As I head into my graduate program in agricultural and resource economics at the end of this summer, I am trying to focus some attention on environmental economics. Two economist in this area--John Whitehead and Tim Haab--run the leading blog on the topic over at
Environmental Economics. Whitehead recently wrote a piece over at
The Energy Collective in response to the North Carolina congresswoman
Virgina Foxx's statement criticizing the cap-and-trade program, and the government handling of it. I recommend reading
Whitehead's full response as he details some crucial facts of the matter regarding the program, and the motivation behind adopting it. I will offer a brief summary.
Cap-and-trade will ...
- put a price on carbon emissions allowing firms to not only quantify their expenditure on the permission to pollute, but be able to trade their excess permits as it becomes profitable due to their incentive to invest in "green technology" and reduce their emissions.
- make resources produced by these polluting industries in this new carbon market a scarce product--scarce products are more expensive, which is why water is cheap and teachers are paid little compared to diamonds being expensive and sport athletes being paid a lot.
- raise the price on energy consumption to the consumer, forcing people to change their behavior to accommodate the increased expense.
- provide a method for other countries to consider when constructing their policies, and can learn from our mistakes (or successes). The problem is that pollution is damaging to everyone; so, if someone makes polluting profitable, then industries may move there to make cheap products. This "carbon leakage" makes our efforts look futile if every good choice we make is ruined by our evil doppelganger on the other side of the world, but we have to start somewhere. If the carbon market already exists, then other countries can take our lead and join in our developing a global cap-and-trade program.
We can expect a cap-and-trade program to ...
- raise our cost of living because we are making ourselves incur the full cost of our choices. This is why pollution is known as an externality--society (or the planet) in general does not incur the full cost of polluting behavior. Whether a tax or an expense, it will cost someone, and we are trying to tie the externality to the people and choices that make it happen in the first place. These raising prices are a good thing.
- not substantially effect the job market. There is no evidence that this program will hurt or help job growth in any significant way. Anyone who says so needs to provide proof of this, because it is not given by economic theory.
- help mitigate climate change
The last point is often lost on some in this discussion. The entire motivation behind trying to control carbon emissions is because we're trying to manage our anthropogenic effects on climate. If you do not think that human-impacted global warming exists, then you would clearly think a cap-and-trade program is worthless, and we have no reason to view carbon emissions as an externality. You would be living in a fantasy world, however.
I think Whitehead explains it best in his closing statements,
In conclusion, the cap-and-trade regulatory scheme currently being discussed in Congress is perhaps the best way (in terms of the economics and politics) that the U.S. can address the serious challenge of climate change. A cap-and-trade policy: (1) can be used to reduce greenhouse gases by legally capping their emissions, (2) can achieve emissions reductions at a lower cost than government mandates (e.g., renewable portfolio standards) by allowing business firms to cut back pollution in ways that they see fit and by allowing trading of permits, (3) encourages technological innovation and switching to clean energy such as wind and solar with price incentives and (4) is politically feasible relative to other policies favored by economists (i.e., a carbon tax).
There are some theoretical issues that are not addressed here, and I may try and drive this point home in another blog. For instance, Whitehead mentions in his critique that short of psychological effects, whether we incur an increase in taxes or an equal increase in price, we're effectively incurring the same cost. This is true, but has significant impacts on our policies and political choices. Jon Krosnick, professor in humanities and social science at Stanford University discusses important facts about
the American public's view of global climate change. You might be surprised by his findings. Nonetheless, at about 40 min into the lecture he points out how there is an overwhelming majority (over 80%) in favor of means and goals to combat climate change. What they do not respond, or respond favorably, to are things packaged in a way that says only that it will hurt them.
We can try it here, are you in favor of accepting an increase in electricity fees to reduce your usage? How about an increase in gasoline taxes to drive less, say $4+ a gallon? Most of us would not want to accept that. The sad truth is that society will not change their behavior without these kinds of changes, and there is no realistic way without costing us something to make these changes.
