Common Tragedies

Thoughts on Environmental Economics

Archive for the ‘Political Economy’ Category

Senate Debate vs. House Debate

Posted by Danny Morris on July 9, 2009

The beauty of writing for two blogs is you get to post the same thing twice and you get double the credit for it, or something like that. This post originally appeared on Weathervane, RFF’s fancy and informative climate blog:

How will the Senate Climate Debate Differ from the House Debate?

By Daniel F. Morris

The climate debate kicked off in the Senate this week with the Obama administration encouraging senators to pass legislation comparable to H.R. 2454, the mammoth bill that passed by a vote of 219-212 last month. In testimony given to the Environment and Public Works Committee, Energy Secretary Steven Chu, Agriculture Secretary Tom Vilsack, Interior Secretary Ken Salazar, and EPA Administrator Lisa Jackson all urged the Senate not to slow the momentum behind the passage of the House bill.

The formation of the Senate bill and the debate surrounding it will be significantly different from the experience in the House. First, a huge component of the Senate strategy will involve wrangling 60 votes to block a potential filibuster, which will probably require more compromises to accommodate Midwestern Democrats who currently feel compelled to oppose the bill. Concessions may involve the stringency of the cap in the early years of a cap-and-trade market (14% reduction of 2005 emissions by 2020 instead of 17%), allowance allocations given away to energy-sensitive industries, especially coal, oil, and manufacturing, and the role of nuclear power in the nation’s future energy portfolio.

Second, the bill will receive much more scrutiny at the committee level than the House bill received. H.R. 2454 was fully marked up only by the Energy and Commerce Committee. Input from other committees, like Ways and Means and Agriculture, were included in a manager’s amendment inserted during floor debate. In contrast, the lead for drawing up the Senate bill will be Sen. Barbara Boxer (D-CA) in the Environment and Public Works Committee, but the legislation will ultimately include pieces constructed by at least five other committees, including, Agriculture, Commerce, Energy and Natural Resources, Finance, and Foreign Relations. Senate Majority Leader Harry Reid (D-NV) has tentatively slated a deadline for the bill to clear the committees of Sept. 28, so September will be a hectic month. Boxer is indicating she wants to wait until after the August recess to take up any climate bill.

Aside from dynamics distinct to the Senate, there are a number of specific issues that may develop disparately from the House debate. Some of the prominent topics are:

  • Price collar: H.R. 2454 established a minimum carbon price (or price floor) of $10, but did not include a matching maximum price. The strategic reserve auction mechanism (Sec. 726) protects much more against extreme price volatility than consistently high allowance prices. In the interest of protecting regulated industries and reducing overall costs of the entire program, the Senate will likely take a much closer look at employing a price collar that sets both a minimum and maximum price for emissions allowances. Previous studies conducted by RFF scholars, one by Dallas Burtraw and Karen Palmer and another by Harrison Fell and Richard Morgenstern show that use of a price collar can reduce the total costs of implementing a cap-and-trade system.
  • Competitiveness: President Obama expressed some dismay about the last-minute addition of protectionist language (Sec. 3) included in H.R. 2454 targeting imports from emerging economies that do not take on similar emissions reductions. Language in the bill explicitly names China and India as countries that deserve scrutiny. Those concerned that such language will lead to conflict in future climate negotiations with the two countries see the Senate as the place to scrub the inflammatory verbiage. Foreign Relations Chairman John Kerry (D-MA) has already stated that he and others in the committee intend to make changes in the hopes of avoiding retaliatory measures from India and China. Midwest Senators Carl Levin (D-MI) and Sherrod Brown (D-OH), however, have expressed support for the provisions and disagree with the President’s assessment. The matter will no doubt receive considerable attention from both the Foreign Relations and Finance committees.
  • Market Regulation: Both chambers want to see stringent regulations for the potentially huge carbon trading markets to come out of cap-and-trade measures. H.R. 2454 split responsibility for oversight between the Commodity Future Trading Commission and the Federal Energy Regulatory Commission. Sen. Dianne Feinstein’s (D-CA) experience with FERC during California’s deregulation woes of the early part of the decade have led to her strong distrust of the agency, and she has introduced a bill giving CFTC full authority for regulating carbon markets. This debate may continue to evolve as the Senate bill begins to take shape.
  • Agriculture: In the House debate, powerful agriculture concerns found voice in Rep. Collin Peterson (D-MN), who had a major influence over the final version of the bill, including a provision that give authority to the Dept. of Agriculture to determine what constitutes domestic forestry and agriculture offsets. Many farm groups lined up against the House bill after its passage and their influence could spell doom for Senate passage. Agriculture Committee Chairman Tom Harkin (D-IA) has already expressed his dissatisfaction with the House bill and intends to protect agriculture and farmers. Expect agriculture to play an even bigger role in the Senate debate.

