Senate Republicans Outflank Dems on Climate

Cross posted from Prometheus: The Science Policy Blog

As I mentioned yesterday, some stark political lines are being drawn in the Senate on cap and trade legislation. The Thune Amendment had 89 members of the Senate going on record opposing any increases to electricity or gasoline prices as a result of cap and trade legislation. In the Senate yesterday another important amendment to the Budget Resolution was approved unanimously, 98-0, sponsored by Senator Ensign (R-NV), chair of the Republican Policy Committee. Here is its text:

To protect middle-income taxpayers from tax increases by providing a point of order against legislation that increase taxes on them, including taxes that arise, directly or indirectly, from Federal revenues derived from climate change or similar legislation.

What does this amendment mean?

It means that money raised from cap and trade (or even a carbon tax) cannot lead to a net increase in the overall tax burden on the "middle class." What is "middle class"? According to Senator Ensign in a press release trumpeting the amendment, it includes those households earning less than $250,000 per year. Senator Ensign cites the President on this point, referring back to his campaign promises not to raise taxes on this group.

Politically and practically, this amendment could then mean that proponents of cap and trade will need to pursue an explicit "cap and dividend" approach with any such policy being tax neutral for those earning less than $250,000 per year. In other words, the costs of cap and trade will have to be fully borne by those earning above $250,000 per year. Some of the challenges of the distributional effects of cap and trade are discussed in recent CBO testimony (PDF). Whether or not legislation can be written that allows supporters to claim to have met the spirit of the Ensign Amendment, it is clear that the Amendment makes the political challenge that much more difficult.

Another option to avoid the tax increase provision would be for the government to give away emissions allowances, rather than auction them. The Obama Administration has voiced its opposition to such a strategy, However, you can be sure that industry would not object to such a windfall. Here again, whether or not such a strategy could be successful politically, it makes the challenge that much more difficult.

The current strategy of Republicans (and indeed those Democrats) opposed to cap and trade now seems clear. They are forcing supporters to take a position on politically sensitive issues like the costs of energy and taxes. Taking such positions creates political liabilities that can be exploited as soon as the 2010 elections if cap and trade legislation results in higher energy costs or in increased taxes. In politics, it does not matter if one can rationalize a change in view or votes at different points in time that actually or only appear to contradict (reference: John Kerry, 2004).

What we are seeing is Politics 101 and opponents to cap and trade are currently using this tried and true strategy to rout cap and trade supporters. It is not even close. Proponents of action on climate change should be asking themselves, when is it time to go to Plan B?