Carbon compromise

Along with West Virginia, Wyoming, North Dakota and Kentucky, Indiana is one of the top five states most reliant on coal power and would be disproportionately hurt by any carbon tax or trade scheme.

So it’s not surprising that Indiana Gov. Mitch Daniels, a Republican, wrote an op-ed for the Wall Street Journal last Friday attacking cap-and-trade. He exaggerated when he suggested the plan “looks like imperialism,” but he made a point that will probably resonate with most Hoosiers. Indiana’s lower per-capita income is, in part, offset by lower costs of living. Those costs will go up under a cap-and-trade scheme.

Daniels isn’t the only Hoosier politician attacking the plan. Indiana Rep. Mike Pence, the third most powerful Republican in the U.S. House of Representatives, called the cap-and-trade plan “a declaration of economic war on the Midwest.” Rep. Baron Hill, a Democrat whose 9th District includes Bloomington, has voiced concerns about the effects of cap-and-trade on manufacturing jobs and energy costs.

The potential dissent of Hill and other Democrats in coal districts could sink President Obama’s cap-and-trade scheme. Unfortunately, that means the fight against global warming will probably descend into a special interest scramble for government subsidies.  

I cringed when, in his op-ed, Daniels claimed Indiana was “out to be the world leader in making clean coal.” Clean coal, coal-to-natural gas technology and biofuels are trumpeted by politicians looking for votes. Without wasteful subsidies, those industries will never be competitive.

But there needs to be some form of government intervention. Pence claimed any Republican energy strategy will “include a commitment to renewables.” Besides more subsidies or regulation, what kind of commitment can he offer that will encourage renewable energy at the rate they would grow if carbon were priced?

Fortunately, Obama may be able to bypass a coalition of coal-state Democrats and Pence Republicans with some unlikely allies. Two Republicans, Reps. Bob Inglis of South Carolina and Jeff Flake of Arizona, introduced their own carbon tax legislation last week. They dislike cap-and-trade because of the federal bureaucracy it would create, but that isn’t the major compromise they want from Obama.

Instead of using the revenue on social spending, Inglis and Flake want all their revenue to go toward a decrease in the payroll tax, making the carbon tax revenue-neutral. Such a plan might attract more Republican support, and a cut in the payroll tax would probably be better compensation for low-income Hoosiers.

Such a compromise would force Obama to rethink his other policy initiatives, but it might be the best chance we have on really doing something about global warming.