Explanation 5: Washington Consensus Climate Policy Proposals are Politically Hard to Explain, Disproportionate to the Challenge, and Underestimate Government’s Role
The frustration with Obama of many in the established green movement revolves around the assumption that if he is serious about climate, why then, they think, doesn’t Obama simply adopt or fight for their favored policy instruments or revive a version of the 2009 Waxman-Markey bill. There is an unfortunately somewhat naive and unfounded consensus among parts of the Democratic Party and in established green groups that serious climate action involves a policy centered around something like the Kyoto Protocol cap and trade system or a carbon tax. A very large body of discourse in the established climate policy milieu contains advocacy and analysis about why the US has not become a party to the Kyoto process. Additionally, there is, confusingly for outsiders, a rift between those who favor a carbon tax/fee versus those who favor an emissions trading instrument (cap and trade). While U.S. politicians, especially the reality-challenged Republican Party, are currently shying away from any meaningful climate policy for largely the wrong reasons, climate policy is not the well-defined choice and proven path that green groups and many left-of-center Democrats would like politicians and the public to believe that it is.
If we think of policies, like climate policy, with economic methods of action or outcomes, as containing a mixture of “carrots” and “sticks”, climate policy proposals have consisted mostly of proposed “sticks”. These “sticks” attempt to inhibit carbon-emitting behaviors and reduce sales of high-emissions products and services via permit auctions or taxation. Paying or anticipating paying a price for carbon emissions, market actors would, then, it is hoped, create or trigger positive change by market actors trying to avoid these “sticks”. The “carrots”, heavily marketed by advocates of these policies, are indirect outcomes of the aforementioned “stick” disincentives as some market actors will profit from selling these new or lower emitting goods and services, while, of course, others will lose market share and money on higher emitting goods and services. In the cap-and-trade variant of carbon pricing, “carrots” are also gained by clever timing and/or manipulation of the permit trading and/or offset system.
The dominance of neoliberal/neoclassical economic thinking has in this manner led, as I have written before, to a narrowing of the scope of climate action and attaching it to this rather indirect chain of causality, resting on the faith that markets (and in particular financial asset-trading markets) and private sector-based innovations will lead society towards the zero net emissions society we require to stabilize the climate. The necessary and critical role of governments and government leadership in large-scale climate and energy planning, obviously required if you look at the technological and climate challenges facing us and the vested private interests arrayed against change, is downplayed or remains unexplored and unexplained. The assumptions of “consensus” climate policy rest precariously upon the neoliberal echo chamber’s repetition hundreds of thousands of times that somehow unregulated markets are the sole drivers of economic activity and prosperity, and that markets could easily take over the functions that have, in historical and economic fact, been delivered by governments. Falsely, government is, as well, counted out of the innovation process, which we know has not been the case historically in a variety of economic sectors: some primary innovations in technology (computers, the Internet, cell phones, etc.) are, for instance, now incorrectly celebrated as somehow the exclusive product of private sector inventors and entrepreneurs.
While in theory an adequately-high carbon price shifts income and eventually wealth from one energy industry sector to another, in theory or practice carbon-pricing-centered policy does little to shift income between income groups or labor and capital, as well as for solving the related chronic macroeconomic liquidity problem that bedevils minimally-managed capitalism (wealth and income concentration in the accounts of the already-wealthy who have a lower need to spend; deterioration of the economic welfare of those dependent upon their own labor). In addition, carbon pricing does not address the chronic problem of the neglect and potential looting of the commonly shared infrastructure of civilization, an infrastructure that enables markets to function with a semblance of smoothness and fairness in the first place. It is however the transformation of this commonly shared infrastructure that is one of the primary hurdles facing the transition of industrial civilizations from a fossil-fuel dependent to zero-net emissions society. Finally, carbon pricing does not address the inevitable, hopefully well-managed, transition to a steady-state material- and energy-flow economy that would involve interventions in the capitalist market economy beyond “sin-tax” price signals.