Undoubtedly, other issues will surface over the summer as committees begin drafting separate pieces. The Senate has somewhat of a head start in that a major energy provision has already been shepherded through committee by Energy and Natural Resources Chairman Jeff Bingaman (D-NM).

The path to President Obama signing climate and energy legislation is far from clear, however. The Senate bill must navigate skeptical and apprehensive Midwest Senators, substantial efforts from environmental groups to strengthen it, and ardent opposition from many in the Republican minority. Even though the Fourth of July was last weekend, it appears that we can look forward to plenty of fireworks for the rest of the summer.

Posted in Cap and Trade, Climate Change, Legislation, Political Economy | 4 Comments »

How Allocations to Protect Households Can Actually Hurt Them

Posted by jab12004 on June 22, 2009

previous post gave a small introduction to Local Distribution companies (LDCs) and allowance distribution.  I would recommend checking it out since LDC allocation is central to Waxman-Markey.  It is so important, that I would wager quite a bit that Waxman-Markey or any climate bill will NOT pass without some sort of LDC allocation built in.

One area which hasn’t received that much attention is how LDC allocation affects the incidence of the policy.  LDC allocation is hailed as a method to protect households from higher electricity prices, but ultimately it can make them worse off compared to cap-and-dividend.

A new technical memo that Rich and I worked on finds that the average household could find itself $157 worse off under LDC allocation.  This number shrinks to $66 if there is widespread reform of electricity pricing by separating fixed and variable charges, and if industrial and commercial customers respond rationally (more on this in a subsequent post).  These values are compared to a full cap-and-dividend, where all permits are auctioned and carbon revenue is redistributed to households through a per-capita dividend.

How could households be worse off under LDC allocation?  First, a bit of background.  Households feel the burden of climate policy through two large categories: direct expenditure on electricity/heating and indirect costs associated with higher good prices.  The direct prices are easy to account for since they are on utility bills, but the indirect costs are a bit trickier.  Every good and service you consume has an embedded carbon content due to the energy and emissions associated with its production.

When permits are allocated to LDCs to keep down the direct energy costs, the indirect energy costs a household pays will increase.  This increase will ultimately overshadow the savings a household receives from direct energy costs not increasing.   So, while under LDC allocation, households might think they are better off since their utility bills aren’t increasing, they ultimately are worse off since everything else in their life is now more expensive.

This result is not exactly what policy makers want to hear.  One of the arguments for LDC allocation is to protect electricity consumers.  While LDC allocation accomplishes this for direct expenses, it backfires in ultimately protecting households.  On the political side of things, it spreads out the household burden of carbon policy and silences enemies of climate policy who simply claim “cap-and-trade makes your utility bills go up.”  In the end, this might be what really matters, and the loss in efficiency is just another sacrifice necessary to pass climate policy.

Posted in Climate Change, Political Economy | 1 Comment »

Bizarro politics

Posted by Rich Sweeney on April 24, 2009

So let me get this straight. Today, Al Gore came and testified before Congress on the merits of markets (pricing externalities). And Newt Gingrich voiced his strong preference for government picked winners and subsidies rather than market mechanisms. Just checkin.