However, if you talk about requiring or encouraging businesses to use electricity from water, wind and solar sources, build more efficient cars, build or purchase more energy efficient appliances, build more energy-efficient buildings or reduce green house gas (GHG) emissions, especially through power plants, we see this majority vote in favor, even when they are told in the survey that this will raise costs upon them. Many of these will lead precisely to an increase cost of gas and electricity (whether a fee or tax is irrelevant).
Nevertheless, if our policy is the latter and not the former, then people are more agreeable about it. That is an important fact to remember, because all these actions require that people actually do change their behavior. The psychology of the issue is just as important as the economic approaches or science behind climate change. From a political perspective, we need to make sure our policies are packaged in these ways if we want to drive the point home. Even an economist should realize this, because one thing we economist recognize in theory today is that attitudes effect economic mechanisms, e.g., the stock market and the federal reserve choices. But such theory can be saved for another day.
If you take anything away from this blog, it should be that if you accept climate change as an important problem we need to manage for our future society, then cap-and-trade is a good way to get there. Some of the motivations and expectations are outlined above. No matter how good our program is, though, we have to deliver this policy to people, businesses and governments. You cannot package this in technical jargon and callous requirements. It takes a "human touch" to motivate humans, and our policies need to look at the psychological factors involved in how we dish up our mechanisms for change. The last thing we need are conservative wingnuts going crazy about how government is trying to control our lives when all they are doing is meeting the demands we desire. People take pains better if it doesn't seem like a pain.
Comments (92)
You see, Americans - and humanity in general - has been given the opportunities to control their own carbon footprints. They still want to drive those big pickup trucks/SUVs, have big houses that have big electricity bills (and leave that lights on all night long), and litter.
I think it would definitely serve as a wake-up call, to show that we all should have taken the initiative in the first place.
I totally respect coming at the global warming debate from an economic standpoint (even though it's the hardest for me to understand). I just finished a course on global warming, and that was the part that I did worst on (it was on the science, politics, sociology and economics of the phenomenon, with about equal parts given to the science and the "social" aspects).
My question (and I may have missed this since it is late and highly medicated) is what is to prevent other countries from overuse of the commons? For instance, China puts up an inefficient coal power plant every week. If we "go green," how will we compete with them industrially?
@GodlessLiberal - I don't think we would. And that's a weak point to "going green." Trust me, I'm all for going "green" and whatnot, but if the other nations don't do it as well, it is pointless [unfortunately :( ]
@keeperofthebees - I think with nuclear power we could find a good way to go halfway there. It's better than "clean" coal and oil at least. And if we start making fuel-efficient cars, we can overtake them later on in the game when we run out.
I'm definitely in support of change in this case, no matter what it costs me personally. The future is more important than anything I can have.
@GodlessLiberal - If we're going to approach fission and fusion energy production more seriously, we need to look at a safer means of disposal. They ought to be launching the stuff into space, rather than dumping it into caves and pits on our own planet. It's just not safe.
Blah. Well written and spirited, but in the end not persuasive to those who believe the links are too far stretched.
In a similar vein: http://www.theonion.com/content/node/48223
@ElliottStrange - "no matter what it costs me"
You are *exactly* the kind of person they are preaching to. And they will be more than happy to take from your wallet to make you a part of the solution. "Let's all pass the plate around; we're doing good things!!"
@herzog3000 - You misunderstand me; I don't care what it costs the species - what we have to give up in the way of luxury to make progress.
I'm a minimalist. I own some clothes and my computer - I don't have any money anyone can take because I don't believe it has real value. I can use it for things but I don't need it. I make my own way.
So no, I'm not the kind of person they're preaching too, whoever "they" are.
But thank you for jumping to conclusions.
@ElliottStrange - Anytime!
And thanks for speaking for my species about what constitutes "progress." Good to know all homo sapiens follow the same marketing campaigns.
