Spending Plan Tackles Tax Cuts, Global Warming

President Obama's budget calls for a policy that would address climate change and generate considerable revenue at the same time. The cap and trade system would raise the price of dirty energy supplies to create a shift to cleaner fuels. The money generated from that plan would fund the promised income-tax cut. However, getting that provision through Congress intact is unlikely.

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LINDA WERTHEIMER, host:

It's MORNING EDITION from NPR News. I'm Linda Wertheimer.

STEVE INSKEEP, host:

And I'm Steve Inskeep. Good morning. Here is one of the ways that President Obama's budget attempts to do more than just make the numbers add up. There's a plan in that budget to pair up two important issues for the new president: tax cuts and global warming. The budget would increase the price of dirty energy and use some of that new revenue to fund a middle class tax cut. NPR's Richard Harris looks at how it could play out.

RICHARD HARRIS: To slow the pace of climate change, we would need to ratchet back the amount of carbon dioxide that pours into the atmosphere though tailpipes, chimneys and smoke stacks. One way to do this is a scheme called cap and trade. The government sets a cap, or a limit, on the amount of carbon dioxide that can be emitted, and the government then sells permits that give companies the right to pollute.

David Victor at the Stanford Law School says one consequence of this is dirty energy gets more expensive.

Professor DAVID VICTOR (Stanford Law School): That's the whole idea behind a market scheme is you make carbon more expensive, and that forces people to find new ways to use less of it, to switch to new technologies and to change their behavior.

HARRIS: In the case of the proposed federal budget, each year starting in 2012, the government would auction off $80 billion worth of carbon emission permits. That would effectively raise the price of energy by about $80 billion a year. Last week, House GOP leader John Boehner of Ohio said he has real problems with this idea.

Representative JOHN BOEHNER (Republican, Ohio; House Minority Leader): Now, let's just be honest and call it a carbon tax that will increase taxes on all Americans who drive a car, who have a job, who turn on a light switch, pure and simple.

HARRIS: About 80 percent of that money would flow right back to Americans in the form of the much-touted tax cut for people earning less than $250,000 a year. But under the budget proposal, about 20 percent of the revenue would not come back to taxpayers. It would fund research into cleaner energy.

So this is shaping up to be a bit of a test for President Obama. Can he convince the American public to pay more for energy to take on global warming as long as they get a tax cut in the process? Advocates like Eileen Claussen at the Pew Center for Global Climate Change hope the answer is yes.

Ms. EILEEN CLAUSSEN (Pew Center for Global Climate Change): The notion we should have a cap and trade and we should have it soon is, of course, something we've been working for for 10 years.

(Soundbite of laughter)

HARRIS: But Claussen doubts that the proposal will fly in its current form. That's because taxpayers aren't the only ones who will want some of the money. So will companies like coal-burning utilities, which will be hard hit if they have to pay to emit carbon dioxide.

Ms. CLAUSSEN: There's got to be a transition, and you can't do it overnight. And I think it's those companies that you want to invest of the technologies of the future.

HARRIS: Many of those fossil fuel businesses have tremendous clout on Capitol Hill and aren't about to sit idly by. Last summer, when the Senate debated a cap-and-trade proposal, lawmakers ended up making deals with those companies and promised them a cut of the revenue from the cap and trade bills they were writing.

Prof. VICTOR: One of the bills that was being considered in the Senate envisioned trillions of dollars of revenue that would be reallocated to various purposes.

HARRIS: And David Victor from Stanford says even then, the bills fell far short of passage. This time around, the Obama administration isn't offering industry any of that money. It's mostly designated for the middle class tax cut. So Victor says the budget proposal as it stands isn't crafted to satisfy the real politics of Capitol Hill.

Prof. VICTOR: This budget should be viewed as the opening bid in a very complicated negotiation, not only about the broader federal budget, but also about what we're going to do about global warming. And I don't think we're anywhere near closure on this issue. It could take a long time.

HARRIS: And it's not clear whether hitching together tax cuts and climate change will help both issues succeed or put them both in political jeopardy.

Richard Harris, NPR News.

INSKEEP: Another energy experiment involves a kind of alternative to coal - at least a partial alternative. Lindt Chocolate is teaming up with a power plant in New Hampshire to produce electricity. They ran a test trial yesterday. Their recipe called for one part cocoa bean shells, 33 parts coal, mix them up, set them on fire.

It's believed to be the only chocolate cocoa bean energy project in the country. How could it be the only chocolate cocoa bean energy project in the country? I thought everybody was into this. In any event, it's still too soon to see how successful the idea will be. Lindt will begin sending it's shells to the power plant once it start producing its own chocolate from raw cocoa later this year.

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