Summary of Climate Change Policy Philosophy

[marcusmarcusrc]

The CBO director has posted a nice summary of the tenets of a good climate change policy:
http://cboblog.cbo.gov/?p=902

I appreciate the nod towards non-market solutions as well as price-based solutions (a common example of why more than just a price signal may be required is the "principal-agent" problem, where, for example, a landlord has no incentive to put in insulation because the tenant pays for the heat - or alternatively, in apartments like mine where utilities are included, I have no market incentive not to use excessive heat and or air conditioning because my landlord pays for it).

Comments

[rifmeister.livejournal.com]

Very good. Do you think we're likely to see a system that obeys these principles at all? I feel like what we're getting is an extremely poorly designed cap-and-trade system, where nearly all the permits are given away rather than auctioned.

[marcusmarcusrc.livejournal.com]

This is the most compact summary of the Waxman-Markey and Kerry-Lieberman bills that I know about:

http://graphics8.nytimes.com/packages/pdf/science/NCEPClimateBillComparison.pdf

Would I write a bill like either of those? No - for one thing, I'd try to keep my version under a couple hundred pages. But do I think they are better than BAU? Yes. What do I like about them?

1) There will be a carbon price. There are some people out there who support carbon reductions but don't like prices: some rabid environmentalists who distrust markets, and some rabid technologists who think that we should just innovate our way out of this. But I think a price is a fairly vital component of any decent plan.

2) There's a price floor and some kind of price cap, that start low and rise over time. Honestly, I'd prefer a straight tax, but I'll take what I can get.

3) There are free allocations, but they phase out over time (to zero after 20 years, I think), and for the most part are written in ways to avoid the windfall profits seen in the European ETS experiment. I'm not sure how successful the avoidance of windfall profits will be. I'm not actually philosophically opposed to the idea of some initial allocations, though I'd definitely prefer less than what these bills contain (and more direct consumer rebates): I think Gib Metcalf wrote a paper trying to calculate what quantity of allocations would be appropriate to compensate energy intensive and power generation companies in order to "make them whole", and it was non-negligible but not that large either...

What worries me?
4) I haven't read the international and domestic offsets provisions, so I don't know whether they meet reasonable standards. If they do, then that's fine, if they don't, that's a problem.

5) There are some border adjustment provisions that may face serious WTO issues. The danger is that these provisions can be used as protectionist measures the way that other environmental issues have sometimes been coopted by industries... but there are good reasons to want to try and reduce "leakage". So again, the devil is in the implementation details.

I'd certainly prefer a much simpler bill with less horse-trading, but I think the next major bill that doesn't contain significant horse-trading will probably be the first...