Carbon Tax and Spend

Via Kevin Drum, a useful report from the Center on Budget and Policy Priorities about how if we sell carbon permits (as Barack Obama wants to do) instead of giving them away (as John McCain wants to do), we can raise the necessary funds to help the people most in need adjust to the new environment in which energy is more expensive. It turns out that such compensatory spending leaves us with a big pot of money left over.

The things they suggest spending this money on are basically sensible, though I should say I'm not so high on the popular notion of plowing money into clean energy subsidies. For one thing, I think there's very good reason to be dubious about the government's ability to pick technologies effectively. For another thing, the mere fact of the auctioned carbon permits would constitute a large de facto subsidy to alternative energy sources so it's not really clear that further subsidy is needed. Last, in a lot of ways the whole idea of subsidizing energy consumption goes against one very promising path, namely using less energy overall -- lots of elements of current U.S. policy subsidize or encourage lavish energy consumption and that's part of how we wound up in our current pickle.

Rather than spend new funds on further entrenching overconsumption of energy, we should just try to invest it in productive infrastructure. The biggest problem with adapting to a reduced carbon environment won't be that it's impossible in the long run for people to live in a high-cost energy environment, it'll be that so much of our existing infrastructure isn't well-suited to such an environment. A short-term infusion of cash is a good opportunity to start changing that (and, of course, imagine what we could have done over the past six years if we hadn't spent $1 trillion in Iraq).