Some sobriety about the proposed Clean Energy Deployment Administration

Outgoing U.S. Senator Jeff Bingaman (D-NM) is proposing a "Clean Energy Deployment Administration." Senator has historically worked well across the aisle, and he has in this case enlisted the support of Senator Lisa Murkowski (R-AK), who has nevertheless insisted that funding ($10 billion upfront) be figured out. This is not a bad condition to attach to her support.

In fact, I would go further and wonder if this CEDA is really such a good idea after all. There is a saying that goes something like "government is bad at picking winners, and losers are good at picking governments." We have this temptation, especially when we have a huge problem, to think that government, with its huge scale, is best positioned to somehow "solve" it. And what has that predisposition gotten us? Well, there was George W. Bush's hydrogen fuel cell initiative, which never approached the promised $1.2 billion in funding because it was eventually recognized as one of the less promising technologies after all. But apart from the suspicion that Bush's hydrogen fuel cell initiative, championed by then-Energy Secretary Spencer Abraham, was really about deflecting criticism on climate change and about helping win the key electoral battleground state of Michigan, the fuel cell initiative is a classic case of losers picking a good government. In terms of its contribution to society minus the costs it has imposed, General Motors is really one of the most abject losers in the history of human industry.

So would a CEDA provide more of this? I suspect it would. Senator Bingaman is a very intelligent and upright individual, but seems a bit vulnerable to snake oil sales. His comment in 2009, when he was chair of the Senate Energy and Natural Resources Committee, "I believe we could go to E-12, or E-14 or E-16 without causing any great problems with vehicle operation," is indicative of a misplaced confidence in the prospects of ethanol, if only government would save it. Senator Bingaman would likely not have anything to do with the operation of CEDA, if it formed, but this is not a good face to put on CEDA. And Congress's current proclivities to tinker and micro-manage agency operations does not bode well for the prospects of an indepedant and depoliticized CEDA.

bin Laden is dead... but what about gas prices?

Greenwire reported today that even as Americans celebrated the death of Osama bin Laden, they complained about high gas prices. The hoped-for connection, one supposes, is that with an important figure at the head of terrorism dead, a more secure world could more securely produce and transport oil.

Of course that's false. The price of oil, which did not abate Monday, depends on many, many factors other than whether one old man, important or not, is alive or not. Strange how a globally-traded commodity that is beholden to so many economic factors is almost always at the top of political emotional intensity meters.

Which brings me to today's Canadian federal elections. Indications are that Jack Layton and the New Democratic Party will move into second place as the party with the second-most seats in the House of Commons. This will not be a good thing for Canada. George Hoberg blogged last week about the role of climate policy in the election, lamenting the small role that it has played, but ever more discouraging, the really lousy conversation that is taking place. What a strange argument between Jack Layton and Stephen Harper -- Harper, the conservative, the libertarian, promising to reduce emissions through  costly, inefficient, command-and-control ("sector-by-sector") regulation, and Layton, the old-fashioned liberal, promising reductions through a cap-and-trade program! Let's be blunt: both are simply lying.

Of the two, I am more offended by Layton's claim that a cap-and-trade program that reduces emissions will not raise gasoline prices. Why? First, because this is an argument that could only be slipped past people who aren't paying attention or just engaging in wishful thinking. Do we really expect people and firms to reduce consumption without a price signal? There is no serious controversy that we need a price on carbon. Layton's economic falsehood is that the price can just be isolated to the evil barons of industry; this is sophomoric and silly, as most undergraduate students of economics could tell you that costs are often passed up and down the supply chain.. It seems particularly reprehensible for someone who hopes to be Prime Minister to make an emotional but inaccurate appeal, exploiting those Canadians most vulnerable to his demagoguery to gain their vote. Second, he is inculcating in Canadians a belief that climate change is someone else's fault and someone else's responsibility. Literally, nothing could be further from the truth. Of all environmental problems, climate change is everybody's responsibility, very prominently Canadians, which have the ninth-largest per capita carbon footprint, almost double that of the UK's and almost three times that of France.

On the Facebook page of U.S. Senator Lindsay Graham, someone wrote: "Now that he is dead! [sic] Can we get some substantial relief at the Gas pump?"  This is what it's come to. This is the kind of voter that Jack Layton would appeal to (if he were Canadian), and this is what Canadians will be like if Jack Layton ever gets the chance to lead Canada.

