Can We Cap-And-Trade Our Way Out Of The Debt Ceiling Crisis?

If the EPA enacted a cap-and-trade system on the gas we all use on our cars, we could start collecting enough revenue to deal with our financial issues. Best part: Congress doesn’t need to be involved.

Can We Cap-And-Trade Our Way Out Of The Debt Ceiling Crisis?
Power Plant via Shutterstock

The upcoming debt ceiling fiasco has prompted some recent brainstorming by the folks over at Slate on how the President can work around a recalcitrant Congress to avert the debt ceiling standoff. Last week, Eric Posner argued that the President can ignore the ceiling, given his discretion in the face of conflicting commands from Congress. Matt Yglesias recommends the Treasury Department just mint a $1 trillion platinum coin, while Posner worries that such a solution could result in impeachment hearings.


Here’s a different idea: President Obama can instruct the Environmental Protection Agency to enact a cap-and-trade system on automobile fuels (i.e. gasoline), auction emissions allowances to oil refineries, importers, and manufacturers, and use the money to make up for current tax revenue shortfalls.

A gasoline cap-and-trade system enacted by the EPA requires no congressional approval and should enjoy wide support from thinkers across the political spectrum, bringing leading liberals together with conservatives who have previously voiced support for new gas taxes–including former Romney advisor Greg Mankiw, Senator Tom Coburn of Oklahoma, and former George W. Bush advisor Emil Frankel.

The EPA is currently sitting on a petition delivered to the agency by the Institute for Policy Integrity in 2009 to create a cap-and-trade for the transportation sector under its existing authority. Granting the petition now would raise much-needed federal revenue and would reduce greenhouse gas emissions, improve local air quality, reduce dependence on foreign oil, and help clear traffic congestion in high-population areas.

Of course, even if wonks on both sides of the spectrum like the idea of a gas tax, the politics have never been particularly attractive. But, the debt ceiling may create the political cover necessary for actual progress on this issue: the President can say (truthfully) that Congress forced his hand, and Congress can complain that it was the President’s fault. If a price on carbon from gasoline is ever to become politically viable, it might need to spring from this kind of immaculate political conception.

Granted, there are some policy kinks to figure out. To ensure low-income households do not bear a disproportionate share of the burden, the EPA should provide states with a share of the allowances that can be used to protect qualified families from the effects of price increases. Also, a $1 per gallon gas price increase can’t be implemented tomorrow and would have to be phased in gradually over time, so new revenues would not be able to plug the entire debt ceiling hole.

But the fact is: Despite all the talk over grave dangers posed by the upcoming debt ceiling debacle, it may in fact be an opportunity in disguise for President Obama and the entire country. As Posner nicely summarized, President Obama “should not twiddle his thumbs waiting for lawmakers to get their act together…it is time for him to wield the big stick.” If the President is looking for the right club, a win-win policy that generates revenue, helps address climate change, and weans the country from its oil addiction should look awfully attractive.

About the author

Michael A. Livermore is the executive director of the Institute for Policy Integrity and an adjunct professor at NYU Law.