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Public Works Financing

Keep the 2009 Reauthorization Focused on Transportation

Be wary of greenhouse gas reduction proposals

Robert Poole
December 1, 2008

Beyond the forthcoming stimulus bill, two major issues will consume a large amount of congressional time and effort in 2009: climate change legislation and reauthorization of the federal surface transportation program. These issues are closely related, and it's crucially important for transportation infrastructure that we get them right.

All sorts of ideas are being discussed for incorporating greenhouse gas (GHG) reduction into federal transportation policy. Among them are the following:

These attempts to micromanage transportation decisions are not only bad policy; they are also inconsistent with sensible attempts at addressing the climate-change problem.

I have discussed why such ideas are bad transportation policy in recent issues of my e-newsletter (which you can find at www.reason.org/surfacetransnews.shtml). For this column, I want to focus on why they are bad environmental policy.

The main focus of proposed climate change legislation is a cap & trade system, a version of which already exists in Europe for GHGs (and which was used successfully in this country to address both acid rain and lead in motor fuels). Cap & trade legislation was endorsed by presidential candidates Obama and McCain, and a bill to that effect passed the House but was killed in the Senate in 2008. The basic idea is quite simple. The federal government would define maximum levels of carbon emissions over time, and would auction off permits which companies would need in order to emit carbon at all. Those permits would be tradeable, allowing firms that can cut carbon emissions deeply at lower cost to sell surplus permits to those whose cutbacks would be very costly. So in principle, the idea is to create incentives for GHG reductions, without government having to micromanage the details of who emits what or uses which technologies.

In that simplicity and market-based nature, cap & trade is an alternative way of implementing a carbon tax, which would be a uniform national tax ($X per ton) on all carbon emissions. Politicians prefer cap & trade for two nominal reasons. First, they don't want to pass something called a tax, even if the impact of cap & trade on the price of energy would be the same as an equivalent carbon tax. Second, cap & trade is imposed only on business, not on individuals-again, a distinction without a difference.

But the real reason politicians prefer cap & trade is that it presents huge opportunities to play favorites with industries and trade associations. For several years now, various industries have been jockeying for position, making the case that they should get large numbers of carbon permits at no charge at the start of the program. Second, the auction revenues give elected officials potentially several trillion dollars (between now and 2050) to dole out to favored causes. A Wall Street Journal editorial ("Cap and Spend," June 2, 2008) detailed provisions of a House cap & trade bill that proposed spending (among other things) $190 billion on training people for "green-collar jobs," $288 billion for "wildlife adaptation," $171 billion for mass transit, and $213 billion to help carbon-intensive industries like steel and cement adjust to the new regime. That's the kind of horse-trading some transportation advocates want to participate in.

By contrast, a growing number of economists and environmentalists are coming to appreciate the benefits of a pure carbon tax approach. First, there would be no playing favorites about industries' starting positions. It wouldn't matter how little or how much they'd already done to reduce GHGs. All that matters is how much they emit from now on. Second, if the carbon tax were implemented as many now recommend, there would be no new revenue for Congress to allocate to favored causes, in hopes of micromanaging how electricity, transportation, manufacturing, homebuilding, etc. cope with GHG reduction. That's because the carbon tax would be designed to be revenue-neutral.

What has led people such as former Labor Secretary Robert Reich, environmentalist Bill McKibben, NASA scientist James Hansen, and even consumer advocate Ralph Nader to advocate a revenue-neutral carbon tax? It's the realization that an effective system to reduce GHGs via either cap & trade or a carbon tax would represent a huge increase in most people's cost of living-and that imposing such an increase will be politically impossible. So the best way to shift decisions about energy use from high carbon-intensity to low carbon-intensity is to tax carbon, but rebate 100% of the proceeds to American households.

After studying the GHG issue for several years, I've concluded that a revenue-neutral carbon tax is by far the least-bad approach to making the transition to a lower-carbon economy. It has the enormous virtue of making unnecessary the tens of thousands of rules and regulations that Congress and state legislatures would otherwise impose, trying everything they can think of (mandated VMT reductions, subsidies for this fuel or engine type rather than that one, misguided smart-growth mandates, etc.) to reduce GHG emissions, often at a cost of tens or hundreds of times more than the generally recognized benchmark of $50/ton of CO2 equivalents.

So my New Year's message to advocates of better transportation infrastructure is this. Oppose all GHG-related mandates in the surface transportation reauthorization legislation. Instead, get your company and your trade association on board in support of a revenue-neutral carbon tax.


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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