(And I am using that antagonistic tone for comedic purposes only. Please don't take it too seriously. No offense is intended.)
@herzog3000 - I don't let strangers antagonize me. That would be silly.
As for your counterpoint about what constitutes progress for the species - wouldn't you say that destroying our planet is the antithesis of progress, since it would ultimately end all opportunity for it?
And at least my belief about progress is merely a personal view; not an attack on the character of another individual.
@keeperofthebees - People are stupid, and easily swayed. We only want to be as wasteful as we are because that is the outcome to which we have arrived. We are not mindful of our choices nor how we got there. When someone brings it to people's attention that their choices are bad, they need to make sacrifices, etc., people get in a huff about it. They act like they need not contribute. They do not care to realize that all this time that they've been blissfully ignorant, they have not been incurring the full cost of their choices. Our choices have consequences, and as such we need to pay for them. All the policies want to do is "internalize" the external cost that we are not incurring, but we should be! So it is true that people want their big SUVs and to leave their computers on all night, but that is because they're ignorant or blissfully stupid. I think we all have an obligation for our welfare and survival, to give people like that a swift kick in the ass.
@GodlessLiberal - I alluded to this "carbon leakage" in the blog. It is a significant problem if for every good choice we make over here, we have some evil doppelganger on the other side of the world making two bad choices. Nevertheless, we need to demonstrate that "going green" is not only a good choice in the long-run, it is also long-run economically sound, i.e., profitable. There is such research that I have brushed by that alludes to these sorts of things. Of course, we have no idea what the long-run future holds. Nevertheless, short-run and narrow perspectives never win out, and often lead people to sacrifice the future for short-run stupid gains that are not sustainable. If China wants to ruin the commons, then we will all suffer for it. In some way or another, we will make them pay for it. Better yet, if American, Canada and significant parts of Europe band together in leading climate control with an emissions market for trading (and internalizing) these current externalities, then we can use this as an incentive mechanism to drive change for the better. Even more, if the market exists, it makes it a hell of a lot easier for others to join in--it's already set up! In this way, other countries that do not join in the near future can at least join in the later future, or use what is learned from our trials and errors to make innovations in these sorts of economic policies.
The tragedy of the commons is a serious issue that every social scientist has to consider. I remember watching a TED talk that touched on the commons. He mentioned Elinor Ostrom. I have a couple books in my amazon cart by her that I will have to read. She shows that, left to themselves, common pool resources (CPRs) will always be drained. Of course, it is not always the case that CPRs are drained. How do we overcome the tragedy of the commons? In short, by instilling institutions that mitigate our stupid behavior and allow cooperative unions to lead us into making choices that will be sustainable and preserve CPRs. The TOC shows how revealing and extensive her work is. See, "Understanding Institutional Diversity" and most importantly her classic, "Governing the Commons", both of which are not that expensive.
As for competing with these other nations, we have to realize that competition requires a bit of similarity. If we pioneer green technology such that people, en masse, consume "green goods", then all those industries producing products that people are opposed to will no longer be profitable. We wont compete with them because we will be changing the face of the industries. Furthermore, it costs a lot to set up shop somewhere else. You do not just "pick up and go" with your manufacturing plant. This is where a benefit-cost analysis comes in handy, and will have to be analyzed pre- and post- cap-and-trade. Firms will have to see how much they will reasonably gain by producing somewhere else and still, geographically, transport all their goods where they need to go, gain more from this than they will lose by changing their industry or reducing their emissions (or trading them to other parties capable of producing more efficiently than you and can afford the higher cost). A lot of factors are involved, so this scare of carbon leakage, while real, is not certain.