Why American Electric Power v. Connecticut doesn't matter

Greenwire reports that the justices of the US Supreme sounded skeptical of the plaintiffs' claim that greenhouse gas emissions by American Electric Power, the world's largest greenhouse gas emitter, and four other named defendant investor-owned electric utilities, could constitute a common-law public nuisance that could result in legal liability to the State of Connecticut, the Open Space Institute, and a handful of other states. I would reserve judgment; the tone of oral argument is not a great predictor for how justices will vote or for the outcomes of cases, and in the case of public nuisance for emitting greenhouse gases, there are a lot of hard questions that need to be asked whether you're inclined to rule in favor or not.

I wrote an article back in 2008 that climate litigation like this was not likely to be a very effective way to reduce greenhouse gas emissions. Looking forward and finding an ideal plaintiff -- which I concluded was the Inuit people of Canada, the US, Denmark (through its territory of Greenland), and Russia -- and pitting it against the most vulnerable defendants -- American Electric Power and a longer list of other emitters -- the chances of prevailing on a common law nuisance suit were.... OK, but not fabulous. There are just too many leaps that a court of law would have to make in order to find that AEP and the others actually did something significant to harm the Inuit people, when even a large aggregation of the greatest emitters in history did not contribute more than about 8-10% to the existing stock of greenhouse gases. And if winning this "ideal" case was going to be challenge, what does that say about all the other climate change cases that could be brought? (Note: the article benefited from the detailed comments of Matthew Pawa, attorney for plaintiff Open Space Institute; while disagreeing with my ultimate conclusion, Pawa acknowledged the hurdles he needed to overcome to win.)

But there is another reason that environmentalists should not become too enamored of climate litigation: it perpetuates a myth that climate change is the fault and responsibility of a few evil barons of industry. It is not. It lies with us: certainly all of us living in affluent countries, but even those of us with small carbon footprints. We have done this to ourselves, and it is misleading to think that we can vindicate ourselves by sticking it to The Man. This is the specious tack taken by the Canadian NDP and the British Columbia NDP, which have attacked carbon taxes proposed by the Canadian Liberal Party and implemented by the BC Liberal Party. What we need is a price on carbon, so that all of us Canadians, Americans, and everybody else feels the pain of contributing to the climate change problem. A carbon tax does this, and does this best under most politically realistic scenarios.

Please don't complain to me about regressiveness until you've studied the literature. There will be some regressiveness to carbon taxes; that much has to be acknowledged and addressed. But there are many subtleties that have been ignored in the discussion about distributional impacts of carbon pricing. First of all, revenue recycling can and should address some of that. Dallas Burtraw and his colleagues at Resources for the Future have carefully modeled the effects of carbon pricing on different demographic and regional groups, and explored ways of recycling revenue to reduce impacts. And second, recent research seems to suggest that when government programs that provide aid for the poor are indexed to inflation, that the regressiveness problem is narrowed. This is of little comfort to those whose government benefits will *not* increase with inflation, but it is a start, and the kind of subtlety that has been ignored in the debate about regressiveness. Thirdly, do we define "poor" as people with low income? That fails to capture the affluence of two large groups of people: students and retirees. And finally, of all of the offenses that we visit upon the least fortunate in affluent societies, we're going to hold climate policy hostage until we fix income inequality?! Bailing out General Motors, perhaps the most stubbornly inefficient long-lived corporation in the history of human industry -- this insult to generations of American taxpayers is more important than climate change? The edgy language in this post is not targeted at the poor; it is targeted at those who purport to care about the plight of the poor, but haven't devoted the time to think through the various complicated issues around carbon pricing and distributional impacts, but would rather just use the poor as a political lever.

Renewable Portfolio Standards -- the Californication of Carbon Pricing

Governor Jerry Brown signed into law this week SB X1-2, the California Renewable Portfolio Standard which requires investor-owned utilities and other major electricity service providers to obtain 33% of their electricity from renewable energy sources by 2020. The law is not really much news, as it is just the legislative ratification of Executive Order S-14-08 signed by then-Governor Arnold Schwarzenegger in November of 2008. Admirably, the California Energy Commission's definition of renewable energy does not include large hydro projects, which, as Roberta Mann has written, is a somewhat ironic way to address climate change, given the future water supply issues that climate change will bring.

But although California takes a step in the right direction, it is worth taking a step back and looking at the overall climate change policy landscape in California and like-minded Western jurisdictions. Although a requirement that electricity service providers obtain electricity from renewables does boost the economics of renewable energy -- it forces providers to bid more for renewable energy in order to get their portfolio to 33% -- it doesn't actually do as much as it could. A direct carbon price -- in the form of a carbon tax or from the cap-and-trade program under California's AB 32, now pending a challenge by some environmental justice groups -- will more effectively reduce greenhouse gas (GHG) emissions.

