Common Tragedies

Thoughts on Environmental Economics

Well Matt? We’re waiting…

Posted by Rich Sweeney on July 2, 2008

Commenting on Metaclesias’s* categorical rejection of a carbon permit safety valve at any price, CalDem concludes with the following,

you are sentenced to calling up one of the RFF bloggers and having them explain in detail why you don’t understand this issue.

While we’d love to talk to Matt, there’s plenty of solid explainin going on right there in the comments. For starters, CalDem’s own comment is dead on.

A safety valve at a fairly high price per ton limits the economic cost if carbon reduction turns out to be more expensive than we think it will be. This is especially valuable for short-term implementation, where cheap clean technologies might not be available. You could do something similar by allowing borrowing permits from the future. Or you could have a fed like entity print some more permits if costs are very high.

AE points out that politically there’s always going to be a safety valve, no matter what the current candidates say.

There is always going to be a safety valve, i.e. ultimately the price could get high enough that Congress would dump the whole system overnight.

Josh Bivens notes that the main benefit of a safety valve is to smooth out annual idiosyncrasies, and links to Orzsag (which is always a good thing).

there are ways to do a “safety valve” that make sense from a green perspective (among others, make the extra credits that are made available in one high-demand year come out of future allotments, say), but, i bet this isn’t quite what Chevron has in mind.

still, blanket condemnations of “safety valves” in the context of cap and trade are a bit off the mark.

Peter Orzsag has some testimony on this issue – see the second bullet point

And finally MK simply links to an RFF paper,

A safety valve limits the downside risk. Look it up! e.g., here.

For those of you who crave further discussion, Daniel has written about safety valves here, here and here. I’d agree that a John McCain safety valve would be unacceptably low, but it’s really misleading to say that all safety valves are simply “John McCain environmentalism”.

* for the background on Metaclesias see here.

2 Responses to “Well Matt? We’re waiting…”

  1. […] over the role of “safety valves,” to give businesses a way out if carbon permits get too expensive. Common Tragedies and The New Republic take aim at what’s being called “John McCain environmentalism”—green talk, […]

  2. Perhaps there are terminological issues here, Rich, but if you’re talking about using permits you socked away in a previous year, or borrowing permits from future years, there are words for that: banking and borrowing. A “safety valve,” as I understand it, is just a flat upper limit on price — it prioritizes prices over emission targets. (I’m confess I’m not entirely sure how Orzsag uses the term.)

    In cynical political terms, most of the people who are insisting on a safety valve rather than other mechanisms that provide some short-term price flexibility without sacrificing the long-term emission goals are … how shall we put it … not wonks. They’re people who are primarily concerned with sheltering fossil companies, allowing them plenty of time to rake in pork to develop new huge capital-intensive technologies like CCS. It’s a strategy that in practice prioritize their welfare over social welfare. It may be that pure wonks should ignore the nefarious ends to which their ideas are put, but I don’t really think so. If we end up in a situation where everyone agrees a price cap is vital for preserving the economy, I’m not sanguine about our chances of setting that price cap high enough to get the job done. Seems to me we should be strongly biased toward preserving the integrity of the targets.

    (And finally — oy, always with the focus on “new technologies.” There are dozens of efficiency strategies that could be driving down demand and emissions today, with no new technology. It’s efficiency that will protect us from short-term price spikes, if we take it seriously.)

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