By the way, on greenhouse gas limits, Canada already did this....

To much fanfare, controversy, and promises to sue, litigate, and sue and litigate some more, the EPA unveiled its much-anticipated rule for greenhouse gas emissions from new and existing power plants. United Mine Workers of America say they feel they've been "kicked to the curb," and UMW president Cecil Roberts ominously warned, "we will not go quietly," and "you will hear from us." Tim Phillips, head of the Koch-funded Americans for Prosperity promised a "substantial effort" to defeat the rules.

This is so controversial, such a lightning rod, and ... it's been done already, and not in tree-hugging Europe, but right here, a miles north of Seattle and Buffalo, in Canada. The Canadian federal government -- the Conservative Party-led Canadian federal government, headed up by the almost comically unloved Prime Minister Stephen Harper, introduced roughly the same rule as early as 2011, and finalized it in 2012. The rule, like EPA's announced rule yesterday, sets a rate standard for power plants that is easy for natural gas-fired power plants to meet, impossible for coal-fired power plants to meet, unless a heretofore non-existent carbon capture and storage technology is deployed. The Canadian rule was quite realistic (and unambitious) in requiring that the CCS technology achieve a 30% emissions reduction rate.

No one who has had any experience with Environment Canada, the Canadian version of something like the EPA, believes that Environmental Canada, much less one under the government of Stephen Harper, was capable of forming such a rule (the Canadian rule was also not 645 pages like the EPA rule was). There is a 100% chance that the Canadian rule was developed with considerable EPA input. The Canadian rule also grandfathers up to the end of the "useful life" of a power plant -- 45 years. Sensible to some, but I've argued against grandfathering, as have many.

I can appreciate timing considerations, but remain puzzled. I can see the Obama Administration wishing to avoid rolling it out right before the 2012 re-election bid, but why wait until now? There is no margin for error if the President truly wants this in place by the time he leaves office. If that was his wish, he squandered 18 months getting this rolled out. And all the time, Bob and Doug Mackenzie had already set the precedent.

Is Climate Change a National Security Problem?

In his commencement address to the United States Military Academy last week, President Obama called climate change a "creeping national security crisis." He means that there will be refugee flows, natural disasters, and conflicts over water and food. But really, in my narrow mind, nothing is a security crisis unless it involves violence or the threat of it. Does climate change pose that threat? Then-Defense Secretary Robert Gates made that point over six years ago.

Bruce Johnsen at George Mason once offered this example. "I'm a big guy [he is]. But if I am threatened by violence on a dark street by someone smaller than me who wants my wallet, I will give it to him even if he is unarmed. Even though I may have an absolute advantage in violence, that person is likely to have a comparative advantage in violence." I am paraphrasing, but you get the point. Also, surely Professor Johnsen is not the only person to have made this point, but he is the only big guy I know to have made this point.

The point is that people have different opportunity costs of violence. A poor mugger on the streets may have a less than 50-50 chance of winning a fight against Bruce Johnsen (that was a few years ago), but because of his extraordinarily low opportunity costs of injury, it is a chance he might take. Professor Johnsen, on the other hand, might have to cancel classes, miss conferences, and *gasp* -- even miss faculty meetings! His costs of injury would be very high. Wealth inequalities are dangerous precisely because they create vast disparities in the opportunity costs of violence.

So goes it with climate change. As the rich get richer and the poor get relatively poorer (indulge me for a moment, as Professor Johnsen noted that these claims are inferential, and may underestimate the adaptive capacity of poor nations) in a climate-changed world, the poor are likely to respond by fighting. Poorer nations are likely to respond with violence, because, after all, when your country is threatened by flooding and tropical storms, what really do you have to lose?

End the Crude Oil Export Ban And Fix Our Nation's Roads and Bridges

The United States can end the export ban and simultaneously stabilize the insolvent Highway Trust Fund. Bridges are collapsing and 18-wheelers are falling into potholes the size of Rhode Island, and we complain that Congress has not raised the gasoline tax since 1993. That tree-hugging pit of Marxism, the US Chamber of Commerce, has called for a gas tax increase.

IHS Energy, a consulting group headed by energy writer and wonk Daniel Yergin, today released a report advocating for an end to the domestic crude oil export ban. The IHS report, downloadable from this IHS page, reports that lifting a crude oil ban would create an average of almost 400,000 jobs between 2016 and 2030. Surprisingly, ending the ban would lower gasoline prices by an average of 8 cents per gallon. This is because US gasoline prices are set by global crude oil prices not domestic production costs, and lifting a US export ban would add to the world supply by a significant amount. The only losers would be domestic refiners such as Valero, which has opposed lifting the ban. Boo hoo.

