Common Tragedies

Thoughts on Environmental Economics

Metaclesias* expounds on carbon permit auctions

Posted by Rich Sweeney on May 15, 2008

In lieu of McCain’s recent climate change speech, Matthew Yglesias has written a couple of posts on the allocation of carbon permits under a cap and trade program. In the first post, he links to Ryan Avent and Kevin Drum, and states a fairly strong preference for auctioning permits (Obama’s plan) rather than giving them away (McCain’s plan). This is a position that CT has supported for a long time. However, in his second post, on what the government should do with the auction money it collects, Yglesias makes some curious statements. On the idea of using some of the money to promote clean energy, he says,

I’m not so high on the popular notion of plowing money into clean energy subsidies. For one thing, I think there’s very good reason to be dubious about the government’s ability to pick technologies effectively. For another thing, the mere fact of the auctioned carbon permits would constitute a large de facto subsidy to alternative energy sources so it’s not really clear that further subsidy is needed. Last, in a lot of ways the whole idea of subsidizing energy consumption goes against one very promising path, namely using less energy overall — lots of elements of current U.S. policy subsidize or encourage lavish energy consumption and that’s part of how we wound up in our current pickle.

Auctioning carbon permits would definitely not consitute a de facto subsidy to alternative energy. It would represent the removal of a de facto subsidy to dirty energy, as emitters currently thrust the cost of their carbon onto society at large. As for his skepticism about the government’s ability to pick technologies effectively, this is theoretically correct, yet practically unhelpful. Just how inefficient is the government solution? Given the market failures associated with energy and climate change, is a private solution even possible? These are very complex questions, and the issue as a whole warrants more consideration than Yglesias gives it.

Matt’s quick dismissal of government energy programs is even more perplexing when you consider the spending he advocates in the final paragraph: invest in “productive infrastructure”. Seems to me that making investments in infrastructure aimed at adapting to a high cost energy environment would require basically the same foresight and faculties as investing in alternative energy. Now either Yglesias believes for some reason that we should only demand efficiency or “effectiveness” in energy investment but not infrastructure investment, or he simply knows something I don’t know about the government’s comparative advantage in the latter. Either way, writing off cheap clean energy in favor of adaptation to more expensive energy seems pretty rash.

* Evan and I were at a sangria roof party on Saturday night and I told him that I thought I saw Matt Yglesias at my favorite bar the night before (yes, I am that big of a dork. don’t worry, everyone else immediately made fun of me for recognizing, let alone gossiping about, other bloggers). As soon as I said this, some guy who had clearly been on the roof for a long time and had a lot more than just sangria interjected and said, “Who are you talking about? Metaclesias?” We tried to correct him but he just kept on saying “Metaclesias” in this grand voice over and over again, telling us that Metaclesias must be some obscure Greek philosopher. We were pretty relieved when he finally walked away, mutttering Metaclesias, but in hindsight the whole scene was pretty hilarious.

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