Get tough on emissions without hurting economy

Now that President-elect Obama has named the officials who will lead his response to the challenge of climate change, their first order of business must be to establish a price on carbon released into the atmosphere. Despite a withering economic outlook, that must remain a top priority if we are ever to make advances against global warming.

Obama clearly supports reductions in oil consumption and an attack on global warming. But a chorus of voices wants him to set aside any significant initiatives in these areas while he struggles to pull the country out of recession. Green elements of the stimulus package, they believe, will provide sufficient push for low- and no-carbon technologies, thus obviating the need for early decisions on a cap-and-trade or other carbon-pricing regime. But announcing at the outset an explicit plan for carbon pricing is essential — for two reasons.

First, setting a carbon-pricing target would strongly signal to both business and consumers that new technologies must be developed and adopted without delay. Without that price incentive, the advent of greener forms of energy will be postponed yet again.

Second, setting a price on carbon emissions will assure a revenue stream to support future climate-related programs — and, quite possibly, other initiatives as well. The stimulus package cannot go on forever, and carbon revenues can give the federal government the wherewithal to fund future initiatives.

Opponents of an early announcement on carbon pricing say it may worsen the recession. The reality is that any such scheme cannot be implemented immediately, given the need to develop legislation and subsequent regulations. To assure that the program is activated only after the economic turnaround, the president could propose an explicit mechanism to postpone implementation in the event certain economic conditions are not met, defined perhaps as the number of continuous quarters of economic growth that would be required prior to actual introduction of the carbon pricing program.

Why is early consensus on dealing with carbon needed? Because even with delayed implementation, it is the best way to reduce uncertainty about U.S. climate policy. Without such directives, investors will continue to act as if carbon emissions are free.

A cap-and-trade system will put a price on those emissions, creating an incentive to develop and adopt more carbon-efficient technologies — much like the recent run-up in gasoline prices shifted consumer purchases in favor of fuel-efficient vehicles. As the economy rebounds, the expectation that an already enacted carbon-pricing scheme will soon kick in will trigger green investments. Early action could be further encouraged by distributing allowances — bankable for future use in a carbon-pricing program — to firms that reduce emissions prior to program implementation.

Over the past few years, proposed national legislation has focused on a range of issues that need to be resolved before carbon pricing can become reality. Following the 2008 floor debate on the failed Lieberman-Warner bill to reduce U.S. emissions, 10 moderate Democrats who favor carbon pricing expressed strong concerns on certain components of the bill, including the potential costs of the program, the protection of U.S. jobs, the need to shield consumers and businesses from excessive price shocks, and the creation of incentives for other high-carbon-emitting nations to join the battle against global warming. The Obama administration should quickly engage the debate on these issues and work with the new Congress to develop reasonable compromises to meet legitimate concerns.

The potential benefits of future federal revenues from a carbon-pricing scheme cannot be overstated. Even as the U.S. and other nations temporarily abandon standard budget discipline to stimulate their economies, the day is not far off when the need for further income will become paramount. Establishing a system to generate additional revenues by controlling carbon emissions in advance of the economic recovery will ensure the revenues are available when we need them, either to provide continued support for technology or other climate-related activities, or for other needed programs. The time to engage Congress on the many intricacies of carbon pricing is now.

Morgenstern, senior fellow at Resources for the Future, served in senior career positions at the Environmental Protection Agency and acted as its deputy administrator in 1993.