While there are a number of complexities involved in cap-and-trade or carbon tax policies, that they are centered around a “stick” has left them open to attack from fossil fuel interests and their political allies to quite easily stylize them as taxes, as subtractive of potential income and undermining “freedom,” the freedom to pollute without sacrifice. While supporters of cap-and-trade or carbon tax centered policies have had to pedal quickly to claim economic benefits, or also claim that carbon pricing levels will remain low and non-punitive, this back-pedaling from preferred policies sends mixed signals to the public.
Probably the most politically palatable version of these policies is the carbon tax/fee and refundable tax rebate/”dividend”, where lower emitting individuals and families, more likely lower income and/or also city- or inner-suburban dwelling, could potentially come out ahead. In this system, a fixed per-person rebate compensates tax payers partially for the escalating per tonne CO² tax which raises the cost of goods that involve carbon emissions to varying degrees. Often advocates attempt to portray as an admirable feature of this policy that it can be designed as “revenue neutral”, meaning that as much rebate money is given out as tax is collected. Those who consume a lot of high-emitting goods and services will pay more than their annual rebate, which will incentivize them to use less of those high-emitting goods and services, according to the theory, though for many of the very wealthy and ultra-wealthy, whose wealth does not depend directly on the sale of fossil fuels, this will just be seen as a “cost of doing business”. The claim of “revenue neutrality” is also based on the erroneous and politically-harmful idea that government is a poor investor in real goods and projects, which in the case of many of the more developed nations, not the case at all.
All of the carbon pricing-centered climate policy proposals are politically difficult to communicate to the public at large, for the reasons mentioned above. The prominently placed tax or price on Americans’ current, heavily fossil fuel-dependent enjoyments is a difficult place to start. Then, as importantly, carbon pricing-centered climate policy advocates an indirect mechanism by which change is foreseen: with government putting in place a “negative” disincentive, market actors are then supposed to, in response to the avoidance behavior of consumers and other market actors, in some, as yet unknown way, produce the positive result, lower or zero-carbon emitting goods and services.
Carbon pricing-only proposals then tend to address only indirectly or, as an afterthought, the role of existing infrastructure and settlement patterns which favor high emitting activities like driving and long-distance transport of vital goods and services. Markets did not generally build that infrastructure or lay down the outlines of those settlement patterns though certainly have shaped them once they were established or built. Relying on a vague understanding of history and current practice many people in all likelihood realize, even in the neoliberal era, that government has had and can have a role in leading change in infrastructure and settlement, even though they don’t necessarily trust current political actors and government institutions. Carbon-pricing centered policy therefore appears “hollowed out” when it comes to positive leadership and in its theory of change, even to people who have not lived through an era of aggressive government action outside of war-making. They have furthermore most recently experienced the War on Terror and the Wars in Afghanistan and Iraq as examples of government taking the lead, bestirring itself and spending trillions for (questionable or poorly-executed) causes. ‘If climate change is so terrible’, they reasonably may ask, ‘why is government not taking the lead and investing full-bore in our and our childrens’ protection? Why hold back?’
The carbon tax and dividend/rebate policy, advanced in the US by Citizens’ Climate Lobby suffers from the above with the additional problem that it pulls back from its own convictions by offering the “sweetener” of the tax rebate/”dividend”. Again reasonable people might ask: “If climate change is such a serious problem, why beat around the bush and focus your policy on how little pain you will cause via your preferred central policy instrument?” There is a mismatch between the urgency of the diagnosis and the recommended cures.
To effectively combat the inevitable right-wing, fossil-fuel industry, and Republican attacks on climate policy, politicians instituting meaningful climate policy are going to have to forthrightly “own” all aspects of climate policy. They cannot appear to be backing away from the policy as they propose it but must launch fully into what everyone who comprehends even a portion of the problem realize is an enormous task. Half-hearted efforts are going to be more successfully attacked because they will baffle the public unnecessarily and offer to opponents a poorly-guarded policy “flank” to attack.
