Smart climate policy walks on three legs: public investment, carbon pricing and regulatory standards.

In a memorable moment in a memorable presidential campaign, candidate Barack Obama explained why he rejected John McCain's call to postpone their September debate in Oxford, Mississippi, during the negotiations on the first financial bailout package. ‘It's going to be part of the President's job,’ Obama declared, ‘to be able to deal with more than one thing at once.’

Something similar can be said about climate policy. A variety of proposals–for public investment, carbon pricing, regulatory standards–are cooking in Washington's political stew. Sometimes the proponents of specific policies are tempted to oversell their merits, while dismissing other policies as unnecessary or even counterproductive. But if political leaders and policy wonks are going to get smart on climate change, part of their job is to deal with more than one policy instrument at once.

Climate change cannot be reduced to single-issue politics. The challenge of weaning the United States from its dependence on fossil fuels that spew carbon into the Earth's atmosphere is inseparable from the challenges of reviving its economy, generating decent jobs and restoring its leadership in the international community.

Nor can climate change be treated effectively as a single-policy issue. Public investment is crucial, but it will not solve the problem alone. Ditto carbon pricing. Ditto regulatory standards. Each must be part of the solution, and each will enhance the effectiveness of the others. Choosing more than one item from the toolkit is the essence of smart climate policy.

Public Investment

In 2009, with the economy in its deepest crisis since the Great Depression–at a time when banks weren't lending, firms weren't investing, consumers weren't spending and jobs were disappearing–a big programme of public investment occupied the centre of the political stage.

Public spending, unlike tax cuts, directly boosts demand for goods and services. And unlike private consumption, a sizeable fraction of which goes into buying imports, public spending can be targeted to spur demand for goods and services produced at home.

As critics are quick to point out, public spending can be wasteful in the sense of creating nothing of lasting value. The government can inject a shortrun stimulus into the economy simply by paying people to dig holes in the ground and fill them up.