Professor Chu goes to Washington

Published: May 28 2009 19:42

None of Barack Obama’s officials marks the break with George W. Bush’s disdain for science better than Steven Chu, a Nobel Prize winning physicist. Mr Chu’s appointment as US energy secretary gave many people – including, no doubt, Mr Chu himself – hope for serious US leadership on energy and climate change. His interview with the FT this week, however, is sobering.
The ramp-down of ambitions has been faster than the steps forward. Mr Chu has secured government funding for carbon capture and storage research, but has accepted that the US will continue for now to build coal-fired power plants without CCS. More disappointingly, the energy secretary seems resigned to the view that policies that would substantially raise US petrol prices are not politically feasible.

Some in Washington still deny that climate change is a problem. More numerous are those who think they can will the end – lower carbon emissions – without willing the means: making emissions more expensive. Congress gives the absurd impression that it would be happiest if it could pass a cap-and-trade regime that did not raise the price on energy. President Obama – with his congressional majorities and high popularity ratings – must find the courage to say that increasing the price is precisely the point.
It is true that, in the current recession, an overall increase in the tax burden could delay recovery. But the US also faces a fiscal crisis, and a price on carbon is one obvious way to meet the imminent imperative of reducing the deficit.
Moreover, both in the short run and once public finances improve, a tax (or cap-and-trade regime) can be made revenue-neutral or replace inefficient taxes. Some Republicans support a carbon tax if offset by reductions in income, payroll or corporation taxes. Alternatively, it could be paid out as an equal cash “dividend” to all Americans, as Nasa’s James Hansen proposes.
With no consensus on what to do with the revenues, a higher price on carbon – although desirable in its own right – remains hostage to America’s traditional suspicion of wasteful public spending. The administration shows too little willingness to build such a consensus. Cap-and-trade, in effect a tax, has cloaked the necessary distributive choices in complexity, allowing unacceptable giveaways to industry by not auctioning all permits.
Mr Obama and Mr Chu must redouble their efforts to build support for the price mechanism, whether through cap-and-trade or an outright tax. Failure will open the door to a far worse alternative: command and control.
Copyright The Financial Times Limited 2009