While I support nuclear technology, I think there are better sources. Even if it is a short-term solution, we still have to deal with producing the plant and then doing something with it afterward. I think all the energy we need is available. The technology is even there! We have loads of technology on this stuff. The problem is that it hasn't been marketed and produced for consumption. The future that will make use of these new technologies will be entirely different from what we live in now, and such a change needs to come swift, while it is also not something that can be changed overnight. This poses a lot of issues, and to get things moving along will require sacrifice. I don't think going after short-term remedies is going to be the right answer. Instead, let the cost of electricity rise, and then you will see people more willing to invest in these technologies that already exist. We will see them become more common place: faster!
@herzog3000 - What links, specifically, do you mean?
@ElliottStrange - The planet isn't in danger. We are. More specifically, our way of life. Humans are dumb animals, and if we see significant changes that climate models predict, then we will probably just end up killing ourselves, to put it mildly. We're a mass mob of skittish emotional children. We don't like change. We don't take change very well. Change is what is coming, and what we need to prepare for and manage. That is the central issue. The planet was fine before we got here and will be long after we're gone! The issue is clearly selfish because we're looking after our own asses, justifiably.
@ElliottStrange - There is already nuclear material in our planet's crust, and if we put it deep within Yucca mountain (as the plan was) it would be perfectly safe if even a nuclear bomb went off on top of the instillation. Shooting it into space suffers from the issue of a Discovery type of disaster... and what happens when you have tons of radioactive waste raining down from an exploding shuttle?
After reading this post and all comments it seems that reducing the carbon footprint is going to require something that we lack: the will. We could have gone back to the moon earlier if had the will. I am opposed to any hike in rates on anything I consume based on a global warming, but I am not opposed to conservation efforts that force us to use our resources more efficiently. Unfortunately, I don't trust energy companies or the govt enough to embrace anything they propose that would make my daily life more expensive. When personal home energy solutions become available (like fuel cells or personal wind / solar power that don't cost me $20K to setup) then I will be on board. For instance, energy alternatives that reduce our dependence on foreign ANYTHING (oil or otherwise) is a very good reason to me. Seems it would dovetail into the Green Movement and that's fine with me.
I'm beginning to wonder if it would be best for us to destroy ourselves and allow something else to have the chance to do better than we ever could.
Maybe that's my depression talking.
@Darterius - Can't believe I forgot to link to Whitehead's full critique. He makes a statement precisely in regard to the claim that we don't need to unnecessarily burden consumers when we can just harness these alternatives and find other ways to mitigate our energy problems. His response is ...
There really isn’t a good way of
promoting clean air and water without raising the prices of consumer products
that cause air and water pollution (and climate change). Nuclear, biofuels and
wind energy production all cost more than coal and oil. In order to harness
these resources government must provide subsidies to reduce their cost of
production. Except perhaps psychologically, it doesn’t really matter whether
consumers are hit with higher prices or higher taxes that fund the subsidy
(note that an increased deficit leads to higher taxes imposed upon future
generations), a cost is a cost. If we are to address environmental problems we
need to realize that clean air and water and climate change mitigation requires
an unavoidable cost. As we say in introductory economics: “there is no such
thing as a free lunch.”
I tried to make this point in my summary in that no matter what, we're going to face a cost for mitigating climate change. Conservation is not enough. We need to make substantial changes in our very infrastructure, and investing in these new technologies will be an increase in our current expenditures, individually and collectively. The problem with using resources efficiently is that the very resources we are using at all are the problem. We need to use different resources. We need to switch to new technologies and new energy sources, and manage the use of our current polluting resources on the large scale in efficient ways that will allocate them efficiently to their use, while internalizing the very externality that exists by the polluting, i.e., we need to make the full price of using our current polluting resources known (transparent) and real (as a cost, whether fee or tax). Cap-and-trade achieves the latter of this by putting a price on carbon and creating a market for the efficient allocation of those resources, and internalizing the external cost of pollution to those firms that pollute the most. This will translate into higher fees. Any complaint against that is like saying "I don't want to pay for polluting when I turn on my lights." Well, if you're using the electricity that is produced by a coal plant, then you are contributing to the pollution and not paying for the effects of that pollution. All we are doing is making you pay for what you use! Of course, part of this change in infrastructure is to make it so energy companies buy from green sources, and give these options to consumers so that they can make savings by paying an extra fee for these sources (e.g., my utility company allows us to pay $6 flat fee each month so half of our electricity comes from renewable resources. They now use a "solar panel by proxy" investment so that you can "buy" a solar panel as your electricity source, but it lives in the solar farm that puts it into the grid. It basically lets us invest, personally, in green energy sources without having to buy the whole set up for our own personal house, and we can transfer it where ever we move to).
