With Cap-and-Trade DOA in the Senate, What Are the Alternatives?

All eyes were on the Obama administration's 2011 budget proposal on Monday, and there was no shortage of speculation on what it meant for energy and environmental policy. There’s some good stuff in there and some not so good stuff. But when it comes to the projected revenue from cap-and-trade legislation all this budget proposal contains is a "placeholder."

The most encouraging items in the budget proposal are funding for the EPA to implement regulations of greenhouse gas emissions and a rather ambitious plan to strip nearly $40 billion worth of subsidies from fossil fuels industries.

But the lack of cap-and-trade revenue is a grim indicator. In the 2010 budget, the administration had projected revenue from cap-and-trade of $79 billion by 2012 and $83 billion by 2019.

The idea then was that 100 percent of carbon credits were to be auctioned off, allowing the Obama Administration to use some 80 percent of the revenues to pay for a middle class tax cut that would offset rising energy costs. We were already forced to give up on that idea back when conservative Democrats negotiated with coal companies to give away a majority of carbon credits.

Now, according to Kate Sheppard, the Obama Administration might be giving up on cap-and-trade altogether. The proposal notes that it will "work to enact and implement a comprehensive market-based policy that will reduce greenhouse gas emissions in the range of 17 percent in 2020 and more than 80 percent by 2050." Which, as Grist puts it, translates as follows: "Since nobody, including the administration, knows what a final bill might look like or how much revenue might be generated or how much of that revenue might go into the Treasury, they decided to just punt."

The conventional wisdom at this point certainly holds that cap-and-trade has no future in the Senate. But that doesn’t mean that climate legislation is necessarily DOA in the upper body of Congress. In fact, two Senators – Maria Cantwell (D-WA) and Susan Collins (R-ME) – have released a draft bill based on the idea of “cap-and-dividend.” This proposal would cap carbon emissions and auction off carbon credits in much the same manner that cap-and-trade would, but the revenues from the auction of the credits would go straight back to you and me in the form of dividend checks cut to tax-paying citizens.

Cap-and-dividend is not looked upon favorably by some environmentalists, however, most notably Joe Romm, who has labeled it “cap-and-divide” over on his blog. On the other hand, Bill McKibben and my former boss, Jon Passacantando, have written in on the comments of Romm’s post and are generally supportive of exploring the idea behind cap-and-dividend. A lively debate on the merits of taking the cap-and-dividend approach has ensued, and it's well worth checking out.

The only thing that’s really clear at this point: If cap-and-trade is all but dead on the Senate floor, and the environmental movement has yet to produce an alternative behind which to unite, it’s a damn good thing the Obama Administration is factoring money for EPA regulation of greenhouse gas emissions into its budget.

Grist offers a good overall rundown of the budget's major implications for energy and environmental policy.

Photo credit: peasap