A politically inconvenient truth

Any serious effort to deal with global warming will raise the price of fossil fuels – substantially. That’s by design, because the only way to reduce greenhouse gas emissions is to drive up the cost of gasoline, electricity generated by coal, home heating oil and natural gas, so people will use less.

For obvious reasons, most environmentalists and supporters of climate change legislation would rather not talk about the costs of curbing climate change. Or, they argue that while the price for a gallon of gasoline or a kilowatt hour of electricity will go up, people’s actual costs need not increase because they can drive smaller cars or hybrids, insulate their homes, use more efficient appliances, etc. Hmm. That will eventually happen —it must, in fact—but wringing all that inefficiency out of the economy takes time, and the process could be painful.

Peter Barnes, an entrepreneur, writer and activist best known as one of the founders of Working Assets, says it’s time to confront this “politically inconvenient truth” and figure out what to do about it.

“One way or another, energy prices are going up, and there will be a huge impact on disposable income for middle-class people,” he says.

In his blog, Barnes cites a couple of studies to buttress his case. The nonpartisan Congressional Budget Office projects that the average American household would pay $1,160 a year in higher energy prices when carbon dioxide emissions are cut by 15%. A report from two economists at UMass Amherst says price increases per family will add up to quite a bit more, $1,570 a year when emissions are cut by just 7 percent. Remember—the bills now pending in Congress would gradually cut emissions by 60 to 80%, so we are talking big money here.

So what is to be done? Barnes offers a simple and elegant solution that he calls “cap-and-dividend.” Essentially, he wants to set a hard cap on greenhouse gas emissions, then auction to energy companies the right to emit CO2, and then rebate 100% of the proceeds to the American people. Last week, I met Barnes for coffee in Washington to talk about his plan.

Barnes, who is 65, earned a B.A. in history from Harvard, worked briefly as a newspaper and magazine reporter, and then started a worker-owned solar energy business. Working Assets began in the mid-1980s as a money-market fund, then morphed into a long-distance phone and credit card company that shares its revenues with activist groups like Amnesty International and Greenpeace. “I’ve always worked on the cusp between markets and ecology and social justice,” says Barnes.

In some ways, Barnes’ plan is similar to those being considered by Congress, notably the Warner-Lieberman climate change bill that is headed, in theory, for the Senate floor. All set caps on emissions and allow companies to trade their emissions credits. His proposal differs, though, in two key respects from others.

First, Barnes wants the government to auction 100% of the permits allowing companies to emit carbon into the atmosphere. Most of the current bills would auction some permits and allocate others to energy companies, based historical usage; an allocation would, in theory, cushion the economy against higher energy prices.

But Barnes says: “We’re talking about rights to use a scarce, common resource—the atmosphere. To just give away free property rights to polluting corporations just because they polluted in the past—it’s unconscionable.” To be sure, common resources have been given away in the past—land for railroads, spectrum for radio and television broadcasters—but in those cases, companies getting something from the government promised to deliver value in return. (Like Amtrak or American Idol.) “Here we’re giving up something for nothing,” Barnes says. “It makes no sense.”

Second, while most of the bills before Congress would use whatever revenues came from auctions to “invest” in renewable energy or help poor or middle class people pay for energy, Barnes favors a simple rebate instead. He doesn’t trust the government to spend the money wisely, saying Congress is likely to subsidize politically popular alternatives like corn-based ethanol, and that renewables like wind and solar will soon be competitive with coal, without the need for subsidies.

He’d prefer to have Uncle Sam write checks, for the same amount, to each person in America, just as Alaska shares its oil tax revenues with all state residents. That would reward people who use less energy. “It’s progressive,” Barnes explains. “A low income person who is living in a small apartment and taking public transportation to work will get more back in dividends that he or she spends on higher energy prices. They’ll come out ahead.”
But why send rebate checks to the rich, too? In part, Barnes says, it’s a question of fairness, since we all own the atmosphere in common. Companies that pay for the right to emit should pay everyone.

Politically, he says, it will be easier to win support for cap-and-dividend if everyone stands to gain. “It’s like Social Security,” he says. “In theory, rich people should needn’t Social Security. But it has broad political support because it’s universal.”

Barnes was visiting Washington and New York to try to win political support for cap-and-dividend. He’s getting lots of attention. Andy Refkin of The New York Times blogged about it here and Joe Romm argued against it here. Barnes has written a short book on the topic called Climate Solutions that will be published this spring, and as well as a citizens guide to climate policy that can be downloaded here. The issue’s not simple. But getting the economics right could be, quite literally, a matter of life and death.