@methodElevated - Don't worry. I'm that cynical often. If we kill ourselves off, then I say it is for the better. We failed and only have ourselves to blame. We'll find out in the next century!
@bryangoodrich - That helps actually. If innovative business practices and transparency are truly put in place then that would change the playing field and make the inevitable, unavoidable cost of cleaning up our act a bit more easy for me to accept. I just remember the rolling blackouts of several years ago and the corrupt business practices that caused it. Regardless of where the energy comes from, my suspicion of the players will have to be reduced before I would believe anything really beneficial and sustainable is happening.
@Darterius - I really don't remember any significant problems from the black outs. Had to whip out candles a few times, but that was about it! Yeah, we should always be concerned about corruption and foul play when it comes to business and politics, but we need to separate that from the policies advocated (meeting public interests as Krosnick's analysis demonstrates), the reasons for it (the climate science behind global warming) and the agencies managing those, and other, factors (like the air resources board I work in). The ARB, for instance, has no corrupt agenda behind it. Assembly Bill 32 (AB 32), the scoping plan, sets forth ways we're going to try and mitigate climate change in California and establish emission standards back to 1990 levels. Part of that is the cap-and-trade scheme. Our economists and the office of climate change are working on how to implement this. There isn't any way corruption will bleed into it, nor could it. It is a collaborative effort amongst many scientists, researchers and politicians to better California and the rest of the nation (ultimately). The ARB regulates and enforces air standard policies. That doesn't mean they can just go out and make the world better. In fact, it usually just amounts to fines (which, if a company makes enough, they might do a benefit-cost analysis that says taking the fine is cheaper than giving up the profits from their bad behavior).
I think if we really want to see significant changes in how businesses are run, we need more than mere policy and standards about climate, emissions, etc. We need more transparency, period. The more people can know about what goes on in their lives, the more accountable these firms become, immediately. If they screw up, journalists will rip them a new one, and we will all find out. If we, as a society, lack this kind of transparency, then corruption can breed, and the only other method we have is for government to get their hand in the cookie jar. The fact of the matter is, they cannot do better than regular citizens, journalists and lobbyists can when it comes to making firms accountable for their actions. I would advocate public policy that makes any government regulated industry (e.g., energy!) necessarily transparent to the public in all their critical dealings. We should know their accounting, how much their top officials make, their future plans, etc. Will it make them less competitive? Hardly, and the loss in that is out weighed by the benefit we would have from knowing our energy is secure! The fact of the matter is that such a policy is simply more democratic. This day and age we have the technology to be connected such that our large population can be involved in the daily affairs of the institutions that impact our lives significantly. There is no reason we cannot play a central role in that operation.
@GodlessLiberal - Yes, there exists an amount of nuclear material within the earths crust - but not nearly in the quantities which we create to produce energy and make weapons grade uranium and plutonium. There will come a point at which disposing of it within that mountain is no longer possible because there will just be so damn much of it. It doesn't decay quickly enough.
As for incidents like the discovery accident, there are much, much safer ways to reach orbit than a shuttle launch. It's grossly inefficient and embarassingly outmoded to anyone who understands orbital mechanics. We should already be constructing an orbital station with a tether - it's very possible, we just don't want to do it.
@bryangoodrich - Well, that's more or less what I meant; we're going to destroy the "world" as we know it. Yes, the planet will almost certainly remain intact.