So here is an idea: lift the ban, and at the same time impose a gas tax of 8 cents per gallon. The gasoline consumer is no worse off, because the gas tax only counteracts the lower gas prices resulting from ending the export ban, and generate about $9.7 billion annually for the Highway Trust Fund (135 billion gallons of gasoline were consumed in the United States last year, 13 billion of which were ethanol). Ideally, the crude oil export ban should be accompanied by an $9 per ton of CO2 carbon tax, but that's another story.

Enacted as part of the Energy Policy and Conservation Act of 1975, the crude oil export ban was meant to secure energy supplies in the wake of the 1973 oil embargo that shocked an energy-complacent United States. The actual legislation just provides that "[t]he President may, by rule, under such terms and Export conditions as he determines to be appropriate and necessary to carry out the purposes of this Act, restrict exports of -- ... coal, petroleum products, natural gas, or petrochemical feedstocks. .." Section 103 goes on to provide that the "President shall exercise the authority provided for in Exemption, subsection (a) to promulgate a rule prohibiting the export of crude oil and natural gas produced in the United States, except that the President may, ... exempt from such prohibition such crude oil or natural gas exports which he determines to be consistent with the national interest..." So it is pretty clear that the ban is a matter of executive discretion. It is just that Presidents Ford, Carter, Reagan, Bush, Clinton, Bush, and Obama have all decided that exporting oil was not in the national interest.

But that was 1975, and the United States is now one of the major oil producers of the world today. Much of the EPCA's provisions, aimed at insulating the United States from volatile global energy prices, still seem useful today, like the Strategic Oil Reserve and fuel efficiency standards for motor vehicles. But lifting the crude oil ban now has bipartisan interest, with Senators Wyden and Cantwell joining Murkowski in calling for at least consideration to ending the ban.

Extra-territorial Application of Domestic Law ... ?

The Obama Administration is preparing to announce that it will file criminal charges against Chinese officials for cyber-espionage, conducted against mostly private-sector firms in the United States and, I guess, military targets within the U.S. It is worth stopping to think about the implications for international law.

I am preparing for a webinar in series hosted by the Canadian Bar Association, with the administrative leadership of Marc McAree, partner at the Toronto law firm of Willms and Shier, on Cross-Border environmental disputes. My old friend and co-author, Austen Parrish (now Dean at IU-Maurer), will be on hand, and he will lament the breakdown of reliance on international institutions in favor of unilaterial measures, such as domestic litigation. In Austen's previous work, he has outlined his view of the problem, which is that this leads to a breakdown of the implicit norms of international comity, and will lead to an unproductive tit-for-tat world of international diplomacy. In Austen's view, courts are even creatively redefining extra-territoriality out of existence, essentially making almost everything into a "domestic matter." Austen politely (he is Canadian after all) presses a disagreement with "sovereigntists" such as Eric Posner, Jack Goldsmith, and Curtis Bradley for advocating for a world less dependent on international institutions than say, domestic litigation or economic sanctions.

But I think Dean Parrish's cautionary notes ring hollow in several contexts, and the cyber-security threat is a good example of why. Austen's worry is about a breakdown in international legal institutions, and an over-reliance on litigation as a means of settling cross-border disputes. But let's stop and wonder here: what is the endgame? Is it true that this tit-for-tat world will give rise to a breakdown in international cooperation altogether? Surely trade between China and the United States will not suffer too much as a result of this spat over cyber-security. What exactly will bring Russia to heel over its regional ambitions to re-create some subset of the former Soviet Union? I think the U.N. is not up to it, especially with Russia and China on the Security Council. Being unable to use VISA or MasterCard -- now that sounds scary! International institutions, while not dead, are not going to be the sole bulwark against international lawlessness in the future. The deep economic interdependencies among nations will be important, and markets will play a role in disciplining both international lawlessness, and the running amok of domestic litigation. The difficulty of enforcement in areas such as cyber-security also limits the capacity of international institutions to police.

Fundamentally, the effects test as a basis for jurisdiction over foreign entities has fallen on hard times, and perhaps that is the problem. But if there is going to be some resurgence in the role of international institutions, some grappling with extra-territorial effects is going to have to take place. Without a more complex discussion of extra-territorial effects, both the "sovereigntist" and the "internationalist" positions in the abstract sound unrealistic and overbroad.

