The EPA As Bad Cop

Some believe that the best way to reduce greenhouse gas emissions is through a carbon tax on either production or consumption. Others favor a cap and trade approach that sets a ceiling on emissions and either gives away or sells credits to industry to emit. Then there's a third strain of thought that the EPA could simply declare carbon dioxide and methane poison and regulate the hell out of it.

The Environmental Protection Agency, about to declare heat-trapping gases to be dangerous pollutants, has embarked on one of the most ambitious regulatory challenges in history.

The move is likely to have a profound effect across the economic spectrum, affecting transportation, power plants, oil refineries, cement plants and other manufacturers.

It sets the agency on a collision course with carmakers, coal plants and other businesses that rely on fossil fuels, which fear that the finding will impose complex and costly rules.

But it may also help the Obama administration’s efforts to push through a federal law to curb carbon dioxide emissions by drawing industry support for legislation, which many companies see as less restrictive and more flexible than being monitored by a regulatory agency. And it will lay a basis for the United States in the negotiations leading up to a global climate treaty to be signed in Copenhagen in December.

The ultimate problem with making the EPA the bad cop is that the chief of police changes depending on the party in power. But in the short term, characterizing Lisa Jackson as a determined regulator who will restrict greenhouse gas emissions in transportation vehicles, power plants, factories and oil refineries would certainly get the business community's attention. And maybe a carbon pricing system, through cap and trade or a carbon tax, would be seen as a more fuzzy alternative. Ultimately, Congress needs to manufacture a solution, but the EPA finding could be a very large bargaining chip. In theory it will work, but if the corporate community owns the huevos of the Administration on this issue the way they do on the banking crisis, all the strategies in the world won't matter.

As far as what Congress may produce, Brian Beutler, apparently in his new gig at TPM, reports that the Administration seeks to put the clean energy R&D tax credit under budget reconciliation rules. I believe we can only innovate our way out of this climate crisis, and the R&D credit should be protected and extended as a national security priority in addition to an environmental one. The President discussed investments in clean energy just yesterday:

We can remain the world's leading importer of foreign oil, or we can become the world's leading exporter of renewable energy. We can allow climate change to wreck unnatural havoc, or we can create jobs preventing its worst effects. We can hand over the jobs of the 21st century to our competitors, or we can create those jobs right here in America.

We know the right choice. We have known the right choice for a generation. The time has come to make that choice, to act on what we know. And that's why my budget makes a historic investment: $150 billion over 10 years in clean energy and energy efficiency, building on what we've achieved through the Recovery Plan.

And it includes a 10-year commitment to make the Research and Experimentation Tax Credit permanent. This is a tax credit that Serious Materials has used to grow its business, and one I'm sure others here today have used, as well. This is a tax credit that returns $2 to the economy for every dollar we spend.

Yet over the years we've allowed this credit to lapse or we've extended it year to year -- even just a few months at a time. Under my budget, this tax credit will no longer fall prey to the whims of politics and partisanship. It will be far more effective when businesses like yours can count on it, when you've got some stability and reliability [...]

Progress is rarely easy, and I know people in this room understand that. Sometimes it takes months to learn that your ideas just won't work -– or years to learn that it will. Sometimes the funding dries up or the investors walk away. Sometimes you have to fail before you can succeed.

And often it takes not just the commitment of an innovator, but the commitment of a country to innovation. Often, what's required is the support of government, recognizing that our future is what we make of it. Our future is what we build it to be.

Sometimes progress comes not in waves, but in the small inching of water onto the shore. The R&D tax credit may be one of those puddles, but enough of them can add up to an ocean.