A Plan to Create Jobs and Address Climate Change

The long-awaited climate proposal from John Kerry and Joe Lieberman (minus Lindsay Graham) is now on the table; and it’s clear already that it has no better chance of being enacted than other failed proposals before it. One informal count this past week finds 26 Senators likely to vote yes and another 11 probable supporters – a total of 37, against nearly as many “no” votes and probably no’s (32) and nearly again as many fence-sitters (31). Despite the lessons of Katrina, the global importuning of Al Gore, and the President’s pledge to solve the problem, support for steps to stabilize greenhouse gas emissions at safe levels hasn’t changed much in the last half-decade. The hard truth is, a serious climate program is unlikely to happen unless its advocates shift their legislative approach and retool their political strategy.  

You don’t have to be David Axelrod (or Karl Rove) to appreciate why. In a period of widespread economic anxiety and populist anger, congressional sponsors of climate legislation have persisted in pushing a big, new Washington fix that would raise most people’s energy costs in the near term, on the strength of promises by scientists that doing so will lessen the chances of dangerous climatic changes several decades from now – changes which scientists cannot yet specify in any detail. The cap-and-trade model long pushed by a handful of national environmental groups and adopted by Kerry-Lieberman and by Waxman-Markey in the House has other features bound to repel most Americans – especially the creation of a new, trillion-dollar financial market in federal permits to emit greenhouse gases, all to be managed and potentially manipulated by Wall Street. How many Senators are prepared to explain why the only climate plan they can come up with would raise everyone’s energy bills and yet enrich energy traders and executives at Goldman Sachs and JP Morgan Chase? 

The country and the planet need a different approach. The answer is to marry a plan to create jobs with a funding mechanism to reduce greenhouse emissions. Earlier this year, the CBO reported that the single, most powerful policy tool available to spur job creation is a sharp reduction in the employer’s side of the payroll tax, targeted to new hires who increase a firm’s entire workforce and total payroll. The catch is that since payroll tax revenues are dedicated to fund Social Security and Medicare, we have to replace the foregone revenues. We can finance this job-creating cut in payroll taxes by enacting a new, carbon-based fee which also would address climate change.   

To be sure, the new carbon fee – like cap-and-trade or, for that matter, EPA regulation – would drive up most people’s energy bills. But the cuts in the payroll tax would offset the higher energy costs from the fee, and the new jobs and higher wages spurred by the payroll tax cuts would leave most us better off, along with the planet. While the emphasis on jobs would be new, this general approach is not. Most economists and many environmentalists have long held that a fee on energy based on its carbon content is the most economically-efficient and environmentally-effective way to accelerate the development of new, climate-friendly fuels and technologies, and spur businesses and households to adopt them. Such a “tax shift” is also the long-time position not only of Al Gore, but also groups such as Greenpeace, Friends of the Earth, and the U.S. Climate Task Force (which, in full disclosure, I chair with Harvard professor and former Gore aide Elaine Kamarck). 

It’s time for climate activists to respect the priorities of most Americans. Congress should enact broad reforms to create new jobs, boost incomes, and strengthen the economy – and pay for these reforms with a new, carbon-based energy fee that would steadily drive down our use of fossil fuels and their dangerous greenhouse gas emissions.