Posted in Political Economy | 3 Comments »

An introductory post/rant from a new contributor

Posted by Tim Kidman on April 16, 2009

To all of you in the Common Tragedies community I would like to introduce one more tragedy: my presence here as a contributor. My name is Tim Kidman, and I currently work at the Climate Action Reserve – an organization whose views and ideas I make no claim to represent in my posts here. What you read here are my thoughts alone, and do not represent my employer. This post has nothing at all to do with the Reserve. Of course, the Reserve has some pretty great ideas too, so I’d encourage everyone to check out our program. But you know the deal, so the above is my disclaimer.

When my friend Danny asked me to join the blog I immediately jumped at the opportunity. I am constantly intrigued by the power of economic theory to explain behavior and environmental issues, but I am far more amazed by the ingenuity and creativity of thinkers to employ these same theories to develop innovative remedies and policy mechanisms for the very same problems.

Now, none of what follows is to say that environmental economics is not one of the most valuable and powerful tools we have available to us today. I truly believe it is. What follows is simply to say that we need to always ask the question: are we trying to fit a square problem into a round solution? Because the truth is, no matter how many problems are round, a few are definitely square.

So, in my introductory post/rant I would like to echo a cautionary sentiment about market mechanisms, or at least our relationship with them, that Danny posted yesterday: “They are not a panacea, however, so don’t be afraid to be a little skeptical now and then.” The neatness and coherence of viewing environmental issues through a purely economic lens has immense intellectual appeal. It is scientific, structured, and at first glance offers a utopian vision of freedom, choice, environmental integrity, and that ever-present word – efficiency.

In grad school I definitely fell into this optimistic, almost religious faith in the ability of economics to explain and fix environmental problems as disparate as over-fishing and climate change – two that I actually believe it is particularly well suited for. In that context, I believe it served me and my classmates well; it allowed us to dig deeper, learn more, and think creatively without the constraints of the “real world.” But now that I am back in the real world, that optimism has been tempered. I still have faith in market mechanisms and am a strong believer in a cap-and-trade system. However, and this brings me back to Danny’s point, I think it’s important to recognize that certain issues, or certain aspects of issues, simply do not lend themselves to market mechanisms.

At a carbon conference a few weeks ago, Carl Pope of the Sierra Club stood up in front of a room of 850 attendees, and told us all that markets were not the only answer. It was, in my opinion, the best speech of the event. This was a room full of offset project developers, brokers, investors, regulators, and non-profits, all of whom had a vested interest in seeing the carbon market mature (myself included). It took courage to stand up as a keynote speaker and speak openly to this audience, but more than that it highlighted a paradigm shift that I think has gone largely unnoticed.

For decades, the environmental community and certain groups in particular have had the reputation of being idealistic, stubborn, and unwilling to place pragmatism over righteousness. In contrast, industry and investor advocates have cautioned against unbridled idealism and regulation– often very transparently – arguing instead that a pragmatic approach which balances societal and environmental goals should be considered. (I by no means condone the industry lobbying that has taken place, or the often disingenuous opinions proffered, but instead use this only to illustrate a point)

So back to Pope. The new environmental community, the one founded on economic theory, market mechanisms, pragmatism, and which has aligned itself much more closely with industry, risks falling into the same traps as past movements if we are not vigilant. Unbridled optimism and commitment to a single framework is risky. Whether that is a call for regulation, boycotts and protests, or a call for markets, no single framework provides all the answers. It may provide many, and I’d say most, but not all. Interestingly, it was an outspoken advocate of more traditional conservation that most recently brought this consideration into relief, grounding all of us and reminding us that results may be more important than the means.

Markets are great, and economics is a useful lens. But in the name of our ultimate goals, pragmatism and reality require that we recognize certain limitations. There are some issues that markets are simply ill-suited to solve. True, markets may not work because of imperfect information, too many players, etc. (not the theory itself, but rather its implementation), but if we really want to get something done then it is important to recognize that a different mechanism may be more appropriate. Skepticism of market mechanisms is important not just when considering the details of their implementation, but I would argue, even at the level of assessing their very appropriateness.

I recognize that this is a bit of a downer, especially for a first post, but I don’t intend it that way. There are more problems that can be and should be solved by employing and considering environmental economics than I can list. And because of that, it is important that as practitioners we focus our energy on those.