There are a number of problems with the RPS. First, it will not be clear what kind of a price signal electricity consumers will see. Ideally, a consumer should pay in proportion to her GHG emissions, which of course means paying more with greater usage. But cost-recovery plans for the procurement of renewable electricity that are likely to be approved by the California Public Utilities Commission may or may not allow the completely transparent pass-through of emissions. Cost recovery will focus on how electricity providers can recoup the costs of paying more for renewables, which is different from making consumers pay for their emissions. It's a backwards way of pricing GHG emissions. Second, assuming that AB 32 survives the legal challenge, the RPS will distort the cap-and-trade market for permits, and that distortion will have more significance if the Western Climate Initiative's multi-state and -provincial cap-and-trade program comes into effect. Limiting California's energy consumption to 66% will have a profound effect on fossil fuel plants that ordinarily might compete in California's market -- they will be directed to, well, other WCI jurisdictions. This more ready availability of fossil-fuel-fired electricity will depress permit prices. This is potentially a large effect, as California's energy market is big enough to influence cap-and-trade permit prices very significantly. Finally, we need all the technological innovations we can get, at all levels of the energy production and consumption cycle, and an RPS only focuses on the production side. RPS does not directly encourage the search for ways to improve energy efficiency.

The Impending US Government Shutdown... and Carbon Taxes?!

Of course, only "non-essential" US government personnel will be off-duty if the budget stalemate isn't resolved by COB Friday, April 8. And of course, it will be temporary. Just the same, I am glad to be living here north of the border for now.

In research published in a volume of collected works, Fiscal Challenges: An Inter-disciplinary Approach to Budget Policy (Garrett, Graddy, & Jackson, eds., Cambridge Press 2008), Jonathan Baron and Edward McCaffrey show in their chapter (The Political Psychology of Budget Deficits) that people want lower taxes, less government spending, but no reductions in the sum of spending on all specific government programs. People just want it all, and they want it to cost nothing. And politicians pander to one or the other impulse depending on which one will yield greater political support. 


How is this related to carbon taxes? On both sides of the political chasm in the budget battle there is a delusion that something can be had for nothing. Fiscal conservatives don't have the slightest idea of what the "job-killing" EPA does for them, and fiscal liberals simply have no appetite for reducing spending on anything. Similarly, when it comes to climate policy, people want something for nothing, and politicians are willing to tell them they can have it. In my forthcoming book, The Case for a Carbon Tax: Getting Past Our Hang-ups to Effective Climate Policy (Island Press, 2011), I explore why people hate carbon taxes as opposed to other, generally (not always) less effective climate policies. I conclude that at least a strong component of this has to do with the transparency of the price of carbon reduction. The more transparent the price is, the less popular a policy will be. Hence, the political popularity of "game-changing," "home-run" technologies like biofuels, nuclear energy, and carbon capture and storage, and George W. Bush's ballyhooed but failed hydrogen fuel cell initiative. Above all, government subsidies to promote these technologies clearly cost something -- but proponents and gullible (or opportunistic) legislators seize on these technologies as supposedly painless ways to make our economies less carbon-intensive economies without suffering any economic pain. 


Well, actually, we do suffer economic pain. In the same way that people delusionally want lower taxes and continuing support for specific government programs, people want to reduce greenhouse gas emissions but don't want it to cost them anything. So the idea of subsidizing wonderful and miraculous technologies that will lower emissions without cost is bound to be attractive. As a substantive matter, I challenge anyone to demonstrate to me how any specific government-subsidized project to reduce greenhouse gas emissions (I'm leaving geo-engineering measures out of this) can more effectively lower greenhouse gas concentrations, dollar-for-dollar, than a carbon tax. There is no free lunch. Lowering greenhouse gas emissions is going to cost money, and it's going to have to cost even the poorest among us, although there are things we can do in terms of income redistribution to make things easier. But shame on the sympathy entrepreneur politicians, especially in Canada, that play on the fears of people by claiming they have a way of reducing greenhouse gases that will "stick it to the corporations" but not "ordinary, hard-working people." 


Why do sympathy entrepreneurs manage to successfully play on fears of regressiveness of a carbon tax? My explanation in the book is that the way policies are framed consciously or unconsciously favor policies that are opaque with their costs. And so government subsidies and command-and-control regulation fare better, and so does cap-and-trade, although opponents of climate regulation have, not altogether inaccurately, succeeded in framing cap-and-trade as a tax. If it works, it is a tax. That's the good news, not the bad news! In terms of choosing climate policies, we have to work at framing all climate policies in terms of costs and benefits, and cost-effectiveness (dollars per ton of carbon dioxide-equivalent reduced), a little more carefully. Climate policies should be judged mostly by these criteria, whether they are obvious or not, whether these aspects are transparent or opaque. If they are opaque, then we need to work at making them less so, so that more informed decision-making can be made about climate policies.