While there is this alarmingly short-sighted neoliberal consensus in climate policy recommendations so far, the only effective climate policy for almost every nation of the world is going to involve the application of many aspects of government fiscal policy, including spending policy as well as taxation policy. Integrating the instrument of government political economic leadership and fiscal policy into climate policy exactly contradicts 40 years of neoliberalism, based on reality-challenged theories in economics that edit out or attempt to edit the state from the economy. As with the economic and social emergence from the Great Depression of the 1930’s and the period of economic stability thereafter, it will require some form of climate Keynesianism not a climate “Pigovianism” (Arthur Pigou was the economist most closely associated with the idea of “sin” taxes to discourage socially destructive behaviors, of which carbon taxes are the latest example) that will be the ultimately effective instrument.
To combat climate change will in all probability require a two- or three-decade long wartime-style mobilization of the economy, with government intervention on many though not all levels. The adaptation challenges to the already “baked-in” changes to the climate, made more vivid by the news of the melting of the West Antarctic ice shelf, are also the province of some form of government policy that goes beyond carbon pricing. The scale of the task to change the energy and land-use basis of society, so as to minimize climate damages, is so huge as to require this level of involvement, even if this type of regime is not specifically anyone’s “utopia”, including my own.
While the right-wing and fossil fuel interests portray a picture of intensive government involvement in the economy to scare their constituencies and the population more generally, they are not wrong to suggest that government involvement in the economy will be greater, if we are to seriously face the climate challenge. Of course opponents of climate action’s description and interpretation of that involvement is filled with obfuscatory intent and has the interest of only a few short-sighted rentier interests at heart. The intuition about the seriousness of the climate crisis necessitating more government involvement in the economy is thus widely understood by both some of those willing to change and those so far unwilling to change, even though, on the side of supposed “action”, advocates for ineffective forms of climate action attempt to show that the opposite is true in order to agree with the assumptions of the neoliberal paradigm. Obama may realize, that he is philosophically and in terms of his own immediate interests, nowhere near embracing such a change in orientation of government.
Obama, though he agrees with the neoliberal paradigm upon which the climate policies are based, recognizes that their policy proposals are political “tough-sells” and involve confrontations with powerful interests as well as with consumers and small business owners. The latter groups are not given by these policies enough political and economic reasons to support a turn towards these policies; they are not made “constituents” of the policies and therefore their loyalty will be tentative at best. That there is disagreement as to whether cap-and-trade, a carbon tax or a tax and dividend are best is further reason for politicians, and especially a cautious conservative politician like Obama, to hesitate to commit to establishment climate policies as currently communicated and designed.
Explanation 6: Obama has an Inadequate Understanding of Government Finance for Effective Climate Action
If you will bear with the assertion above, that many people, including perhaps Obama himself, “intuit” that government involvement is critically important in actually-effective climate action and that existing climate policy proposals that hinge largely on carbon pricing are unserious, a sixth explanation of why there is a gulf between Obama’s energy policy and climate policy is possible. To have a general implied understanding that climate policy will necessarily be embedded in government fiscal policy doesn’t mean one is secretly “for” this type of climate Keynesianism, only that there is a subliminal awareness of the possibility that in serious matters like wars, government becomes fully involved in the economy in ways that are less often the case in peacetime or in non-crisis times and in ways that may violate cherished ideals regarding money and the economy. An acknowledgement that our social reality demands that community leadership commit to addressing an existential crisis is an obvious point that is only unintelligible to those fully enmeshed in the neoliberal paradigm.
Despite inheriting the worst economy in three generations, Obama has shown himself to be someone who has only unwillingly and too fleetingly engaged in Keynesian-style government activism and reform of the private sector. While some would attribute this critical stance to my own political biases, Obama’s major political-economic mistakes have been his perceived and real alliance with finance and big business and insufficiently populist, anti-establishment approach after his election in 2008. After five years of soaring rhetoric and middling results, Obama’s disapproval ratings have risen considerably and his best political bets are to contrast himself to the still more craven and corrupt Republican Party.
Obama’s political and policy modus operandi has been to propose cosmetic reforms or reforms that install corporations, like insurance companies as quasi-official executors of government policy. He has had an almost unerring proclivity to support corporate power and disenfranchise ordinary people, even as his Republican opponents propose and would institute worse. The landslide Democratic loss on the federal and state levels in the mid-term elections of 2010 can largely be laid at Obama’s feet, as he was unable or unwilling to counter the right-wing faux populism of the Tea Party and allied Republicans with a vigorous agenda of populist reform.