Posted in Economics, Markets, Political Economy | 6 Comments »

Federalism and the California waiver decision

Posted by Daniel Hall on January 30, 2009

Time will tell whether the Obama administration’s announcement is merely a symbolic reversal meant to signify greater attention to climate change, or a meaningful commitment to facilitating state leadership in environmental policy. If the former, the decision will be of little consequence, as it will take far more to impose meaningful limits on the nation’s contributions to climate change. If the latter, it could signify a long-overdue change in the shape of environmental law.

That is Jonathan Adler, writing at the NYTimes Room for Debate blog earlier this week about the decision by the new administration to make EPA reconsider granting California a waiver to pass tough vehicle emissions (read: fuel efficiency) standards.  Here is a bit more I liked:

While widely criticized, the Bush administration was well within its legal authority to reject California’s greenhouse gas regulation waiver request. However much Californians are concerned about global warming, it is difficult to argue that the state “needs” these rules to prevent climate effects there. Global climate change is a global phenomenon. The relevant airshed is not the greater Los Angeles basin, but the earth’s atmosphere as a whole, and California’s rules — even once adopted in a dozen states more — will have no meaningful effect on the climate-related threats that California fears. The Obama administration is also operating well within its legal authority to reverse course and grant the waiver. Elections have consequences.

Do check out the entire thing, with interesting contributions from several different experts.

Posted in Political Economy, Transportation | Leave a Comment »

If only Santa put LNG in naughty kids’ stockings…

Posted by Evan Herrnstadt on December 25, 2008

Merry Christmas from the Gas Exporting Countries Forum, who continued to make moves toward formalizing a cartel on Tuesday.  Despite ominous quotes from Putin, et al, it seems that natural gas will not be as easily cartelized in the near-term as crude oil (which is a bit of a struggle these days anyway), due to heterogeneity in consumer base, export structure, and infrastructure, according to Xinhua.  I’m not particularly well-versed in the structure of international natural gas markets, I just thought this presented interesting political economy and energy issues. So I’d love to hear any knowledge that readers can drop on me. At any rate, here is a solid video that outlines the situation and the major players. 

Posted in Energy Security, Political Economy | Leave a Comment »

Batteries not included

Posted by Rich Sweeney on December 18, 2008

For some reason, we’ve reached a point in this country where no policy is supportable unless it promises to kill at least two birds with one stone. Even if an individual goal, like say mitigating climate change or boosting employment, is worthwhile on its own, we need to tie its solution to some other end before we’ll support it, even if the marriage reduces the policy’s effectiveness along both dimensions. As someone who’s clearly pro “green” (whatever that is) this has been my main problem with the green jobs movement. If jobs become an acceptable metric of climate policy success, we’re all in big trouble.

Which brings me to batteries. One of scarier shotgun marriages being tossed around liberal circles lately has been the green auto bailout. This is the idea that we can save Detroit by giving them money in exchange for their commitment to build a fleet of electric vehicles. The only problem is that they don’t currently know how to do that. Specifically, the battery technology is years away, while Detroit needs the money yesterday. But many of the true believers remain undeterred, suggesting that we can pay Detroit to build the car “shells” now, and store them until the batteries are ready. [I’ll let you insert your own 5 year plan joke here.]

So I was already thinking about this today when Tmoney emailed me a Wall Street Journal article (sub. required) reporting on a consortium of US battery manufactures seeking $1 billion in US loans to manufacture batteries in the United States. Now I’m all for subsidizing R&D, but there were some unsettling justifications for the program subtly weaved into the narrative. It’s not that electric car batteries don’t exist, they just don’t exist at a competitive price. Tesla will gladly sell you an electric roadster for $100K. So you’d think that if we really want a fleet of electric cars, we’d be trying to get the batteries from the cheapest source available. Think again. The battery industry has largely migrated from the US to Asia over the past two decades because of cheaper costs and locational spillovers (where do all of your electronics come from?). But this loan would stipulate that all of the money be spent in the US, creating green jobs (there’s bird number two). There is also the vague warning from unspecified “experts” that “battery technology and manufacturing capacity could become as strategically important as oil is today” (and there’s the third bird, national security). I’m no battery expert, but I fail to see the parallels with oil, a geographically concentrated, finite natural resource.

