McCain and Obama's green dream
Which of the candidates' energy
plans will play in Peoria?
By Brian Dumaine
June 30, 2008: 5:33 AM EDT
(Fortune Magazine) -- What senators McCain and Obama believe about U.S.
energy policy matters - hugely. To fight global warming, the next President
will oversee the transition to a new, green economy, which will result in
one of the biggest business transformations of the 21st century and
potentially one of the largest transfers of wealth since the creation of the
income tax.
Both candidates agree that a carbon cap-and-trade law is the best way to
make industries reduce their emissions of carbon dioxide and other
greenhouse gases that cause climate change. Under such legislation,
Washington puts a cap on carbon emissions that is lowered every year, and
creates permits allowing industry to emit greenhouse gases just up to those
limits. McCain favors reducing America's carbon dioxide output to 60% of the
1990 level by 2050, whereas Obama sets his target at 80%.
The trouble is, limiting greenhouse gases will raise energy prices, because
industries are forced to pay for cleaner technology - a hard sell at a time
gas prices have hit an average of $4 a gallon. Politicians like cap and
trade - vs. a straight-forward levy on gasoline, coal, and other carbon
fuels - because it is essentially an invisible tax and therefore has less
chance of raising the ire of voters.
Where the candidates differ most is over money. McCain takes a Milton
Friedman-esque approach to energy that counts heavily on the private sector
to figure out solutions to global warming. McCain would give away most of
the carbon permits - currently estimated to be worth $100 billion a year, or
a staggering $4 trillion between now and 2050 - to big energy producers. If
the utilities and oil companies don't have to pay the government for their
permits, McCain's thinking goes, they will have more to invest in
carbon-reducing technology, and energy prices probably won't rise as much.
Obama's camp attacks McCain's program as a huge government giveaway. Says
Jason Grumet, Obama's principal advisor on energy and the environment:
"McCain, in contrast to his self-description as a fiscal conservative, would
give hundreds of billions of dollars of emissions permits away to the energy
industry in the hope that they would pass the savings on to consumers."
By contrast, Obama would auction 100% of the carbon permits to industry.
Some of the $100 billion raised annually would go to low-income Americans to
buffer the shock of rising energy prices. Some would fund green R&D and
speed the commercialization of solar, wind, and other green tech. Because it
funds aggressive federal clean-tech programs, Obama's version of cap and
trade is more likely to help the nation meet its global warming goals. Yes,
McCain would also auction off some permits to raise money for similar uses,
but he hasn't made clear exactly how much money he would raise and when that
might happen - it could be years.
Obama's plan does have a weakness, which McCain's supporters are quick to
point out. The $100 billion pouring into the U.S. Treasury annually would be
mother's milk to special-interest groups. A chunk of the money, for
instance, would be earmarked for green-collar training - whatever that is.
Senator John Kerry has suggested that federal funds be used to protect New
England's lobster industry from the effects of global warming. Says Douglas
Holtz-Eakin, McCain's senior policy advisor: "There's no reason to turn this
into a big cash cow for the federal government." And he's right. Once
low-income citizens, green R&D, and the business incentives have been taken
care of, the rest of the revenue should be returned to the U.S. taxpayer,
which could help offset some of the drag on the economy that cap and trade
is likely to create. And even better, cutting taxes would make such a bill
easier to sell to the American people.
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