I've argued before that I'm a bit of a pessimist on the likelihood of passing serious cap-and-trade legislation, but from a question of simple political sequencing, we're entering a very propitious moment indeed. The central weakness of cap-and-trade is that it will raise certain energy prices. The most politically salient of these is probably gasoline. The CBO has estimated that a carbon price of $28-per-metric-ton, which is around what we're likely to see, would raise gasoline prices by about 25 cents per gallon. That's not huge, but it's not popular, either. Six months ago, when gasoline was sitting above $4 a gallon, I'd have told you it was utterly impossible. But we're entering the right season, and the right economic climate, for cap-and-trade. Demand drops during the Winter. And it drops much further in recessions, during which global demand for oil slackens. As such, you're seeing prices around $1.65, and they may go even lower. Gas prices won't be terribly salient for the next few months, and so something like cap-and-trade might not be impossible. To be sure, a carbon price like $28 wouldn't do that much to change driver habits. 25 cents a gallon might matter next time we hit $4, but it probably won't matter all that much. But it would act as a large tax that could support incredible levels of investment in green technology, new infrastructure, and so forth. In other words, it might not force the green revolution, but it would fund it. If you wanted to use the tax to change behavior rather than fund investment, however, you'd have to make it much larger, and then you'd probably want to look at ways to offset the impacts on low and middle income households. Luckily, the CBO examined exactly this and found that "if the government chose to sell the allowances and used the revenues to pay an equal lump-sum rebate to each household in the United States...the size of the rebate would be larger than the average increase in low-income households’ spending on energy-intensive goods." That said, I imagine it will still be a bit hard to explain that the government is going to make the price of energy much higher, but will give people checks for yet more money than that, in the hopes that the high price tag triggers an irrational response to use less energy even though the lump sum check could actually cover the average family's fossil fuel habit. But whatever Obama decides to do, he's best try it quickly. Recession+Winter is a rare alignment for this particular policy.
