As Barack Obama’s signature health insurance program implodes, some observers are speculating that regulatory action on climate change could afford the beleaguered president a second chance at establishing an enduring policy legacy. Unfortunately, Obama’s climate policies, like his health care policies, highlight his fondness for centralized economic planning.
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The president unveiled his “new national climate action plan” at Georgetown University last June. The plan aims to cut U.S. greenhouse gas emissions by 2020 to 17 percent below their 2005 levels. In his speech, the president noted that he had urged Congress to adopt a “bipartisan, market-based solution to climate change.” But he also said he wasn’t going wait for Congress to act, so outlined what amounts to a kind of Climate Five-Year Plan, setting limits on greenhouse gas emissions at home while pursuing efforts abroad to reach “a new global agreement to reduce carbon pollution through concrete action.”
To get some idea of the kind of climate change legacy President Obama might yearn for, let’s take a look back at what his proposals were before the friction of actual governance stymied his plans. Back in 2008, then-candidate Obama offered up a “plan to combat climate change and create a green economy,” the goal of which was to cut U.S. greenhouse gas emissions by 80 percent by 2050. At the center of his plan was a cap-and-trade system that would have required that 100 percent of permits covering all greenhouse emissions be auctioned off. What might the price for each ton of greenhouse gas have been, and how would it affect the way Americans live?
To get handle on this question, consider the calculations the administration did last May to compute the social cost of carbon—that is, the harms of climate change caused by the emissions of greenhouse gases, chiefly carbon dioxide produced by burning fossil fuels. The Interagency Working Group on the Social Cost of Carbon reported various values for the social cost of carbon in 2015, ranging from $12 to $109 per ton. To get a rough idea of the total cost to the U.S. economy, let’s use the $58 per ton cost as a possible auction price.
According to the Environmental Protection Agency, the U.S. emitted the equivalent of 6.7 billion tons of carbon dioxide in 2011. Auctioning off permits for that amount of emissions would yield about $388 billion in revenues per year. For comparison, federal individual income tax revenues in 2012 amounted to $1.1 trillion. The original Obama Climate Plan did not swap the carbon taxes out for other taxes, such as individual or corporate income taxes, but would instead used them to fund clean-energy and energy-efficiency projects and to help lower income Americans to pay for the resulting higher energy costs. While such a tax would reduce carbon dioxide emissions, simply piling it onto existing taxes would further distort markets and reduce overall economic efficiency and competitiveness.
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