This process stands to happen to the Build Back Better plan. Budget offsets always seem attractive until you see the details, and I’m skeptical that very many can be legislated today. (In addition, many Democrats have committed to removing the current $10,000 limit on deductible state and local taxes. Doing so would cost more than $600 billion over the next decade, and if that cost must be offset, it is likely to consume a substantial share of the viable options.)
The difficulties in raising revenue or cutting spending are well illustrated by the absence of a carbon tax (or a revenue-raising tradeable permit system) in the climate and infrastructure package. Pricing carbon may not be the panacea that some economists present it as, but it would make a certain amount of sense to finance new climate investments with carbon-linked revenue.
Yet sacrificing climate investments at the altar of budget neutrality would be a grave mistake. We have reached a crucial moment in the climate debate. Lazard’s studies of the levelized cost of energy and storage have documented stunning declines in the expense of generating and storing renewable energy. What’s more, a generation of electricity-producing capacity needs to be replaced, and hydrogen technology may be on the verge of a revolution. The window for making bold investments to cut the risk of catastrophic climate change remains open, but it won’t stay open forever. There’s a reason Bill Gates took this moment to write a book about the clean-energy transition: He knows it’s essential to act now to “avoid a climate disaster.”
So there are two fundamental risks in requiring deficit neutrality for new climate investments: It would shift the debate to offsets, rather than the need for ambitious new investment. And the investments would be scaled back to match the available offsets, making the legislation insufficiently ambitious. (Imposing deficit neutrality on some of the new investments but not others is possible, but it is also likely to be confusing and seem arbitrary.)
Forced to choose between going big on climate mitigation or limiting deficit expansion, I would take the first option without hesitation. Fiscal problems can be fixed in the future if need be, but the opportunity to fix climate change won’t last. If our main concern is our legacy for future generations, climate must be the priority.
Peter R. Orszag is a Bloomberg Opinion columnist. He is the chief executive officer of financial advisory at Lazard. He was director of the Office of Management and Budget from 2009 to 2010, and director of the Congressional Budget Office from 2007 to 2008.