Wednesday, January 30, 2013

A Really Big Deal

Last Friday, Kimberly Strassel pondered about the possibility of The Real Obama Climate Deal:

The administration has kept open the possibility of approving the Keystone XL pipeline. It has hinted it will greenlight more export terminals for natural gas. It last week again delayed its fracking rules for public lands. These moves have encouraged the oil-and-gas industry, even as they have driven the environmental community nuts. The Natural Resources Defense Council this week declared that approving Keystone would be "fundamentally inconsistent" with Mr. Obama's renewed vow to "address climate change."

Or would it? Republicans might recollect that the Obama administration has a practiced method of winning controversial legislation like ObamaCare and Dodd-Frank. To wit, it uses a combination of bribes and threats to get pertinent sectors of the business community to back its efforts.

Consider what the mighty oil-and-gas lobby might be co-opted to do—either out of gratitude for the president's backing or fear that he might turn on it. Consider how the political environment might change if the industry threw its weight behind a carbon tax or the EPA climate scheme. Consider that this might prove an easy call, given that a tax would be borne by its customers, while EPA regs will mostly crush coal. Consider that numerous Big Oil chieftains have already endorsed such a carbon levy. And who says Mr. Obama has to decide Keystone XL or anything else soon? He could hold out, to see what he can extract in return.

If you think about it, this makes perfect sense. In fact, if he was willing to think big and make a few mild compromises, President Obama could craft a climate/energy deal that would increase the chances of a successful second term, help his party politically, and fund the continued growth of government in the future.

Here’s how. He offers to essentially open the spigot on American energy all the way including:

- Not having the EPA stand in the way of continued and expanded fracking operations

- Approve the Keystone XL and other pipeline projects to more easily bring oil/gas to market

- Approve the export of LNG

- Open up oil reserves in Alaska and off shore that have been closed to exploration

In return, the President would require that the GOP House pass and Republicans in the Senate not block a carbon tax bill.

As Strassel notes, the oil/gas industry would gladly take this deal as they really don’t have a problem with a carbon tax that will be passed on to consumers anyway. It would be difficult for Republicans to say no to an opportunity to open up all these energy resources and you can bet that red state Dems would happily support the deal.

President Obama would have to sell the deal to liberals and the environmental groups by explaining that the benefits of the carbon tax outweigh the potential environmental costs of increased oil/gas exploration and production. It would require him to admit that-like it or not-fossil fuels are going to provide the vast majority of our energy needs for the foreseeable future. He could assuage environmental concerns by explaining that the carbon tax could help reduce consumption and that some portion of the money collected by it would be used for “green energy” research and development. At the end of the day, that likely wouldn’t enough to make environmental groups happy and he’d have to be willing to accept that.

Because the benefits he would get could be huge:

- Unleashing America’s energy resources would give the economy a big bump-a bump looking increasingly necessary given today’s dismal GDP number-and unlikely to come from other sources. More jobs, more spending, and more economic activity that President Obama could claim credit burnishing his second term reputation.

- Such a deal would also help red state Democrats in 2014 and the Democratic ticket in 2016. If the economy continues to limp along and Democrats are seen as blocking actions that could help it grow such as allowing more oil/gas exploration and production, they will pay a price. This deal would allow them to avoid that and also maintain environmental cred for supporting a carbon tax.

- Whether Democrats care to admit it or not, the fiscal situation will eventually reach a point where sustaining the current level of government (to say nothing of expanding it further) will simply not be possible. Further taxes on “the rich” or “greedy businesses” will only go so far in delaying this day of reckoning. A booming economy brought about by unleashing America’s energy would do a lot to help fill federal coffers. A carbon tax could raise untold billions of dollars. Dollars that could be used to keep the government train on the tracks.

One of the objections raised to the carbon tax is that it will hurt the economy by increasing energy costs for consumers and businesses. And taken alone, it surely would. However, if it were coupled with a significant increase in the supply of oil and gas, that impact would be muted. The total price could stay relatively flat, it’s just that the government’s take would be much largely. Would consumers really care if gas cost $3 a gallon today and the government got 50 cents (hypothetically) or if it cost $3 a gallon two years from now and the government got $1.50? Not likely. And even if these supplies wouldn’t come online for years, they still would have an impact on current prices.

One industry that would undoubtedly suffer severely under this deal would be coal. And politicians from coal states would no doubt oppose it vigorously. But could they really hope to stop it if it were pushed by President Obama and Democrats he brings on board, supported by the oil/gas industry, and Republicans willing to sacrifice coal for more oil/gas? Unlikely.

So if he were open to it, it seems as if President Obama could pull off a grand bargain on energy/climate that would benefit both him and his party for years to come. The only hitch? That whole “mild compromises” thing. Based on his past record and current attitude, it seems unlikely that this president could bring himself to give even a few inches to secure a deal with miles of benefits.


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