Related to and underlying his apparent distaste for Keynesian/Rooseveltian style deep reform, Obama in 2010 quickly strapped himself, the Democrats, and the American people into a regime of deficit hysteria, which has critically lamed both the public sector and the overall ability of the US economy to create jobs. Inheriting the economic model of the Clinton Administration, which misrecognized the relative financial and policy roles of government and the private sector, Obama acted as if the United States would soon come under the attack of “bond vigilantes” if he did not cut public spending quickly. Obama created a deficit commission that was largely designed by Wall Street billionaire Pete Peterson, a long-time enemy of the use of government financial power to equitably distribute benefits and resources.
Like Bill Clinton before him, Obama labors under the misimpression that monetarily sovereign governments can spend on public projects only by borrowing and taxing away money from the private sector, rather than the government exerting control over the gross amount of monetary liquidity in the economy, throughout the entire arc of the boom-bust business cycle, by the exercise of monetary, spending and tax policy. While local and regional governments can become bankrupt, the U.S. federal government, like the Japanese, British, or Chinese governments, as a fiat currency issuer, can never become bankrupt and controls via political, and we hope democratic, means the public monopoly of the US dollar. The “bond markets” and “bond vigilantes” that Bill Clinton reveres are an imaginary threat to the US federal government’s financial integrity as long as it allows the value of its fiat currency to freely float in relationship to other currencies. Clinton’s revered, “bond-vigilante” private sector actors can, however, damage state and local governments, which finance themselves largely via tax collection. Under the bygone gold standard, which is hankered for by those who would like the wealthy to have greater control over the overall monetary system, bond markets could have done more damage to national governments tied to a fixed exchange rate with either gold or another currency.
The “hard money” beliefs and accusations by deficit hysterics, rooted in the discarded institution of the gold standard, have reinforced self-imposed limitations by political leaders in terms of how they pursue public goals. Those political leaders that listen to or act according to deficit hysteria are consciously or unconsciously in the thrall of the private financial sector, which profits from its own pro-cyclical (more lending in the boom, attempt to force repayment in the bust) business of creating and destroying liquidity via lending. The private financial sector, already bloated, has expansive ambitions to further profit by replacing government provision of financial services and benefits with their own riskier, inferior products. The notion that a monetarily sovereign government like the US federal government does not have “permission” to spend as is required to achieve a set of public goals, unless it can borrow or tax from others, is a self-imposed constraint that happens also to support the economic interests of the creditor class, which does not want government to limit private credit creation and otherwise impinge upon the financial game-playing from which they gain most of their income.
To break with the oil and gas industry’s mad rush to extract “unconventional” fossil fuels to which they have lent support, Obama and Congress would have to immediately turn to an ambitious program of government spending and market regulations to use less fossil fuels and build renewable energy and electric transport infrastructure. The global demand for fossil energy is growing and the US economy is itself critically dependent upon fossil fuels. The decisive turn away from fossil fuels and away from building unconventional fossil fuel infrastructure that green groups want, at least in theory, means in practice an equally decisive turn towards constructing physical and social solutions to substitute for the resulting gap between energy demand and supply as soon as possible. The emphasis among climate action advocates on saying “no” to fossil fuels has obscured the monumental task of saying “yes” to solutions that entail a massive, society-wide building project, sponsored and organized by government, led by the monetary sovereign power of the federal government.
A decisive turn away from fossil fuels and towards climate solutions that would be represented by (though not exclusively consist of) Obama refusing to approve the Keystone XL pipeline means that the US federal government would need to utilize the policy space enabled by monetary sovereignty. If the US federal government were to, out of concern for the climate, the environment more generally and the welfare of future generations, restrict the primary energy flow into the economy from fossil sources, the government, in order to prevent a deep economic crisis and crash, would need to simultaneously increase energy conservation, energy efficiency, and sourcing of non-fossil energy, most likely renewable energy. Whether the Keystone XL pipeline is intended to supply the US economy or the export market is secondary to the principled intent of Keystone opponents: reduce the flow of fossil primary energy into the economy, especially from the Canadian tar sands. Thus the President’s refusal to approve Keystone XL, if it has the content that climate campaigners desire, would entail a usage of sovereign spending to address eventual reductions in oil supply. As I have outlined elsewhere, both direct spending and market regulations would need to rapidly change to compensate for both the physical change as well as the economic shocks from the sudden turn away from “petro-statehood”.
