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Towards a Fair Global Warming Bill

October 16, 2007 - by Donny Shaw

One of the most compelling reasons to combat global warming is that the poorest nations in the world will bear the brunt of its effects. But as Congress prepares to consider legislation to slow the warming trend by reducing greenhouse gas emissions, a correlative problem is arising: the most effective policies will raise energy prices and could disproportionately affect the poorest Americans.

The Center for Budget and Policy Priorities has just launched a new area of research on “policies to reduce greenhouse-gas emissions that do not harm low-income households and are fiscally responsible.” Here’s the CBPP’s summary of why both cap-and-trade and carbon tax plans could potentially hurt the poor:

>Efficient, effective policies to reduce greenhouse-gas emissions work in part by putting a price on those emissions, thereby ending the free use of the atmosphere to dispose of pollution. This raises prices for fossil-fuel energy products. The higher prices operate as a market signal that encourages investment in energy efficiency and development of cleaner sources of energy.
>When energy prices rise, households with limited incomes are affected the most. They spend a larger share of their budgets on energy than better-off households do. They also are less able to afford investments that can reduce their energy demand, such as buying a more efficient car or heating and cooling system.

An April report (.pdf) from the non-partisan Congressional Budget Office came to much of the same conclusions. And the CBO and the CBPP agree on another thing: the government should sell carbon credits (instead of giving them away as some proposals advocate) as a means of generating more revenue to offset the cost of fighting global warming.

The CBPP has moved on to thinking about the next step: how to effectively and efficiently get the money raised by the sale of carbon credits or carbon taxes to the most affected populations. Here is their preliminary set of principles that they believe policymakers should implement in order to ease the burden on the poor:

  • Fully protect the most vulnerable households. For households in the bottom fifth of the income spectrum, climate rebates should fully offset the impact of higher energy costs resulting from climate-change legislation. No climate-change legislation should make poor families poorer or push more people into poverty.
  • Use mechanisms that reach all or nearly all low-income households. Some low-income households work for low wages and could receive their climate rebate through the tax code, such as by increasing the Earned Income Tax Credit. But others are elderly, unemployed (especially during recessions), or have serious disabilities. Climate rebates must reach all of them.
  • Fortunately, policymakers can tap existing mechanisms to reach the large number of low-income households that cannot be reached through a tax rebate mechanism because their incomes are so low they are not required to file a federal income tax return. For example, climate rebates could be provided through the electronic benefit transfer (EBT) systems that state human service agencies already use to provide assistance to many poor people. Any remaining gaps could be filled, and weatherization assistance provided, through some relatively modest increases in the Low Income Home Energy Assistance Program.
  • Minimize red tape. Funds set aside for climate rebates should go to intended beneficiaries, not to administrative costs or profits. Accordingly, relief should operate as much as possible through existing, proven delivery mechanisms rather than new public or private bureaucracies.
  • Don’t focus solely on utility bills. For households in the bottom fifth of the population, higher home energy costs will account for less than half of the hit on their budgets from increased energy prices. Climate rebates must be structured so that they can also help low-income families with higher prices for gasoline and other products and services that are sensitive to energy costs.
  • Adjust relief to reflect changing needs. Climate rebates should be smaller when a cap-and-trade system or carbon tax is just phasing in, and become more substantial when the system is fully in place.

So far, the debate over global warming legislation has centered around two proposals: Barbara Boxer’s (D-CA) Global Warming Pollution Reduction Act and Joe Lieberman’s (I-CT) Climate Stewardship and Innovation Act, both cap-and-trade proposals. But House Democrat John Dingell (MI) is preparing to introduce a carbon-tax proposal. He has posted a summary of his legislation on his website and is asking for comments before he introduces it to Congress. If you like the CBPP’s recommendations, use his comment form to drop Dingell a line and let him know.

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