Posted in Green Collar Jobs, Political Economy, Transportation | 6 Comments »

GOP energy policy sentence of the day

Posted by Rich Sweeney on October 30, 2008

Sarah Palin went to a solar plant in Ohio to talk about oil today.

Via Keith Johnson.

We shouldn’t doubt the Governor in this department though. She gets her energy policy advice directly from God.

Posted in Oil, Political Economy | 3 Comments »

What’s the matter with California

Posted by Rich Sweeney on September 3, 2008

Over on, Stephen Lacey* has an article on two controversial California renewable energy ballot initiatives.

The first, Proposition 7, would increase the states RPS to 40% by 2020 and 50% by 2025. The current RPS, enacted in 2002, set a goal of 33% by 2020, which is already by far and away the most ambitious target in the US. In 2007, 11.8 percent of all CA electricity came from renewable resources such as wind, solar, geothermal, biomass and small hydroelectric facilities. Now 40% isn’t necessarily impossible, but the costs and reliability impacts are highly uncertain. As one insider put it a few months ago, “If that passes, I’m stocking up on flashlights.”

The other initiative is Proposition 10, which “authorizes the state to issue US $5 billion in bonds from California’s general fund in order to provide incentives for “clean alternative energy vehicles” and research and development of next-generation transportation.” Ostensibly the idea behind the bill is to jump start California’s alternative fuel market, but Lacey points out that many clean energy analysts are skeptical. For what its worth, this clean energy analyst couldn’t separate the beef from the bs amidst all the legalese. However, the measure is financially backed by T. Boone Pickens’ company Clean Energy Fuels, which at least answers the classic Jim Garrison question “Who benefits?”

Which brings me to the point about California, and about direct democracy in general. Most propositions deal with issues that are far too complex and consequential to simply leave up to a popular vote. Even if every voter was smart and experienced enough to evaluate the issues reasonably, he most certainly would not devote the time and effort necessary to do so. Instead ballot initiatives are incompletely explained by self-interested parties, and decided on a whim by shortsighted citizens. Voters get all of their information on a proposed ammendment in a media blitz that occurs right before the vote, and devote exactly 2.5 seconds to pondering the issue between questions in the voting booth. The result is a hodge-podge of conflicting codifications which would be quite comical it weren’t so disastrous. Two examples:

  • During the 80s and 90s CA voters mandated spending increases in every direction imaginable while simultaneously enacting arbitrary estate and sales tax cuts, leaving the government perilously tied to state income taxes. Then when the economy went south and the state went into fiscal crisis, they took to the booth again to oust Gray Davis for allowing the budget deficit to get so large.
  • in 1993 Californians voted “three strikes” into law, which mandated life imprisonment for third time felons. The result has been prison overcrowding and countless inhumane incarcerations.

Good policymaking requires a careful consideration of both the costs and the benefits. Ballot propositions emphasize only the positives, often encouraging voters to think they can have their cake and eat it too. Now its totally possible that CA voters will take the time to understand the implications of a 40% RPS, or the benefits of a $5 billion alternative fuels subsidy. Much more likely though they’ll evaluate these propositions in a vaccuum, ignoring the tremendous costs/ stresses of the former and the wasteful, restrictive nature of the latter.

* FYI Stephen Lacey also hosts an excellent weekly podcast for those interested in renewables.

Posted in Government Policy, Political Economy, Renewables, RPS | 1 Comment »

The hedge value of domestic oil conservation (or, “I’m rich, B*tch!”)

