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Climate Solutions Must Be Real, Not Just Perceived

As Congress moves to enact the nation’s first comprehensive climate protection law, economist Paul Krugman asks that advocates not make “the perfect the enemy of the good.—But there is another concern: Let’s not make perception the enemy of reality.[IMGCAP(1)]To pass its first legislative hurdle, Waxman-Markey was amended so that it would reduce domestic greenhouse gas emissions only 4 to 7 percent below 1990 levels by 2020 — well below the minimum 20 percent cut called for by scientists. Renewable electricity standards were significantly weakened. And the cap-and-trade system was structured in ways that invite industries and countries to game the system, creating the perception that emissions are being cut even while they increase.These compromises prompted major environmental groups like Greenpeace to oppose the law. Their public break from the House legislation hinted at even greater concerns by environmentalists that the measure is at risk of further compromise. Sierra Club Executive Director Carl Pope worried that special interests “will continue to try to riddle this legislation with loopholes, water it down and load it up with hundreds of billions of dollars in giveaways.—America has seen this scenario before. In 1975, Congress had the opportunity to drive energy efficiency across the economy with a simple fuel surcharge. Instead, they passed the first Corporate Average Fuel Economy standards for U.S. auto manufactures, creating the perception that Washington was establishing a firm cap on fuel consumption in the auto sector.The reality was different, however. While Chrysler chose to work to meet these new federal standards, General Motors and Ford chose, instead, to direct their lobbying efforts toward thwarting them. By the early 1980s, Chrysler was the only manufacturer to have met the original CAFE target, while other manufacturers were successfully making deals with Washington to lower the standards. Automakers devised an array of steps that enabled them to game CAFE regulations. One loophole — exempting trucks from the fuel standards set for cars — was so big that Detroit could have driven an SUV through it. And they did. A straightforward tax could have written a different history for Detroit, consumers and the environment. In addition to incentivizing auto manufacturers to build cleaner products, a direct tax would have encouraged consumers to buy new, more-fuel-efficient vehicles, and rewarded fuel efficiency across the economy. In 1992, the Congressional Budget Office reported: “That change would not only reduce gasoline consumption, but it would also lower other social costs of driving, such as traffic congestion and the frequency of accidents. In contrast, higher CAFE standards would tend to encourage driving (by lowering the per-mile cost) and would thus increase those social costs.—Congress shouldn’t make the same mistake twice. Washington can ensure that our U.S. emissions policy is the best possible solution by focusing on a few critical points:• Reductions must be real: Rather than setting illusory “caps— more than a decade away, the legislation needs to drive real, immediate change by incentivizing better behavior from industry and individuals.• Fees must be direct: Volatile carbon prices — like the 17.5 percent per month fluctuations we see in the European Union’s carbon market — create profits for the finance sector, but discourage companies from investing in efficiency, by jacking up risk and the cost of capital. Instead, U.S. climate policy must set a clear, predictable price signal on greenhouse gas emissions.• Change must be legitimate: If U.S. emissions can be offset by purchasing credits from companies in distant provinces in China, it’s anybody’s guess whether those credits will be real. Opportunities for large-scale fraud must be closed.• Vulnerable communities must be protected: Low-income and minority communities can’t afford to subsidize power plants that have successfully lobbied politicians for free CO2 permits and offsets. A simple fee or tax on carbon emissions — with revenues directed to cut payroll taxes and transition the economy — addresses all these concerns. By operating under a steady price on CO2 emissions, businesses will able to plan and invest in new energy technologies. In turn, consumers will be able to choose from an increasing array of options to increase their energy efficiency. Emissions of greenhouse gases will decline in all communities. And the United States will achieve the real reductions needed to meet the greatest environmental threat we have ever faced.Bill Shireman is president and CEO of the Future 500.

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