Prior piecemeal efforts to address high energy costs provide invaluable lessons on designing a system that offsets rising carbon costs without distorting consumers' incentives. Funding energy-assistance programs will similarly crowd out existing resources. Energy companies are likely to divert proposed allocations for this purpose to writing off bad debt. Another challenge is finding efficient means to deliver subsidies without disrupting incentives to conserve. Such principles can be derived and can counsel how we address both low-income subsidies and deficit reduction as part of climate change legislation. Overly complex legislation often bogs down, and we lack coherent normative principles for "issue joinder" in public policy debates. Although few challenge their merits, these proposals may nonetheless fail if a consensus emerges that they are extraneous to climate change legislation. Combining carbon regulation with these measures could do severe damage. Even without the pending legislation, the structural deficit will require deflationary tax increases or spending cuts.
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With poverty levels rising even before the current economic downturn, the consequences of these price increases could be dire. A carbon tax or cap-and-trade system would substantially increase costs not only for transportation but also for food and housing. Worse, they divert resources needed to address two crucial issues that the proposed legislation largely ignores: the impact of raising carbon costs on lowincome people and the effects of the pending legislation on the massive structural federal deficit. These subsidies make little sense economically or politically. Pending legislation to address carbon-emissions includes large subsidies for existing emitters.
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A purely political calculus will likely result in legislation that ignores urgent human needs while providing environmentally counterproductive subsidies to current polluters. No one should be surprised, therefore, that reaching principled choices about its substantive scope requires more than routine policy analysis. Its regulation certainly is no ordinary policy initiative. Climate change is no ordinary policy problem.