What does the debt ceiling deal worked out this week mean for future climate change legislation? It’s no secret that cap-and-trade is dead in the proverbial water. The Center for American Progress (CAP) thinks that the debt ceiling deal “warmed up hopes for a carbon tax.” The reason is simple: the deal excluded revenue increases and tax code reforms which “means a grand bargain is still on the table.” CAP believes that Democrats will insist on revenue increases as part of the post elections debt ceiling deal.
In addition, Obama will have “have maximal leverage right after the 2012 election when the Bush tax cuts are poised to expire if no positive action is taken,” as a CAP post put it. Obama could trade the Bush tax cuts and the corporate tax rate reduction for a carbon tax.
When asked about a carbon tax during a 2007 interview with Grist, President Obama said, “a carbon tax accomplishes much of the same thing that a cap-and-trade program accomplishes.” However, he went on to say that one of the mistakes in the European Union system is that the “too many of those permits” are given away. “So as I roll out my proposals for a cap-and-trade system, I will price permits so that it has much of the same effect as a carbon tax.”
Not sure if a carbon tax will really reduce greenhouse gas emissions? Look at Sweden, which enacted a carbon tax in 1991. In 2009, Sweden’s greenhouse gas emissions were 17 percent below 1990 levels. The annual GDP growth rate in 2010 was 5.5 percent.
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