Positive Political Economy Archives - Page 29 of 52 - An Economic View of the Environment

Trying to Remain Positive

With inauguration day in the United States just two weeks away, it is difficult to harbor optimism about what the Trump presidency will mean for this country and for the world in realms ranging from economic progress to national security to personal liberty (as I wrote in this space one month before the November election – This is Not a Time for Political Neutrality, October 9, 2016). In the wake of the election, expectations are no better, including in the environmental realm (as I wrote shortly after the election – What Does the Trump Victory Mean for Climate Change Policy?, November 10, 2016). And since then, the President-elect’s announced nominations for key positions in the administration have probably eliminated whatever optimism some progressives may have been harboring.

Remarkably, the least worrisome development in regard to anticipated climate change policy may be the nomination of Rex Tillerson to become U.S. Secretary of State. Two months ago it would have been inconceivable to me that I would write this about the CEO of Exxon-Mobil taking over the State Department (and hence the international dimensions of U.S. climate change policy). But, think about the other likely candidates. And unlike many of the other top nominees, Mr. Tillerson is at least an adult, and – in the past (before the election) – he had led his company to reverse course and recognize the scientific reality of human-induced climate change (unlike the President-elect), support the use of a carbon tax when and if the U.S. puts in place a meaningful national climate policy, and characterize the Paris Climate Agreement as “an important step forward by world governments in addressing the serious risks of climate change.”

It’s fair to say that it is little more than damning with faint praise to characterize this pending appointment as “the least worrisome development in regard to climate change policy,” but the reality remains. Everything is relative. Of course, whether Mr. Tillerson will maintain and persevere with his previously stated views on climate change is open to question. And if he does, can he succeed in influencing Oval Office policy when competing with Scott Pruitt, Trump’s pick to run EPA, not to mention Rick Perry, Trump’s bizarre choice to become Secretary of Energy?

In the face of all this (and much else), is it possible to offer any statement of optimism or at least hope? The answer may be found in the reality that U.S. policy – in many issue areas – consists of much more than the policies of the Federal government. In a variety of policy realms, the states play an exceptionally important role. One might not normally think about this in the context of addressing a global commons problem, such as climate change, but these are not normal times.

And so I will try to rescue myself from my current mental state – at least temporarily – by focusing today on policy developments in the State of California. To do this, I offer an op-ed I recently wrote with Professor Lawrence Goulder of Stanford University, which was published in the Sacramento Bee a week before the November election. Good policy developments at the state level are, of course, even more important now than they were then.

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Sacramento Bee

October 30, 2016

New emissions targets make cap and trade the best low-cost, market-based approach

By Lawrence H. Goulder and Robert N. Stavins

This is a critical time for California’s climate policies. Recently, Gov. Jerry Brown achieved his hope of extending California’s action beyond 2020, the termination date of Assembly Bill 32. Whereas AB 32 called for reducing the state’s greenhouse gas emissions to 1990 levels by 2020, the newly signed Senate Bill 32 and AB 197 mandate an additional 40 percent reduction by 2030.

Unless these ambitious goals are pursued with the most cost-effective policy instruments, the costs could be unacceptably high. The governor’s targets make it especially important to use a low-cost, market-based approach: cap and trade.

Unfortunately, rather than increasing cap and trade’s role, recent proposals emphasize the use of less efficient, conventional policies. The environmental justice lobby supports this change, contending that emissions trading hurts low-income and minority communities by causing pollution to increase.

In fact, abandoning cap and trade would harm these communities by raising costs to businesses and thereby prices to consumers. With cap and trade, the sources able to reduce emissions least expensively take on more of the pollution-reduction effort. This lowers costs and prices.

When the environmental justice community worries about cap and trade, their concern is not about the greenhouse gas emissions that cause climate change: These gases spread evenly worldwide and have no discernible local impact. Rather, it’s about “co-pollutants,” such as nitrogen oxides, carbon monoxide and particulates, which often are emitted alongside greenhouse gases.

