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Carbon Price Essential if “Green” Stimulus to Have Desired Effect, Experts Say

| Tuesday December 16th, 2008 | 0 Comments

retaking_rationality.jpg When it comes to making the transition to a “green,” low carbon economy, government stimulus plans are doubly beneficial, but public sector investment and spending alone will not be enough to spur decisive action and a long-term commitment. Nor will President-elect Obama’s plan to spend $15 billion a year over 10 years alone be sufficient to generate 5 million jobs, according to an economist, a regulatory expert and a business leader, the three of whom came together and held a press conference today to advocate establishing a carbon price and an emissions cap-and-dividend, in contrast to a straight cap-and-trade, system.
The missing ingredient when it comes to government “green” economic stimulus is a method and system that establishes a price on carbon emissions, they assert. “Government stimulus alone isn’t enough, especially over the long-term…They’re going to need to energize investors and capital markets and that means sending strong, clear and consistent price signals to industry and market participants,” James K. Boyce, University of Massachusetts Amherst economics professor and director of the energy and environment program at the Political Economy Research Institute, stated.
The combination of government stimulus and sending clear price signals to industry, markets and investors is needed to draw in capital and resources from the private sector, and they are absolutely necessary to build and maintain sufficient mass and momentum for any such endeavor.
In their preferred, politically pragmatic scenario, this would be through a cap-and-dividend system or slight variant thereof, maintain Boyce, Michael A. Livermore, executive director of New York University School of Law’s Institute for Policy Integrity and Peter Barnes, entrepreneur and founder of “socially responsible” phone company Working Assets.

reclaimingnature.gif Emission Allowance Auctions Yield Investment Funds, Taxpayer Distributions
Auctioning off, rather than giving away, carbon emission allowances or credits to emitters is another essential aspect of the system the three envision. This would raise the necessary revenues – anywhere from $200-$300 billion per year if research study results are accurate.
Removing subsidies for fossil fuels – which doesn’t make sense if you’re trying to spur transition to a low carbon society, they pointed out – would add to the total available. One large portion of this pool of earmarked funds would then be invested in renewable energy and fuel projects all along the value chain. Another portion would be distributed to taxpayers equally, and be of sufficient size to have a noticeable impact on individuals’ wallets and purses, the three said.
This would translate into higher energy costs – power and fuel – and that would hit the poorer proportionally harder than the richer, it was noted. Offsetting this regressive aspect of the plan, as well as achieving revenue neutrality, Boyce noted, is the fact that every taxpayer would receive the same amount as a carbon dividend, so the poorer stand to gain more on the receiving end.
According to simulations, some 60% of the taxpaying population would come out even or ahead if such a system were put in place, according to Boyce. The larger burden would be felt by the rich, who by virtue of having more money, consume much more in the way of energy resources than the poorer. Hence, they’d be paying more in absolute, if not percentage, terms. “It’s really only the top tier that would be worse off, but you must redistribute the revenue produced from auctioning the permits, recycle it on a per capita basis,” Boyce emphasized.
Boyce and Livermore believe that people living in regions of the country where fossil fuel exploration, extraction and processing are high will be those hardest hit. They suggested allocating a modest, additional percentage of carbon auction revenues, declining over time, to help people and economies in these regions adjust.
Though growing rapidly now, alternative energy and fuel projects were all but nil not long ago, and it’s been a sector of under-investment for decades. Moreover, the market price of energy and fuel is distorted in favor of fossil fuels, the experts maintain, as they do not reflect the cost to society of increasing carbon emissions.
That’s why setting a price on carbon needs to be a critical component of any “green” economy stimulus plan the government contemplates, they continued. The aim of establishing a price on carbon is to get the prices [of energy resources] right, to realign the price signals…Current prices are distorted by not taking account of carbon emissions,” Boyce commented.
The cap-and-dividend plan they advocate resembles Feasta’s concept of instituting “cap-and-share” systems globally.
Why not simply a carbon tax then, an alternative even Exxon-Mobil chairman and CEO Rex Tillerson said he favored just the other day? Well, the short, simple answer is that the “t” word is never very palatable for politicians, much less so now given the unprecedented scale and scope of the financial crisis and budding recession.
A third, “hybrid” option exists, Boyce proposed, whereby carbon emission permits would be issued, capped and paid for by emitters but wouldn’t be traded. “You don’t have to have trading…The amount of carbon would still be fixed and paid for; if people needed more permits they could bid for more permits…There’s no particular reason carbon permits have to be tradable, if they are auctioned.”


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