What We Need from a National Energy Policy

The Case for a Carbon Tax to Fund Promising Energy R&D

In a season of record-high gas prices, economic instability, and a solidifying consensus that climate change is due to greenhouse gases, there has been much talk of a “price on carbon” in order to penalize carbon dioxide emitters and incentivize new, clean energy technologies. Massachusetts has decided to respond by becoming a part of the Regional Greenhouse Gas Initiative, ­— “RGGI”, affectionately pronounced “Reggie” — a regional “cap-and-trade” program designed to promote renewable technology. RGGI does this by requiring permits for carbon dioxide pollution in the electrical sector. Both presidential candidates McCain and Obama have proposed similar regulation on the federal level, and other regional carbon markets are sprouting up throughout the country.

I just got back from spending the summer at the Department of Energy as an intern, and there I got a chance to talk to government analysts and to attend hearings on Capitol Hill. And while all the activity regarding greenhouse gas regulation is encouraging, I’ve found that there are still potential pitfalls severe enough that they could greatly weaken the effects that legislators and citizens are seeking.

First, any regulation should look to control greenhouse gas emissions in all sectors, not just the electricity industry as RGGI does. RGGI is a mere baby step toward larger, economy-wide greenhouse gas regulation. Now that such comprehensive legislation has already begun to be seriously considered in Congress (Warner-Lieberman Climate Security Act), RGGI is looking antiquated. This was no more apparent than when the Canadian province of Ontario, a neighbor of the RGGI states, decided to enter into the Western Climate Initiative with its potentially stronger and broader regulation instead of the RGGI. RGGI was once a leading organization in mitigating climate change, but it is already looking to be a relic of a fast-moving political environment.

Second, permits should absolutely be auctioned off to the highest bidders. Wondering why you saw slick and sophisticated energy advertisements during the Olympics? It wasn’t just because gas prices are going through the roof. It was the electric, oil and natural gas industry trying to get into your good graces so that they can grab as many permits as they can if and when national greenhouse gas regulation come online. (It was also the wind and solar industry trying to get the renewable energy tax credit extended, though for good reason.) Now just wait until after the election for the full-on ad blitz.

Third, any incoming revenue from regulation should be applied toward clean energy development. Taking the money from the sale of permits and applying it — all of it — toward research and commercialization of new technologies would solve two problems at once. For one, cleaner and more desirable technologies will enter into the market more quickly and more affordably. Second, the allocation of polluter payments toward such research will generate jobs that could lift and support our economy for decades to come. Barack Obama and Mass. Governor Deval Patrick have already made these hallmarks of their respective energy platforms.

However, this dual purpose can only be realized if emissions permits are auctioned and all of the proceeds go to technology R&D. Right now, legislators are chomping at the bit to get the potentially trillions of dollars in revenue, hoping to fund everything from Social Security to paying down the national debt. With global climate change already going to be such a severe and costly problem, this kind of money distribution is myopic and disastrous. Perhaps an enlightened congressman will see fit to do for carbon legislation what is done for highway revenues: dedicate revenues to a trust fund that can only be used for its stated purpose — in this case clean energy R&D.

Finally, while the political conversation has been focused on cap-and-trade legislation, the idea of a carbon tax should be re-examined. Cap-and-trade is politically feasible merely because it doesn’t contain the “T word,” which is so often anathema to voters and Republicans. However, a tax is simpler, contains less administrative overhead, and makes the cost of pollution more certain. Even Energy Department fossil fuel analysts I’ve talked to believe a carbon tax is superior to cap-and-trade. The political realities, however, mean that we’ll almost never hear of a “carbon tax” during this campaign year except as pejorative. Obama has already proposed cap-and-trade regulation instead of a tax. Here’s hoping that, if he’s elected, that’s one campaign promise he’ll break.

Gary Shu is a graduate student in the Engineering Systems Division.