By reducing California’s greenhouse gas footprint, cap and trade lowers concentrations of these co-pollutants. Still, it’s possible – in theory – for co-pollutant emissions to increase in particular localities. The best defense against this possibility is to tighten existing laws that limit local air pollution. This would prohibit any trades that would violate such limits.

The environmental justice lobby’s concerns about local air pollution are justified: A new report by the U.S. Commission on Civil Rights acknowledges that low-income and minority communities face disproportionately high air pollution. The best response to this situation is to strengthen existing local pollution laws rather than abandon cap and trade.

Moreover, it is not clear that cap and trade shifts local air pollution toward low-income communities. One recent report from the University of Southern California identified emission increases and blamed them on cap and trade. But increased emissions have been due mainly to economic and population growth. And although emissions from some sources did increase, they decreased at 70 percent of facilities, according to mandatory reporting to the Air Resources Board.

The key question, however, is not how emission levels changed, but rather how cap and trade contributed to the change. Without cap and trade, it is likely that any increases in emissions would have been even greater.

Beyond the environmental impacts, it’s important to consider economic impacts on these communities. Reducing greenhouse gas emissions tends to raise costs of energy and transportation. Because low-income households devote greater shares of their income to energy and transportation than high-income households, virtually any climate policy places greater burdens on those households. Cap and trade minimizes these costs.

Further, cap and trade offers the government a powerful tool for compensating low-income communities for such economic burdens. Most emission allowances are auctioned and pursuant to SB 535, 25 percent of the proceeds go to projects that provide benefits to disadvantaged communities. This has already amounted to over $158 million.

Cap and trade serves the goal of environmental justice better than the alternatives, and it deserves a central place in the arsenal of weapons California uses to address climate change. Rather than step away from this progressive policy, the state should increase its reliance on this progressive, market-based approach.

Lawrence H. Goulder is a professor in environmental and resource economics at Stanford University and former chair of the AB 32 Economic and Allocation Advisory Committee to the California Air Resources Board. Contact him at goulder@stanford.edu.

Robert N. Stavins is a professor of business and government at the Harvard Kennedy School of Government, and contributed to assessment reports to the Intergovernmental Panel on Climate Change. Contact him at robert_stavins@harvard.edu.

What Does the Trump Victory Mean for Climate Change Policy?

Those of you who have read my previous essay at this blog, “This is Not a Time for Political Neutrality” (October 9, 2016), know that my greatest concerns about a Trump presidency (then a possibility, now a certainty), were not limited to environmental policy, but rather were “about what a Trump presidency would mean for my country and for the world in realms ranging from economic progress to national security to personal liberty,” based on his “own words in a campaign in which he substituted impulse and pandering for thoughtful politics” … and “built his populist campaign on false allegations about others, personal insults of anyone who disagrees with him, and displays of breathtaking xenophobia, veiled racism, and unapologetic sexism.”

That’s a broad indictment, to be sure, but whatever real expertise I may have is actually limited to environmental, resource, and energy economics and policy, and so that has and will continue to be the real focus of this blog, “An Economic View of the Environment.” With that in mind, I return today from last month’s brief immersion in partisan politics to discuss climate change policy.

Yesterday, an editor at The New York Times asked me to write a 500-word essay giving my view of what the Trump victory will mean for climate policy. This morning, my very brief essay was published under the headline, “Goodbye to the Climate.” Given the brevity of the piece, it does not touch on many issues and subtleties (I come back to that at the end of today’s blog post), but rather than take the time to expand it, I want to get this to you quickly, and so I am simply reproducing it as it first appeared in the Times (along with an interesting group of other essays, under the overall heading, “What Happened on Election Day: How the election and Donald Trump’s victory looks to Opinion writers.”