For a working paper synopsis of some of the arguments I make in my book, see my 23-page draft paper Nine Reasons to Adopt a Carbon Tax.

 

The Lawsuit Against California's AB32 -- Why EJ Advocates Are Right for All the Wrong Reasons

Environmental justice advocates filed suit against AB32, California's landmark cap-and-trade emissions law, claiming that the California Air Resources Board erred by not considering alternatives more carefully. Sidestepping the administrative law matters, it seems to me that as a substantive matter, EJ advocates are worried about all the wrong things. EJ advocates are worried that cap-and-trade could allow "hotspots" of pollution. Carbon dioxide emissions are, of course, not harmful, but EJ advocates are worried about the co-pollutant hotspots that would be allowed by a cap-and-trade scheme.

But I don't get it. If hotspots are what EJ advocates are worried about, why is a carbon tax (as they favor) better? Why can't hotspots form in a carbon tax regime?

In fact, the real reason that people should be unhappy with a cap-and-trade scheme, and especially poverty advocates that often overlap with EJ advocates, is that cap-and-trade is *often* regressive because of the way that emissions permits are allocated -- usually by grandfathering, essentially a freebie to shareholders of emitting firms. The revenues of a carbon tax might or might not be recycled to addressed the perceived regressiveness of carbon taxes, but in no case is it worse than simply giving emitters a free pass. Incidentally, recent research seems to suggest that because some of the poorest derive much of their income from government programs, and because some of these programs are indexed to inflation, a carbon tax may not be regressive after all.

The future of the BC carbon tax -- and what it could mean for the United States

ClimateWire reports that the BC Carbon Tax, enacted in 2008, has survived three years and $848 million of carbon taxation [ClimateWire story]. Because the carbon tax is so small, and because teasing out the effect of the carbon tax is so difficult in changing economic times, it is hard to say how much effect the carbon tax has had on greenhouse gas emissions in the province. But it would be petty to begrudge the bits of anecdotal evidence that seems to indicate that for some (like the University of Northern British Columbia or the University of British Columbia), it helps tilt some decisions towards energy conservation and lower emissions.

Perhaps the most compelling and practical piece of punditry about carbon taxes is that in the near term, the pressure to reduce deficits will inevitably place the spotlight on carbon taxes. Barry Rabe of the Ford School of Public Policy at the University of Michigan is the latest of several (including myself) to point out that there aren't a lot of attractive options in terms of reducing spending or raising revenues, so taxing carbon might not seem so contemptible after all. It really is not such a hard sell to say that taxing carbon is better than taxing labor.

The one thing omitted in the otherwise serviceable reporting job by ClimateWire was an analysis of the provincial politics of the BC carbon tax. For Americans, the "Liberal" Party in BC, the one that ushered in the carbon tax, is actually the not-quite-as-liberal of the two political parties in the province. As a matter of fact, former Premier (that's Canadian for "Governor") Gordon Campbell, who really pushed through the BC carbon tax somewhat autocratically, is really politically a lot like former California Governor Arnold Schwarzenegger, if perhaps even a bit more conservative.

If Republicans in the United States don't learn anything from the Republican former California governor, maybe they can learn something from Gordon Campbell. He resigned late last year amid a number of political missteps, but the carbon tax was not chief among them. What they can learn from Campbell is that the more conservative party can split the more liberal party by instituting a carbon tax. For true conservatives, (and not Tea Party hacks), a carbon tax is really consistent with many of their core principles: taxing consumption is better than taxing productivity (income), it is a non-regulatory way of reducing emissions (i.e., it doesn't involve EPA), and it places environmental protection on the same level as other economic considerations, a mortal sin in environmental circles. In other words, it allows people to "pay to pollute," something that rankles some environmentalists, though none have really come out against something like a carbon tax. West Coast Environmental Law, in fact, came out in favor of the BC carbon tax in 2008, angering some of its traditional left-wing supporters. So some have seen the political costs incurred by Campbell and the BC Liberal Party, but some have begrudgingly given it credit for leading, when no other jurisdiction in North America has imposed a carbon tax, and neither the Canadian or US federal government has done anything to reduce greenhouse gas emissions.

There is a new party in waiting to emerge in the United States. It draws inspiration from the Tea Party for its anti-establishment populism, but draws from a much more educated, affluent, and practical centrist population. This constituency is considerably more sophisticated than most Tea Party supporters and almost all Tea Party politicians, believes that global climate change is a substantial risk, and is willing to spend money to reduce greenhouse gas emissions. Like Tea Party members, they are concerned about government deficits. Hence a carbon tax. When the dust settles in ... a few months or years, a carbon tax will emerge as a very practical option.