Posted by Rich Sweeney on June 26, 2008

John McCain caught a lot of heat last week for proposing to open up offshore drilling. This is largely because he proposed doing so as a response to high gas prices. As people quickly pointed out, not only would it take 10 years before the first drop of oil came out of these offshore endeavors, but the entire operation would be so small relative to global production that it would have virtually no effect on the price of oil. In fact, as the WonkRoom noted, even McCain’s own advisers acknowledge that offshore drilling wouldn’t impact current prices. This prompted a predictably econo-idiotic restatement from the Maverick, where he tried to justify offshore drilling as impacting the psychological price of gas, not the actual price (maybe this is behavioral econ?).

However, talking to Daniel today about all of the the oil speculation nonsense today, we stumbled on a reasonable justification McCain could give to explain his offshore drilling flip flop: “I’m rich, Bitch!” As Wyatt Cenac brillantly explained on the Daily Show in response to Obama’s flip flop on accepting public financing, “we all say things we don’t mean just before we get rich….voters will forgive him once they take a ride in his brand new Hummer-copter.”

While, then as now, opening up off-shore drilling in the US won’t significantly reduce gas prices, what it will do is bring in a boatload of money to the US.* Back when oil was $20 a barrel, this revenue stream seemed far too small to sacrifice the serenity of of our oceans. But with analysts predicting $200 a barrel oil in the near future, it might be time for us to reconsider. When a democracy decides whether to conserve land or not, it values the costs and benefits of both options. I’m not saying we’re at a point now where we should drill, but it’s not entirely unreasonable to change one’s stance on an issue like this once the relative pros and cons have changed.

Which brings me to the point of this post. From a financial perspective, the decision to delay drilling in ANWR a decade ago is looking pretty prescient. Assuming that the resulting environmental damages and quantity of oil in the ground haven’t changed, it’d be much more beneficial to crack ANWR open now. As I see it, the public panic over recent run up in gas prices has less to do with the current level, and more to do with the fact that there’s no end in sight. If people believe that we won’t be able to wean ourselves off oil quick enough and that prices will continue to rise, then it should be somewhat comforting to know that if things really do get bad we can somewhat offset these negative effects by cashing in our untapped reserves. Otherwise, if people believe that the recent crunch is a brief abberation, that either oil prices will come down or we’ll simply learn to use a lot less of it, then it probably seems imprudent to permanently spoil the environment. Either way, a reasonable, informative public debate over the relative costs and benefits seems a lot more helpful than atemporal categorical rejections.

* In this example I’m assuming that the federal government would either auction off drilling sites, or extract royalties from companies who find oil offshore, and return a dividend of the proceeds to every American. In reality, most of the profits gained from offshore drilling would go to American oil companies. In the case of McCain’s plan, I think its pretty safe to assert that he’s thinking about placating Houston, not offsetting the increased transportation costs of American families.

Posted in Oil, Political Economy | Leave a Comment »

Some motherly advice on deficit reduction

Posted by Rich Sweeney on May 20, 2008

Over on EconomistMom, Diane Lim Rogers notes that economists of all political and ideological stripes appear to support pricing carbon, which, by itself, amounts to increasing taxes. She then muses that part of the appeal comes from the fact that a carbon tax is an efficient tax, and the revenue could go towards alleviating other less efficient taxes. In particular, Rogers’ main interest is in deficit reduction. Now as I noted in the comments, it seems pretty unlikely (at least in my reading of the current political climate) that deficit reduction will garner much, if any, of America’s newly created carbon permit pie. My guess is that it’ll be eaten up by some combination of giveaways to industry (a la McCain), giveaways to the people (a la Boyce and Riddle), and spending on R&D (a la Joseph Romm). These three spending options all have obvious political constituencies, but it wasn’t obvious to me who the deficit reduction constituency is (except the unborn, who, for obvious reasons, don’t seem to carry much political clout). Nevertheless, deficit reduction is obviously a reasonable option, so I decided to check out the Brookings Paper Rogers links to.

Here’s is the comment I left for Diane after reading her paper, in which I show my ignorance of public finance,

I’m curious about the distributional implications of using this revenue to pay down our national debt. In your paper, you say, “Even if one interprets the benefits of deficit reduction as distributed broadly across the current population, i.e., as a fixed dollar amount of benefit to each American, this benefit will be progressive relative to income (a higher percentage of a lower income).”

