard are also likely to be more fuel efficient.

Together with California, these 16 states constitute almost half the country’s new vehicle sales, creating a huge market for the best that Detroit has to offer.

Despite these benefits, the EPA blocked California from enforcing its greenhouse gas emission standards for cars. It also delayed responding to the Supreme Court, which required that the EPA consider using the federal Clean Air Act to create a program similar to California’s program to reduce emissions from all the nation’s vehicles. Just last month, the outgoing administration failed to carry through on its promise to publish new CAFE rules – national fuel economy standards – as required by Congress.