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Business Costs & Regulation

Carbon Plan is Juicy But Problematic GOP Target

Republicans have been harshly critical of the tax hikes President Obama is proposing to reduce the deficit and pay for a broad variety of programs, but his proposal for raising revenue with a cap and trade program for carbon fuels is being singled out for special scorn.

Republicans have been harshly critical of the tax hikes President Obama is proposing to reduce the deficit and pay for a broad variety of programs, but his proposal for raising revenue with a cap and trade program for carbon fuels is being singled out for special scorn. There's a reason for that -- it's a fight the GOP could win, at least in the short term.

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Obama's budget projects that a program for selling credits to companies that surpass a proposed limit on the amount of greenhouse gasses would raise $646 billion between 2012 and 2019. About a quarter of that would be used to finance clean energy RD projects and the rest would pay for tax cuts for lower-income and middle-class workers. Republicans argue -- correctly -- that the tax breaks will only offset some of the likely increases in energy prices that will result as businesses pass on their additional costs.

From a purely fiscal and political point of view, the issue is a rare bright spot for Republican strategists. Americans are sensitive about energy prices and taxes. One of the few issues that Republicans gained traction on during last year's presidential and congressional campaigns was the cry of "drill, baby, drill" as gas prices hit their peak and their push to end the ban on offshore oil drilling was nearly successful. So Republican attacks on cap and trade as a "hidden energy tax" could resonate widely. Democratic moderates from oil states and Democrats who fear the tax breaks won't do enough to protect taxpayers could easily tip the balance and do the idea in.

But Republicans have a serious problem that goes at the heart of the debate tearing the party apart right now: Is it going to simply play the role of naysayer or is it going to become a party of ideas and try to tackle problems that affect Americans of all ideological stripes? In other words, if they succeed in killing cap and trade, then what?

A decade ago the country was unwilling to sign on to the Kyoto climate change agreement because of fears that doing so would hurt the economy and U.S. competitiveness in the name of a problem that many people weren't sure existed. But global warming and the need to address it are now widely accepted, and the policy question facing the world is not whether to move aggressively to curb emissions, but how. A global summit is being held in December to begin hammering out an agreement. Obama hopes his cap and trade proposal will be approved before that so the United States can arrive as a committed leader, not a bystander.

Even business, which has long opposed limits on the emission of carbon dioxide, is beginning to accept the inevitability of the idea. Many companies are warming up to the national cap and trade concept because they find it preferable to a patchwork of rules emerging from states acting on their own. In fact, many businesses are acting now to curb emissions to make it easier to comply down the road. Many also see reducing their carbon footprint as not just good financial sense, but as responsible corporate citizenship.

So if Republicans want to shoot down the cap and trade idea, they need to think through what will happen afterwards and what option they prefer. Given that there is virtually no scheme that won't increase the price of energy -- in fact, the goal of any strategy is to somehow make the use of carbon-based energy costly so it will be used more sparingly -- that won't be easy. If Republicans can't come up with an answer, killing cap and trade is  simply kicking the can further down the road and reinforcing the notion that all the party cares about is taxes and obstruction.

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