Regulation and public investment are more efficient means to reduce GHGs than emissions pricing
When I sat down to write about why so-called “command and control” methods are often the most effective and efficient means of fighting climate chaos, I found that Kevin Drum had posted exactly the argument I wanted to refute.
After conceding that it will take more than emissions pricing to lower greenhouse gas emissions, and that response to price signals tends to be small and slow, Drum argues that a price mechanism should be the primary means to fight climate chaos: “Still, generally speaking, taxes and carbon trading are more efficient regulatory mechanisms than command and control, so the more you can rely on them the better.”
I think this default conventional wisdom is just plain wrong. Not only is elasticity low, but there are also simple standards by which we can measure energy and greenhouse-gas efficiency. Further, suitable means for increasing efficiency and lowering emissions are known. Given these three conditions, price is not the most efficient way to change behavior.
As examples, consider weather and duct sealing. It’s widely acknowledged that sealing buildings yields fast paybacks — two years or less. Yet most buildings remain under-sealed, with leaky frames and ducts. How do we change this? Well, we can raise the price of energy until people become desperate and seek out contractors. But since we already have quick paybacks, any amount we raise the price is far beyond the cost of saving the energy.
If, as I have suggested in surveys of the literature, demand response to price increases is around -.5, that means it will require $200 in emissions charges to motivate each $100 of consumer investment in energy efficiency. In contrast, investing public funds could insure that a nice woman working for an energy-efficiency utility could seal your home for around $100, plus a bit for administration. Even if that $100+ came from regressive taxation, it would still cost consumers less than a primarily price-driven policy. And if the payback is really two years or less, the government could use its ability to borrow to provide low interest financing, thus bringing the cost to consumers down below the business-as-usual price.
One obvious response would be to look on this as an anomaly. Orwell’s sheep used to bleat, “Two legs bad, four legs good.” I think the 21st-century version is, “Public bad, private good.”
In most economic sectors, clear, measurable standards can compare where we are to where it is possible to be. For buildings, we know the potential for lowering emissions per square-foot and per person. In transport, we know it is possible to improve efficiency per passenger-mile and per ton-mile. In power generation, we know how much we can lower emissions per kWh. In land use, forestry, and agriculture, we want to build rather than to erode soil and we want to generate net sequestration rather than net emission of greenhouse gases.
Similarly, in most sectors >we know the means to accomplish these things. In buildings we want to see well-known efficiency means implemented, along with use of solar and ground source heat pumps. For freight we know that a switch from long-haul trucking to freight rail is an opportunity for huge savings at a low price. In ground passenger transport, we know that some mix of electric cars, passenger rail, increased use of buses, ride sharing, increased telecommuting, increased use of bikes and walking paths, and urban infill will give people options for living closer and reducing emissions.
There are varied but well know means of transforming agriculture and forestry from net emitters of greenhouse gases to net sequestrators. These include organic and low input agriculture, conservation tillage, and a greatly reduced use of wood and forest products. In electricity generation we know that a national grid, a smart grid, and storage are all needed for any low-carbon means of electricity we adopt. We also know that there are only a few means of low-carbon electricity generation that could be implemented quickly on a large scale with today’s technology: wind, CSP solar, photovoltaic solar, and nuclear. Yes there is plenty of room for argument. (For example, I think new nuclear reactors are a waste of money.) Moreover, there are tons of alternatives I have not mentioned, but other alternatives either have limited potential with today’s technology or are much more expensive at present than the means listed.
When clear, simple standards are possible for the ends and there is a limited menu of options for the means, circumstances are ideal for “command and control.” The limited menu of means implicitly lets us know how stringent our regulations can be. The advantage is not that we want to require certain methods be used, but that we can require results at least at the level we know is practical. The availability of clear, simple standards lets regulation specify ends, not means. And this is possible in most sectors of our economy.
The exceptions represent 20-30 percent of U.S. emissions: industries other than agriculture and forestry, plus water and air transport. Even in these areas, there is substantial room for regulation and public investment. It is just that in these sectors, emissions pricing, whatever elasticity problems exist, has to be the primary driver for change. That still means that ~75 percent of U.S emissions come from sources where “command and control” measures are superior to prices for reducing emissions.
This is not just a case of the split between private and public goods. Oh, the classic public goods are there: railroads, grid improvements, and so forth. But we would not normally consider weather stripping, insulation, and electric cars public goods. Similarly, some of the areas where price mechanisms make sense as primary drivers are completely dependent on classic public goods. For example, airlines may be private, but they are completely dependent on airports, air traffic control, and extensive public infrastructure. The problem is that there is not currently a technical solution to the problem of reducing air travel emissions because the primary forcing from air travel is not fossil-fuel use, but water vapor released at high altitudes. Ultimately the solution to air travel will be to ration it, to tell the industry: “This is the maximum emissions you are allowed. Air industry permits will be auctioned quarterly. Fight it out amongst yourselves as to who gets what permits, and by all means use any technical means you can figure out to get more passenger miles out of each unit of emissions.”
in most sectors, emissions pricing will work better as reinforcement than as the primary instrument of greenhouse-gas policy. In most sectors, so-called command and control methods are the most efficient means to generate the infrastructure changes needed to reduce emissions.