But why would one interpret the benefits this way? Wouldn’t the benefit be proportional to each person’s share of future taxation? And given that wealthier Americans have higher average tax rates and pay taxes on a much larger ammount of income, it seems to me that reducing future tax burdens would be really regressive.

Diane replied,

Rich, there are debates on this—what is the burden of budget deficits across the income distribution? (It’s easy to figure out the intergenerational burden, not so easy to speculate on the inTRAgenerational burden among rich vs. poor.) Obviously it depends on what we think the form of the future burden will take–higher taxes or reduced government services, or some combination of both. The more it’s higher taxes, the more it depends on how we think taxes would be raised. If taxes would be raised proportionate to the current (progressive) federal tax distribution, then you’re right, that would be a more progressive change, so reducing the deficit and avoiding such future tax increases would be a regressive change. In my paper I was making the assumption that the future tax increases and/or benefit decreases associated with deficits would be distributed fairly evenly across the population, which would mean that relative to income, avoiding deficits would be a progressive change

So there you have it. I’m not surprised to hear that the distributional implications of deficit reduction are highly dependent on how you assume future tax increases were going to be financed. Given this, the real question I have is not “Under what assumptions is deficit reduction progressive?”, but instead, “What are the most realistic assumptions we can make about where future deficit driven tax increases/ decreases are likely to come from?” I know this is basically unanswerable, but any evidence (even anecdotal) or hypotheses would be welcome. I’m currently working on a paper analyzing the incidence of US climate policy, and it seems to me that this is the million dollar question when it comes to deficit reduction.

Posted in Cap and Trade, Carbon Tax, Climate Change, Incidence, Political Economy | Leave a Comment »

ToC: Washington Metro Edition

Posted by Evan Herrnstadt on December 10, 2007

One of the most interesting aspects of Washington, DC, is the fact that any planning decision falls at a nexus of federal, local, and Maryland and Virginia state interests.

I’ve been reading The Great Society Subway, a history of the Washington Metro system written by George Mason historian Zachary Schrag. The book delves into the nitty-gritty of the planning process; some of the most interesting bits are the intense political struggles.

Washington is not the only American city that has built a postwar rapid transit system (see: BART). However, it is unique in that the federal government, local authorities, Maryland, and Virginia all held a dear interest in its design and construction. Building such a system reminds one of the importance of political economics. The relevant commissions and authorities could not simply design a system that optimized ridership while minimizing net costs and impose it on the region:

Even with the federal government paying the bulk of the expense, local jurisdictions still needed to divide up the local share of the cost. On the one hand, if each jurisdiction paid only for the portion of the system on its own territory, there would be an enormous incentive not to build, and instead to bus one’s citizens to the county line and let them ride someone else’s train into work. One the other hand, if each jurisdiction paid a fixed proportion of the total system regardless of the amount it chose to build itself, a tragedy of the commons would arise: each would be tempted to build as large and extensive a system as it could, knowing that the additional expense would be diffused across the region.

An intermediate cost-sharing solution was eventually designed, and the disproportionately common downtown DC infrastructure was folded into the project’s general expenditures. Although DC faced unique political constraints on its urban policy, this is an instance in which the federal government’s inherent interest made the process more tractable. Hmmm…are there any other tragedies of the commons to which this lesson might apply?

Posted in Books, Political Economy, Transportation | 2 Comments »

Thoughts on Krugman

Posted by Evan Herrnstadt on October 24, 2007

I saw Paul Krugman speak last night as he promoted his new book, The Conscience of a Liberal.

Krugman and the “interviewer”, E.J. Dionne of the Washington Post and Georgetown University, talked mostly about Krugman’s concept of the “Great Compression”, the period after WWII during which the income distribution in the U.S. scrunched up considerably. It was sort of scattered, and Dionne often commandeered the conversation. This was okay, as Dionne is an interesting scholar in his own right, but I definitely went to hear the thoughts of his interviewee. Read the rest of this entry »

Posted in Books, Political Economy | Leave a Comment »

Money does grow on trees

Posted by Evan Herrnstadt on October 23, 2007

The U.S. Government, in conjunction with some NGOs, continues its program of swapping debt relief for forest conservation:

As part of the U.S. Tropical Forest Conversation Act, the United States will spend US$12.6 million (€9 million) to buy back Costa Rica’s debt at discounted rates. Conservation International and The Nature Conservancy will each contribute US$1.26 million (€890,000). Together, with interest, the money will be enough to pay down US$26 million of the Central American country’s debt, according to the agreement.

