Senator Mike Barrett on Environmental Policy

Newsmakers’ sixth installment presents Mass. State Senator Michael J. Barrett, author of the legislation, An Act Combating Climate Change. After graduating magna cum laude from Harvard College, Barrett served leading roles in the administrations of Michael Dukakis, William Weld, and Paul Cellucci, former Massachusetts governors. Barrett entered the private sector as CEO of Visiting Nurse Administrations, a health care network, and later became a market analyst for Forrester Research and Critical Mass Consulting. One of Massachusetts’s leading legislators,

Barrett has received high distinctions from Boston Magazine, Mass. Municipal Association, and the Lowell Sun.

While promoting this legislation on Beacon Hill and across the state, Senator Barrett sits down with Newsmakers for an in-depth discussion.

Barrett on the Bill’s Nuts and Bolts

Scientists agree that carbon emissions, greenhouse gases that hold heat in the Earth’s atmosphere, are the principal cause of climate change. At their current levels, greenhouse gas emissions would raise the Earth’s average temperature 7.2 degrees Fahrenheit by the end of the century, provoking extreme weather conditions and costly natural disasters. To avoid this, scientists urge a large reduction in carbon emissions.

The tricky part is that carbon/greenhouse gas emissions—which result from burning fossil fuels like coal, oil, and natural gas—are deeply engrained in our economy and daily lives. Everything from running a factory, to driving a car, to turning on the lights emits carbon dioxide.

So how can we protect the planet but not destroy our economy? How can Massachusetts wean itself off fossil fuels and power its $350 billion economy simultaneously?

Enter Senator Barrett.

By adding a fee to the cost of each barrel of fossil fuel, and rebating its proceeds to the consumer, Barrett’s bill attempts just that. The idea was brought to his attention by the success of a similar bill in British Columbia.

Barrett’s bill aims to level the playing field. Fossil fuels impose a negative externality on our economy, meaning their price doesn’t ”pay for” the damage they inflict on people’s health and the planet. Additional fees would raise the price of fossil fuels closer to their true level, reflecting their costly impacts.

The logic follows basic economics; when the price of goods increases, demand decreases. People don’t want to lose money, so the incentive to conserve and switch to clean energy increases. “By 2030,” Barrett says, “we could be seeing a 16 percent reduction in carbon emissions from this one step alone.”

The fees that the government does collect are rebated equally to everyone. Unlike taxes, this bill is revenue-neutral as the government returns the proceeds completely.  This way, if you consume less fossil fuel than average, then you’ll get more in rebates than you lose in fees. If you consume more than average, you’ll pay more in fees than you get back in rebates.

But how does this bill create jobs if the money isn’t going anywhere? The answer lies in the fact that Massachusetts is an energy-importing state. “When we reduce consumption,” Barrett says, “we are cutting jobs in Texas or the Middle East—states that rely on energy production.  But as soon as we pay less for imports, we are leaving money in MA’s pockets. Our disposable income will be redirected to create jobs here at home.”

Economists predict that the extra cash will create 4,000-10,000 jobs in Massachusetts.  In fact, even in energy-exporting British Columbia, the similar bill has had no recognizable impact on their economy.

Flexibility also makes the bill appealing. Nearing the end of its first year, Barrett’s bill has already gained a promising forty-three sponsors.  “Once you set up the apparatus,” Barrett says, “once you gain public acceptance of the concept, you can scale the fees up or down depending on where you want CO2 emissions to go.”

Solid support from the legislature and the public is the first step in considering higher aspirations. President Obama’s climate ruling, directing each state to implement a plan to reduce coal-fired power-plant emissions, is an opening to launch Barrett’s model to national prominence. “We really would like to see this idea spread to the other New England states, and we would be delighted to see this become national policy,” Barrett says. “The question is what state offers the leadership.”

Barrett on the Bill’s Hurdles

Critics of Barrett’s Bill follow similar thinking to that of  those who question fiscal stimulus in Thomas Knox on Monetary Policy and Debt, and those who oppose the Affordable Care Act in Jonathan Gruber on Health Care Reform, Newsmakers’ premier. In general, this school of thought argues the economy works best when government stays out.

To critics, one problem stands out in Barrett’s bill. Because the bottom 60% of households in the income spectrum naturally consumes less fossil fuel than large business, the fee hits employers disproportionately. To ensure fair incentives across the board, and avoid market distortions, Barrett is in the process of changing the formula to calculate average consumption.  “We are going to rebate shares of the carbon fees back to businesses according to their number of employees,” he says. “We will scale up the rebates to accommodate larger organizations.”

His critics point out that accounting for the number of employees doesn’t address the fact that some industries require higher-than-average fuel consumption. Typically, in the manufacturing/industrial sector, these fuel guzzlers are a sizeable part of many state economies. Not so much in Massachusetts, though. Perhaps fortunately, we have a large knowledge-based economy, in which technology, healthcare, and education drive growth. This bill is predicted to create jobs, in part because we have relatively few of the businesses it would hit the hardest.

That said, while technology, healthcare, and education industries surround Boston, western Massachusetts holds on to a traditional manufacturing base as does the rest of the nation. Will those businesses reluctantly absorb the fees, or leave town?

“Technology jobs and to some extent healthcare and higher ed employment begin to peter out once you are get past Worcester,” Barrett says. “So, we included in the bill general language that authorizes the executive branch to take note of these industries or individual companies, and come up with impact assistance. We don’t dictate what the assistance should be exactly, but we do direct the governor to make certain that carbon fees incentivize conservation without destroying companies or economic sectors.”

Despite these fixes, the business community, many of whom are free-marketers, remains unconvinced, and that’s a sticking point; Republican Governor Charlie Baker, a likely make-or-break voter, heeds their advice.

“Thank goodness that fighting climate change is one of those rare issues that should appeal to conservatives as well as progressives,” Barrett says, noting that an increasing emphasis on the issue, led by the Pope, has marginalized climate change-deniers in most of the country.

“The question then becomes one of optimal solutions,” he continues. “The alternative to carbon pricing is a return to the oil embargo of the 1970s. You can basically say to a homeowner or owner of a car or a business, ‘Here is your ration of fuel. Use it well because this is all you get.’”

Needless to say, the business community would hate that. “[Conservatives] tend to mistrust mandates—one-size-fits-all solutions. They want to enable every individual manager, every individual CEO, to respond to the particularities of their special business,” Barrett says, beginning to enunciate, “Carbon pricing does all of that.”