Of course, the US Congress has ultimate control over the federal government’s budget but the President has substantial influence on the terms of the discussion of budgeting and therefore national priorities through his budget proposals. The decisive break from maximum exploitation of oil and gas resources will require Obama or his successor to break with the hard-money discourse that Obama has endorsed, which has led to the post-2009-stimulus wave of austerity and starving the federal, state and local governments of funding. For instance, large-scale investments in public transit, especially electrified public transit, would originate largely in the federal budget, with some states being able to supplement federal funds. To dramatically reduce oil usage, carpooling and ride-sharing will have significant impacts but electrified public transit infrastructure is a longer-term commitment to a post-oil economy. Obama would need, against both his conservative stance towards federal spending and towards his erroneous deficit-cutting view of government finance, to propose budgets that expand government spending significantly beyond taxes collected to pay for these investments.
The US Congress as currently constituted will, of course, vehemently object to and refuse to pass such a budget but a realistic budget proposal from the President that expands the US’s clean energy infrastructure could be used to start a national dialogue. In that dialogue, Obama or his successor, could redefine what the John Kenneth Galbraith and currently the Modern Money school of economics call “the public purpose”, to include the construction of a sustainable energy and transport infrastructure. Tailoring the national dialogue to fit the erroneous views of the Republicans on the political economy is one of the great disservices that Obama has so far done the American people. Climate change is a national and international emergency and should be treated as such in government policy and budgeting decisions. This national emergency is also an occasion to target other aspects of the public purpose, including full employment and improved living standards for the 99% who have been left behind in the current plutonomy.
Chances for a Pivot Towards Climate Action
The approval or non-approval of Keystone XL is most important for what it might represent in terms of a pivot towards climate action by the political leadership of one of the world’s largest economies that includes very large oil, gas and coal sectors. The building of the pipeline itself is important in that it will make tar sands extraction more economical as well as represent a multi-decade commitment to extract tar sands. There are other pipelines in the works that might eventually overtake Keystone in economic importance for the exploitation of the tar sands but if the refusal to permit Keystone XL represents a pivot towards aligning US energy policy with professions of concern about the worsening climate, then Obama’s refusal to permit is extremely consequential for the energy policies of the United States and the world more generally.
If we take Explanation “1” above “triangulation” seriously, a likely theory being batted about in the public sphere, is that Obama will approve the pipeline but offer more stringent EPA regulation of power plants as a sop to climate action and as a means to split those to his “left” on the climate issue. This would not represent a pivot towards serious climate action but would be very much in keeping with Obama’s modus operandi of shunning confrontation with the most powerful corporate interests and donors.
Pivoting energy policy towards climate action means breaking out of Obama’s comfort zone and the assumptions with which he and the Clintons have ringed the Democratic Party, i.e. the more progressive (though not progressive in outlook as measured against a century of progressive US politics) portion of elected officialdom in the United States. A meaningful pivot involves the following:
1) Key US political leaders discarding or devaluing political game playing based on current “inside-the-Beltway” assumptions about “Left” and “Right”.
2) Key US political leaders recognizing government’s leading role in times of crisis over and above the parochial, profit-oriented interests of corporations, including private financial corporations and interests
3) Key US political leaders recognizing that short-term geopolitical competitions pale in comparison to long-term geopolitical and existential risks
4) Key US political leaders seeing the need for bold action
5) Key US political leaders recognizing the central role of government in climate action
6) Key US political leaders recognizing the flexibilities inherent in our current monetary system that enable the pursuit of public goals for the common good.
The above is not likely without the climate action movement, who are less constrained than officials by holding political office in the current corrupt system, understanding these issues and bringing substantial pressure from the streets on political leaders to “connect the dots” between climate and energy.