Democratic Planning – Climate Change

In Climate Change, Economic Planning, Economics, Environment, History and Politics, Politics of Policy, Public Policy, Regulation on November 25, 2009 at 3:37 am

Introduction:

(For previous parts in the series, see here)

I’ve written before about the climate change bill that passed the House in June from an environmental standpoint, but it’s also true that the climate change bill is both an expression of our faith in economic planning and an incredible test of our ability as a democratic society to determine our economic future.

So as we follow the progress of the climate change bill through the five remaining Senate committees, we must pay attention not only to how the different elements of the legislation function as environmental regulation, but also how they work as economic planning – and be ready to apply these lessons to the future.

Background:

One of the curious elements of the history of the environmental movement is that, even though it emerged onto the political stage at the same time that the Keynesian consensus was crumbling and the very idea of economic planning was under assault from monetarists, supply-siders, rational-choicers, and all the other neoclassical sects, the environmental movement was from the outset a hotbed of economic planning.

Especially if you look at the Clean Air, Clean Water, and Environmental Protection Acts, you can see an abiding belief that the government could establish and enforce emissions limits on American industry. For the next thirty years, a debate raged over how the government should engage in environmental economic planning between those who favored a command and control approach that sought to regulate emissions directly and those who saw this as an inefficient interference with the free market and preferred instead mechanisms that created market incentives to reduce pollution.

The balance of power has swung back and forth between the two poles, with the market-based proponents gradually winning the upper hand in policy circles, even as command and control has had something of a renaissance as the growth of environmental economics had lead to the reinterpretation of environmental regulations (backed up by fines) as functional equivalent to taxes on pollution favored by the pro-market contingent. This shift is one of the reasons why we’re talking about cap and trade and pollution permits rather than simply reductions mandates, and why the issue of giving or keeping the EPA’s authority to regulate greenhouse gases is such a politically fraught issue.

And yet, the Waxman-Markey bill and its Senate equivalent cannot be said to be wholly of one camp or the other.

Climate Change Broken Down:

Indeed, if we take the various elements of the legislation apart and consider them individually, we can see the influences of multiple different schools of  planning.

Permits and Auctions: “cap and trade” has been the major focus of the legislation, and for all that the right has painted the effort to limit CO2 emissions as an radical attack on the free market (and a massive tax hike, and probably taking people’s guns and turning them gay as well), it’s actually one of the more conservative elements of the bill. Essentially, cap and trade is a grand experiment in market-based solutions. The idea is that by setting a price on carbon, the market will respond by becoming more efficient and lowering its emissions, which shows a deep belief in the power of the free market.

Proponents of the market-based approach point to the existing cap-and-trade system for sulfur dioxide (the main agent in acid rain) that has shown encouraging results: a 50% drop in SO2 levels from their 1980 levels by 2007, and some have argued an 80% improvement in the cost of enforcement. Critics points to the fact that cap and trade’s impact on pollution can be greatly weakened by issuing too many emissions credits for free instead of auctioning them, that the accounting on emissions is extremely murky (especially when trying to determine the quality of “carbon offsets”), and that such programs have little influence on the differential impact of changing emissions standards.

Renewable Portfolio Standards/Efficiency Standards for Buildings, Appliances, and Vehicles/Emissions Targets: by contrast, the requirements for utilities to raise the percentage of their electricity generated from renewable sources, for manufacturers and builders to increase the energy efficiency of buildings, appliances, and vehicles, and the overarching objective of lowering greenhouse gas emissions by a set target are much more in line with the “command and control” school of thought.

Very similar in many ways to raising CAFE standards on cars, this part of the bill involves direct regulation by the government on industry, with industry paying the full freight for the costs of transition. At the same time, the idea that you can set global standards for greenhouse gas emissions is a dramatic statement. Given that greenhouse gas emissions roughly correspond to levels of economic activity, the idea that the government can plan what they are going to be for decades into the future is quite radical, suggesting a high degree of influence over both the volume of economic activity and the structure of energy use at the foundation of the economy.

Subsidies and Investments: in addition to the cap and trade and standards, the climate change bill also includes an enormous amount of subsidies and investments into energy and energy research including “$90 billion in state programs to promote renewable energy and energy efficiency; $60 billion in carbon capture and sequestration technologies; $20 billion in electric and other advanced technology vehicles; and $20 billion in basic research and development into clean energy and energy efficiency” in the first fifteen years alone, as well as $7.5 billion for incentives for private investors, and money towards a “smart grid.”

In terms of planning, this part of the bill (in conjunction with the portfolio standards) resembles most closely the Tennessee Valley Authority in its early years. By acting as the “venture capitalist of last resort” for a vast variety of green investments, and by using subsidies to alter the calculations of competitiveness between solar, wind, and other renewable sources and traditional oil/natural gas/coal-derived power. The major difference here would be the heavy research focus of these investments, which shows a not unwarranted belief that advances in technology can well change the entire climate change debate.

Conclusion:

While the data is somewhat mixed, the fact is that Europe is more or less meeting its Kyoto protocol targets, despite a rocky launch, suggesting that it is indeed possible to deal with climate change, at least in the developed world, which has shown much slower rates of emissions growth over the last few years. Given that momentum in China and India seem to be moving in the direction of emissions targets, I believe there is reason for cautious optimism on the climate change front.

For the United States, however, the issue is as much one of democratic sovereignty as it is about survival. It’s all very well to profess a sacred regard for the free market, but when the free market threatens to completely overthrow the basic order of life on the planet, there’s a point at which one has to re-assert public control over one’s world.

  1. […] the Senate or the EPA decides to just regulate CO2 directly, the resulting programs will be a massive test of our faith in the ability of the state to regulate externalities, either by pricing them or directly banning […]

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