How a Green Economy Is an Antidote to Casino Capitalism
Continued from previous page
The carbon permit auctioning system could be a major new source of revenue for the U.S. Treasury. Estimates range between $75 and $200 billion per year generated by a measure similar to that which Congress debated last year (before being killed by Senate Republicans).
However, setting limits on the production of oil, natural gas, and coal through the cap-and-trade system will also mean that energy companies will raise prices for consumers. The government could compensate consumers for the higher gas and coal prices by rebating the
cap-and-trade revenues back to them. This would be an eminently fair use of the auction
revenues. People working in the oil, gas, and coal industries would also have fair claims to
significant adjustment support, after the cap-and-trade requirements forced these industries
to contract. These demands on the cap-and-trade auction revenues would then deplete the
public funds available to finance clean energy investments. The amount left over to finance
green investments would almost certainly fall significantly below $50 billion.
In terms of funds available from already existing spending areas, the military budget is the most obvious pot to raid. The military budget now amounts to about $600 billion, of which Iraq alone accounts for $150 billion. Ending the Iraq war and creating a peace dividend would be good politics, good economics, and good ethics. But it is not clear that it will be politically feasible under the Obama administration, especially as it appears committed to escalating military spending levels in Afghanistan and Pakistan.
Even if it were politically viable to capture a $150 billion peace dividend by ending the Iraq war, we cannot assume that all the newly available funds should be channeled into clean energy investments. Some significant share of any such funds would have to be devoted to financing universal national health insurance, education, poverty reduction, and non-energy- related infrastructure projects, including major upgrades of our stock of bridges and levees.
The idea of mobilizing private credit markets to support social objectives is hardly original. As one major example, the very idea of middle- and working-class families owning their own homes became a reality only during the New Deal, after the U.S. government created a highly subsidized and regulated market for individual-family mortgages. As with the old housing finance system, a combination of regulations and subsidies -- sticks and carrots -- can provide a major source of funding to finance the clean energy transition. The stick would be asset-based reserve requirements, while loan guarantees would be the carrot. How would they operate in tandem?
• Asset-based reserve requirements. These are regulations that require financial institutions to maintain a supply of cash as a reserve fund in proportion to other assets they hold in their portfolios. Such requirements can serve both to discourage financial market investors from holding an excessive amount of high-risk speculative assets, and as a cash cushion for the investors to draw upon when market downturns occur. The same policy instrument can also be used to push financial institutions to channel credit to projects that advance social welfare, such as those promoting green investments. Policymakers could stipulate that, say, at least 5 percent of financial institutions’ loan portfolios should be channeled to green investment projects. If the financial institutions fail to reach this 5 percent quota of loans for green investments, they would then be required to hold this same amount of their total assets in cash.
As of 2007, total borrowing by U.S. households and businesses was approximately $2 trillion. This means that, if 5 percent of total borrowing were designated for green investments, that would amount to $100 billion a year -- an amount covering about two-thirds of the $150 billion annual green investment program.