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The New York Times

Goodbye to the Climate

By Robert N. Stavins

Donald J. Trump once tweeted that “the concept of global warming was created by and for the Chinese in order to make U.S. manufacturing noncompetitive.” Twitter messages may not be clear signs of likely public policies, but Mr. Trump followed up during the campaign with his “America First Energy Plan,” which would rescind all of President Obama’s actions on climate change.

The plan includes canceling United States participation in the Paris climate agreement and stopping all American funding of United Nations climate change programs. It also includes abandoning the Clean Power Plan, a mainstay of the Obama administration’s approach to achieving its emissions reduction target for carbon dioxide under the Paris agreement.

What should we make of such campaign promises? Taking Mr. Trump at his word, he will surely seek to pull the country out of the Paris pact. But because the agreement has already come into force, under the rules, any party must wait three years before requesting to withdraw, followed by a one-year notice period.

Those rules would seem to be mere technicalities. The incoming Trump administration simply can disregard America’s pledge to reduce carbon dioxide emissions by 26 to 28 percent below the 2005 level by 2025. That is bad enough. But the big worry is what other key countries, including the world’s largest emitter, China, as well as India and Brazil, will do if the United States reneges on its pledge. The result could be that the Paris agreement unravels, taking it from the 97 percent of global emissions currently covered by the pact to little more than the European Union’s 10 percent share.

In addition, Mr. Trump’s Environmental Protection Agency probably will stop work on regulations of methane emissions (a very potent greenhouse gas) from existing oil and gas operations. Undoing complex existing regulations, such as the Clean Power Plan, will be more difficult, but a reconstituted Supreme Court will probably help President Trump when that plan inevitably comes before the court. Also, the new president will most likely ask that the Keystone XL pipeline permit application be renewed — and facilitate other oil and gas pipelines around the country.

On the campaign trail, Mr. Trump promised to “bring back” the coal industry by cutting environmental regulations. That may not be so easy. The decline of that industry and related employment has been caused by technological changes in mining, and competition from low-priced natural gas for electricity generation, not by environmental regulations. At the same time, Mr. Trump has pledged to promote fracking for oil and gas, but that would make natural gas even more economically attractive, and accelerate the elimination of coal-sector jobs.

If he lives up to his campaign rhetoric, Mr. Trump may indeed be able to reverse course on climate change policy, increasing the threat to our planet, and in the process destroy much of the Obama legacy in this important realm. This will make the states even more important players on this critical issue.

Robert N. Stavins is a professor at Harvard, where he directs the Harvard Project on Climate Agreements.

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Given the brevity of the piece, it is not intended to be comprehensive of the many implications for climate change policy of the Trump victory (nor the implications of the Republicans continuing to hold majorities in both houses of Congress).

And I did not get into the many subtleties of the issues I identified. At a bare minimum, these would include:

the possibility of the new administration trying to bypass the four-year delay involved in dropping out of the Paris climate agreement by taking the one-year route of dropping out of the overall United Nations Framework Convention on Climate Change (UNFCCC) – signed by President George H.W. Bush and ratified by the U.S. Senate in 1992;

federal “climate change policies” that have been bipartisan and are therefore much less likely to be repealed, such the latest CAFE and appliance efficiency standards, and the recently extended wind and solar tax credits; and

the myriad of sub-national climate change policies, ranging from AB-32 in California to the Regional Greenhouse Gas Initiative in the northeast (It’s not a coincidence that there’s a high – although not perfect – correlation between the states Secretary Clinton won in the election and the location of the most ambitious climate change policies).

On another occasion, after I’ve had an opportunity to reflect more calmly and carefully on the implications of the forthcoming Trump presidency for environmental, natural resource, and energy policy, I will return to this topic. But for now, I have to prepare for my trip in a few days to Marrakech, Morocco, for the annual UNFCCC negotiations. Given the election results, my meetings there may be quite strange, if not surreal. I hope to write about that in my next essay at this blog.

