In a story summarizing an in depth interview with Sen. Barack Obama, Wall Street Journal reporters Bob Davis and Amy Chozick provide news insights concerning how he or Sen. John McCain would propose to spend trillions of dollars in new government revenue that would be collected by auctioning carbon emission allowances.
Concerning these revenues, Davis and Chozick report (link temporarily available to non-subscribers):
The heart of Sen. Obama’s spending program is his plan to spend $15 billion a year for 10 years on energy technology. It would be funded by revenue collected from a separate Obama proposal to cap greenhouse emissions through a system of trading pollution permits. Sen. Obama would auction those permits to producers of carbon dioxide, such as electric utilities, and figures the sales would yield about $100 billion a year. Most of that would go to consumers as rebates on utility bills, he said.
The purpose of carbon emission allowances is to significantly raise the price of carbon-based energy. If rebates are proportional to consumption, consumers served by utilities with more nuclear and hydroelectric plants would benefit more than consumers whose electricity comes from coal. Nevertheless, these differences likely would not be very great. Thus, rebating the passed-through cost of carbon emission allowances to electricity consumers would undermine the intended policy change — a substantial increase in the price of carbon-based energy relative to other goods. Also, it would significantly reduce the effectiveness of a cap-and-trade program at reducing aggregate greenhouse gas emissions, raising the obvious question: Why enact a cap-and-trade program if it is going to be combined with another policy that substantially prevents its intended effects from occurring?
Davis and Chozick continue:
[Obama] also would fund an “infrastructure reinvestment bank” that would finance $60 billion in high-speed railways, improved energy grids and other projects over a decade. He would double spending on basic research, subsidize investment in high-speed Internet hook-ups, and offer $4,000 a year in tuition credits for students who later perform public services.To “capture some of the nation’s economic growth,” he said in the interview, “and reinvest it in things we know have to be done like science, technology, research and fixing our energy policy, then that is actually going to spur productivity.”
Some of these projects, such as high-speed railways and improved energy grids, have a plausible relationship to energy efficiency, though their likely savings in carbon-based energy consumption are far from certain. Moreover, $60 billion might not be enough money given, for example, the cost of acquiring expensive urban land for new high-speed rail lines. (The government can take the land by eminent domain, but the Constiutiion requires that it pay fair market value.)
Other projects in this list, such as basic research, high-speed internet hookups, or student loan forgiveness, have no plausible relationship to “infrastructure” or the conservation of carbon-based energy.
Davis and Chozick also report the reply of Sen. McCain’s primary economics adviser, Douglas Holtz-Eakin:
Sen. McCain argues for as little government spending as possible and paints his opponent as a liberal who would tax more, spend more and drive the country into deficit. He backs a cap-and-trade system that would be used to fund energy technology, but Mr. Holtz-Eakin said the scale would be far smaller than the Obama plan. And, Mr. Holtz-Eakin said, a “green technology fund is plain silly. Silicon Valley has piles of money devoted to clean technology.”
Davis and Chozick do not report any further details concerning how Sen. McCain proposes to spend the trillions of dollars in windfall tax revenue that auctioned carbon emission allowances would generate.