Spending Cap Could Hurt Federal Action on Climate

| Mon Jun. 20, 2011 1:26 PM EDT

The debt ceiling continues to be the focus of deliberations in Washington, as Vice-President Joe Biden leads negotiations with congressional leaders to hammer out a deal. A number of Republicans in Congress say such a grand bargain must include an overall spending cap—which means no new federal spending in any fiscal year unless it's offset with cuts elsewhere in the budget.

A number of liberal groups have expressed concerns about what this means for social programs (see: here, here, and here). But it would also likely handicap federal efforts to deal with climate change using market-based measures, as the Center on Budget and Policy Priorities points out:

The cap that these proposals would establish very likely would make it impossible to enact any market-based strategy to reduce the carbon pollution that drives global warming. That's because all such strategies — from carbon taxes to carbon "allowance" systems — are "scored" under Congressional Budget Office (CBO) budget rules as both raising federal revenues and spending them. Comprehensive climate change legislation would raise revenues by putting a price on greenhouse gas pollution and use those revenues for such purposes as protecting consumers and energy-intensive firms and workers and investing in energy efficiency and clean energy technology.
Because the global spending cap proposals would impose a cap on total federal spending in any fiscal year (as a percent of Gross Domestic Product, or GDP), they would bar adoption of such strategies unless they contained large offsetting cuts in other government spending. This would be true even for climate protection proposals that raised sufficient revenue to fully cover their spending — or even went further and reduced the deficit. In other words, even climate protection legislation that reduced the deficit would run afoul of a global spending cap.

It's an academic point right now, really, since a federal climate plan, market-based or otherwise, isn't going anywhere for the time being. But it's worth noting that such a cap would have wide-ranging implications for federal policy.