A Key Moment for California Climate Policy

The past year has been a crucial time in international climate negotiations. In December, 2015, in Paris, negotiators established an agreement on the next round of targets and actions to succeed the Kyoto Protocol, which was signed in 1997 and will effectively close down in 2020. In Paris, negotiators set up a new and meaningful agreement for multinational action through individual country “Intended Nationally Determined Contributions” (INDCs). The Paris round was crucial, because it expanded the coalition of contributions from countries responsible for 14% of global emissions under Kyoto (Europe and New Zealand) to 187 countries responsible for 96% of emissions under the Paris Agreement.

California’s Role in Global Climate Change Policy

California sent a delegation to the Paris talks. While not officially a party to the negotiations, California government officials attended to show support for broad and meaningful action. For many years, spurring action beyond California’s borders has been the key rationale for developing a California-based climate policy. This began with Assembly Bill 32 (AB 32), the Global Warming Solutions Act of 2006. Initially, the focus was on encouraging action within the United States, including federal legislation, state-level actions, and multi-state compacts, but subsequent domestic action turned out to be much less than originally anticipated. As a result, California’s focus shifted to the international domain.

This is a good time to consider how the State can best demonstrate leadership on this global stage. Action by all key countries, including the large emerging economies – China, India, Brazil, Korea, and South Africa – will be necessary to meaningfully address the climate problem. Significant multinational contributions will be necessary to avoid having California’s aggressive in-state actions be for naught. Absent such multilateral action, ambitious California policies do little or nothing to address the real problem.

But California can play a very important role by showing leadership – in two key ways. One is to demonstrate a commitment to meaningful reductions in (greenhouse gas) GHG emissions. In this regard, California has more than met the bar, with policies that are as aggressive as – if not more aggressive than – those of most countries.

The other way is to show leadership regarding how reductions of GHG emissions can best be accomplished – that is, in regard to progressive policy design. California has a sophisticated GHG cap-and-trade system in place, which while not perfect, has many excellent design elements. Countries around the world are now planning or implementing cap-and-trade systems, including in Europe, China, and Korea. These countries are carefully watching decisions made in California, with particular attention to the design and implementation of its cap-and-trade system. California’s system, possibly with a few improvements, could eventually be a model for even larger systems in other countries.

Can California Provide a Good Model of Progressive Policy?

Unfortunately, California’s climate policy has not relied heavily on its cap-and-trade system to achieve state targets. Furthermore, rather than increasing reliance on this innovative market-based climate policy over time, recent proposals have doubled-down on the use of less efficient conventional policies to achieve GHG reductions. While some of these so-called “complementary policies” can be valuable under particular circumstances, they can also create severe problems.

One example of this is the attempt to employ aggressive sector-based targets through technology-driven policies, such as the Low Carbon Fuels Standard (LCFS). In the presence of a binding cap-and-trade regime, the LCFS has the perverse effect of relocating carbon dioxide (CO₂) emissions to other sectors but not reducing net emissions, while driving up statewide abatement costs, and suppressing allowance prices in the cap-and-trade market, thereby reducing incentives for technological change. That is bad news all around. These perverse outcomes render such policies of little interest or value to other regions of the world.

The magnitude of the economic distortion is illustrated by the fact that allowances in the California cap-and-trade market have recently been trading in the range of $12 to $13 per ton of CO₂, while LCFS credits have traded this summer for about $80 per ton of CO₂.

While reduction in transportation sector GHG emissions is clearly an important long-run objective of an effective climate policy, if the approach taken to achieving such reductions is unnecessarily costly, it will be of little use to most of the world, which has much less financial wealth than California and the United States, and will therefore be much less inclined to follow the lead on such costly policies.

The Path Ahead

With China now the largest emitter in the world, and India and other large developing countries not very far behind, California policies that achieve emission reductions through excessively costly means will fail to encourage other countries to follow, or even recognize, California’s leadership. On the other hand, by increasing reliance on its progressive market-based system, California can succeed at home and be influential around the world.