Debt deal, promising energy budget cuts, appears to chill hopes for a carbon tax

Congress' debt deal leaves climate advocates grappling with a decade of potentially declining environmental budgets and narrowing hopes of attaching a tax on greenhouse gas emissions to pay down the deficit.

The deadline measure, passed with bipartisan support in the House last night, promises $917 billion in discretionary cuts over the next 10 years, with decreases of up to $1.5 trillion more ushered in later this year. Huge chunks of funding would be eliminated from the Pentagon and government agencies, prompting concerns that programs related to renewable energy, climate science and technology research could come under the knife for years to come.

It's unclear where the deepest craters will occur, but clean energy supporters urged lawmakers to avoid painful reductions at the Energy Department's Advanced Research Projects Agency-Energy, which searches for breakthrough technologies to radically alter the nation's energy use. Other vulnerable programs include energy grants, loan guarantees, and tax credits for wind, solar and other clean energies.

Specific cuts aren't known, but Joshua Freed, vice president of clean energy at Third Way, a centrist Democratic think tank, described a vivid choice that the Republican-led House will soon be faced with: Cut agency budgets with modern medical precision or hack away with practices used on Civil War battlefields.

"If Congress takes the bone saw to every program and agency, economic growth is going to be sacrificed," Freed said, claiming that the nation would miss out on a $2.3 trillion clean energy market globally.

The deal struck on Sunday between President Obama and congressional leaders contains two key concessions. Republicans sacrificed a future second vote to raise the debt ceiling next winter, closer to the presidential election. And Democrats surrendered tax increases, sending a signal to some climate advocates that reducing the deficit with revenue from a carbon tax is now more difficult.

Former Obama aide: carbon tax 'appealing'

Robert Stavins, an economist at the Harvard Kennedy School of Government, criticized the debt deal as evidence of growing conservative influence in Washington. That, combined with the "demonstrated willingness of [the] White House to capitulate to conservative Republicans, will embolden those who oppose climate policy of any kind," he said in an email.

The debt agreement establishes a 12-member bipartisan commission to recommend spending cuts and new taxes that would reduce the deficit by $1.5 trillion over a decade. Congress must vote on the plan by Dec. 23, or face automatic cuts to Pentagon and agency spending beginning in 2013.


The panel could consider a carbon tax during a broad effort to overhaul the tax code and identify cuts that satisfy the requirements of the debt deal, said Joseph Aldy, an economist who developed climate policy for Obama until late last year.

"A carbon tax could be an appealing alternative to even more ambitious cuts to entitlements and defense spending as well as a national value-added tax, repealing the home mortgage tax deduction, or higher income taxes," Aldy said in an email. "A well-designed carbon tax could raise some revenues to finance deficit reduction and enable a reduction in payroll tax rates, for example."

The future panel, Aldy said, might be influenced by the recent findings of a debt commission led by former Sen. Pete Domenici (R-N.M.) and Alice Rivlin, a Democrat and the founding director of the Congressional Budget Office. They determined that a $23-per-ton carbon tax could raise about $1.1 trillion by 2025 while cutting carbon dioxide emissions 10 percent below 2005 levels.

In the end, though, the Domenici-Rivlin commission recommended a national sales tax over the carbon tax.

Won't happen on this planet

Still, a former Democratic aide who is promoting climate policies believes the debt deal formalizes the discussion around new revenue. In a "rational" world, that debate would naturally lead to the benefits of taxing pollution over paychecks, this person said.

"I personally think the likelihood of a big tax deal has increased," the former aide said, noting that carbon revenue could be combined with lower tax rates for people and corporations.

But others express astonishment at the thought of a carbon tax being passed by a House that just forced the White House to abandon smaller goals on revenue, like stripping subsidies from oil and gas companies.

"If it didn't work this time, how's it going work next time?" asked Ted Gayer, an economist with the Brookings Institution who supports a carbon tax. "I don't want to be pessimistic, but I didn't look at the [debt] compromise and see this as a big opening."

Freed, of Third Way, thought he misheard a reporter ask about a carbon tax -- in his mind, it's that far-fetched.

"In which country and under which Congress?" he asked. "That's as likely as me pitching for the Nats this year -- impossible."

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