Nothing is off-limits for the Onion

Continuing on the Piketty-Beaudry-Green work on income inequalities -- that high-skilled workers are finding themselves in lower-skilled jobs -- the Onion has a piece on a high school student and her chemistry teacher applying for the same waitressing job. Nothing is sacred for the Onion: back on October 3, 2001, the Onion, having taken a reading on the national mood, decided that it was going to have a little fun in the aftermath of September 11.

Scalia's Blunder, and What Else It Signifies

Much has now been made of a fairly spectacular blunder made by Justice Scalia in his dissent in the EME Homer case announced last week. Scalia opined that EPA was trying to smuggle cost considerations into rulemakings under the Clean Air Act. He also said it was not the first time that EPA had tried this little bit of chicanery, and he cited Whitman v. American Trucking as an example. The problem is that EPA's position was the exact opposite, as Scalia's own opinion reflects. Scalia also ignores another of his opinions in Entergy v. Riverkeeper, in which EPA declined to mandate a very expensive technology on cost considerations. Granted, Scalia is the author of a large number of opinions (over 1000), so maybe he should get a break. Still, Dan Farber notes the casual nature of the writing from his dissent ("Look Ma, no hands!"  "Wow, that's a hard one -- almost the equivalent of asking who is buried in Grant's Tomb") that is really unusual for a Supreme Court opinion. Perhaps Justice Scalia is, in his advancing years, shedding the few inhibitions he still has. 

There are other aspects of Scalia's opinion which suggest a more significant about-face. The broader about-face is what seems to be an about-face in "conservative" (they would call themselves that, I am not sure I would) circles on cost-benefit analysis, as cost-benefit analyses start to make some regulations look sensible, like climate policy. The dismay over the social cost of carbon is a driver of that movement. But we should not be surprised that "conservatives" have discovered postmodernism late in their intellectual lives, including that of climate skepticism. As Eric Rasumussen points out, arguing over facts is more personal than arguing over theories. My view is that "conservatives" sense they are going to be on the losing end of empirical arguments, and are driven less by data than by ideology.

Thomas Piketty's Capital in the Twenty-First Century

French economist Thomas Piketty's book, only recently translated into English (and on 2-3 week back order at Amazon) has clearly struck a nerve. Income inequality in the United States has become like climate change -- just too emotional for most people to discuss rationally. It should surprise no one that Paul Krugman loved it, and it should not surprise very many people that David Brooks was more skeptical. You might guess at the political preferences of a French economist who was hired by M.I.T. at the age of twenty-two, but opted to return to France to research and teach, and someone who writes that "the discipline of economics has yet to get over its childish passion for mathematics and for purley theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences." (p. 32) You could guess, but you'd be wrong. I don't actually find Piketty's book particularly ideological. He seeks to convince us that the capital-to-income ratio will, over time and assuming an absence of a shock like a world war, asymptote to some level. For the Krugmans of the world, Piketty's message that capital will become even more important in the future, exacerbating inequality, allows them to say, "see, I told you so!" Unsurprisingly, those critical of Piketty's wealth tax -- a tax on capital, which is hardly a new idea -- label him a Marxist. But Piketty is very critical of Marx, while acknowledging that he did not have the benefit of data that succeeding economists had. At times Piketty verges on the snide in criticizing socialists and modern-day quasi-socialists ("Unfortunately for the people caught up in these totalitarian experiments, the problem was that private property and the market economy do not serve solely to ensure the domination of capital over those who have nothing to sell but their labor power. They also play useful role in coordinating the actions of millions of individuals ... human disasters caused by Soviet-style centralized planning illustrate this quite clearly." p. 532). Piketty is not naive, so the fact that his book as caught the sails of a highly partisan and largely fact-free debate about inequality cannot be a surprise to him. In this vein, I find this book refreshing in its balance and humility.

What I wish Piketty did more was to explain why countries were destined to asymptote to some pre-determined capital-to-income ratio. And here, I wish he would have spent just a little more time thinking about the role that law and legal institutions have in shaping capital formation. A paper by Paul Beaudry and David Green at the University of British Columbia suggests that technological change is not just an exogenous shock, as Katz and Goldin seem to imply, but one that has some endogeneity, adjusting toward relative factor supplies, including education. My own work does not delve into the nature of capital accumulation itself, but the role that legal rules and institutions play. That law and legal institutions play a role in capital formation is obvious, but exactly how it affects, and in what areas, is more complicated.