I’d like to highlight two aspects of this policy.

Read the rest of this entry »

Posted in Climate Change, Forestry, Government Policy, International, Political Economy | 1 Comment »

Go fish

Posted by Rich Sweeney on October 22, 2007

In this week’s RFF Policy Commentary, Harrison Fell and Jim Sanchirico discuss the political economy of regulating US fisheries. As the authors begin, “Overfishing is a classic example of the tragedy of the commons. Since no one owns the fish in the ocean, it’s in everyone’s interest to catch them as fast as possible, regardless of present or future damage to fisheries. Overexploitation and inefficient use of marine resources are the direct result of open-access conditions.”

Tellingly, many of the concepts/ dilemmas discussed in this piece can also be seen in the debate about regulating carbon emissions. Stranded costs are a classic refuge for regulation weary utilities. And of course, auctioning versus grandfathering permits is a very hot topic in Washington right now, with Lieberman slowly shifting towards auctions in the past week.

Posted in Government Policy, Political Economy | Leave a Comment »

Energy/ Environmental platforms of the ’08 front-runners

Posted by Rich Sweeney on October 12, 2007

Last weekend Barack Obama released a long, detailed energy/ environmental platform to much political fanfare. After reading it I decided to finally check out Hillary and Edwards’ plans for comparison purposes. If you’re of voting age and read this blog then I definitely encourage you to read each plan for yourself. In the meantime however, I’ll summarize some of the highlights and potential lowlights below.

** Note that this post only looks at the Democratic front runners. I went to the websites of Giuliani, Thompson and Romney and let’s just say that environmental policy clearly isn’t a “key issue” for the GOP at this point. Giuliani has come out in the debates as being pro-nuclear. Other than that, any mention of energy policy is in the context of energy security, and usually amounts to simply opening up untapped domestic oil.

Read the rest of this entry »

Posted in 2008 Elections, Government Policy, Political Economy | 9 Comments »

A stick to go along with all those carrots?

Posted by Rich Sweeney on October 4, 2007

One of the main difficulties with addressing global warming is the problem of collective action. The benefits to any one country of reducing its carbon emissions can only be reaped if other countries reduce theirs as well. Many lobbies in the US have used this as justification for basically doing nothing about climate change in the absence of some international accord.

However, recently a new potential enforcement mechanism has emerged which, at the very least, might induce countries to expedite global climate policy negatiations. Unfortunately, that mechanism is the most blunt and banal of economic policy tools: the trade tariff. As various US cap-and-trade schemes make their way through Congress, Greenwire reports trade tariffs based on emissions have become a must have issue from labor’s perspective. American Electric Power Corp., the nation’s largest coal-fired electric utility, and the International Brotherhood of Electrical Workers, first proposed the trade penalty idea earlier this year.

While at least in theory this would address one of the main holdups in global climate negotiations, I’m pretty skeptical of using tariffs to affect climate policy, especially unilaterally. First of all, tariffs are particularly susceptible to special interest lobbying and political manipulation. Digging them back up after all the progress we’ve made in the past few decades seems like a significant step backwards. Second, and more practically, it seems like applying such an approach in practice would be difficult. At what point in the production process would the carbon footprint be assessed? In the global economy, is the onus of carbon consumption on consumers or producers? We got to where we are today in the developed world by outsorcing dirty industries to developing nations. To turn around and punish them for that seems unfair, as the initial opposition voiced by China, Brazil and Mexico on this issue seems confirms.

Thoughts anyone? Should all options be on the table in the climate policy debate?

Posted in Climate Change, Political Economy | 1 Comment »