I don't word things very well sometimes; I am still learning.
@ElliottStrange - There are ways to have nuclear energy with relatively non-radioactive byproducts (lead). Would you be opposed to that? Because currently coal power plants give off more radiation than nuclear plants do, which I see as a bigger problem than the potential flaws in the 13 billion dollar facility kilometers under a mountain nowhere near where anyone lives.
@bryangoodrich - This is the whole problem with trying to get me involved with this climate change mantra: the links of consequence are too numerous and too vague.
Here is an example. I drive my car which gives off exhaust. That exhaust gets added with all the other greenhouse gasses. Over time those gasses accumulate and have an indirect affect on heat retention on the planet. Then that heat builds up and starts to change the weather. Then the weather results in changed coastlines and animal habitats. Then people must move away from the coasts and some species get extinct. Uh.., then what?
It is just too convoluted. Not to mention that a slight change in solar output or earth's previous global climate patterns (ice ages and similar catastrophic climate shifts have been occuring for *millions of years before man got here) can alter those formulas and a new shift can result. My car emmissions don't influence the sun or any of these grand forces. Read that Onion article. It is more about feeling good than saving the planet.
@herzog3000 - I read it. I could refute the rhetoric and implications of the satire, but I'd rather not :P I'm going to do a post soon talking about global warming in general, and will do future blogs on it, and climate science, as I learn it (good to know this stuff if I want to research cap-and-trade, since it is involved with mitigation efforts).
In short, there is evidence for human impacted global warming by how we have warmed (nights vs days, surface atmosphere versus higher atmosphere, etc.). There is what is known as forcing: what causes the warming. There are also what is known as fingerprints: how changes point to certain causes. Forcing by the sun or volcanoes, etc., are not consistent with the data or the models which accurately measure historical patterns. Fingerprints point to causes by CO2. The physics of warming by CO2 is very basic. Those three point to CO2 as the significant cause of global warming. The advance in CO2 is largely an industrial thing (more forcing issues, we can measure how CO2 is being put out into the atmosphere, and how it gets sequestered, naturally or otherwise). All of this leads to us having to realize that humans have impacted the global climate due to our onset of massive amounts of CO2. I will have graphs pointing some of these patterns out when I make the blog (still collecting some references and details).
Sure, the kinds of links you are talking about are vague and obscure. Those are not part of the climate change issue. While there is research that points to human impacted ecological effects, whether through climate change or not, that is not part of the climate issue. The most significant factor driving this warming trend is human released CO2 (whether by burning coal or devastating sequestering environments like bogs or forests, and increases in temperature drive loss in ocean held CO2 which adds to the problem cyclically). Therefore, the issue is how to manage CO2, stop using it and reduce our emissions of it, and other GHGs. Cap-and-trade is a dynamic way of handling this. While I think a straight forward carbon tax is good, and take the environmentalist (strong) position in that we shouldn't let people so much sell of surpluses, but keep things low, period, the cap-and-trade efforts make some sound arguments. We need to change peoples behavior, drive innovation, put a price on carbon and regulate emissions indirectly in this fashion. How that is done specifically depends on how cap-and-trade is implemented. It is merely a general class of economical and political mechanisms to achieve the overall goal, i.e., to manage our society in a changing global climate and internalize the external costs produced by CO2 emissions.
@bryangoodrich - I think your analysis of this solution vs others is solid. I wouldn't dare argue against you on that because you have such a strong grasp of the particulars and have studied the big picture of these consequences. I would even go so far as so say you are one of the few people talking about this topic from the proper angle. An individual can do all those things in the article and have his entire life's efforts eliminated by the first few operating days of a coal plant on the other side of the planet. By mandating change from all the world's industrialized countries we at least have a chance of making an effective difference.
Until then Ima keep my disposable water bottles and styrofoam dishes. It is just too dang convenient.