Lieberman-Warner criticism, Part 1

Lieberman-Warner is deeply flawed. And like most things political, it’s most passionate defenders and opponents are insufferable.

It is sad but true that there is no such thing as perfect legislation, for the simple reason that the democratic process demands compromise. Therefore, to the extent that Lieberman-Warner is only imperfect to the degree that is demanded by our political process (e.g., if it’s the best we can do, all considering), so be it.

It’s not that good. And lest there be any confusion, I come to bury, not to praise. But that doesn’t mean that we ought not have a more responsible discussion of the details of Lieberman-Warner and how they can be better framed. Because like it or not, this is the train upon which our national greenhouse gas policy will be framed. It may or may not leave the station prior to 2009 (I for one think it won’t), but it’s going to be the framework from which any future bill starts. And rather than expend our effort trying to derail that train, this is the time to be reviewing the cars. Keep the good ones, replace the bad ones (probably overhauling the engine in the process), but don’t delude ourselves into thinking that we can throw the whole thing out, start fresh, and end up with perfection.

Here, then, is my attempt to try to dive into those details so that we can have a more enlightened debate.

As seems to be my way lately, this is going to take a couple posts. A few themes in the meantime:

The need for compromise isn’t as strong as you think

Our entire global conversation about GHG mitigation — going all the way back to Rio — starts from the flawed assumption that reducing GHG concentrations is incompatible with economic growth. This simply isn’t true, especially in the U.S., where 67 percent of all our GHG emissions come from sources who have a disincentive to invest in energy efficiency. On the thermal side (all those industrial and residential boilers), we have environmental regulations that inadvertently mandate higher CO2 emissions. And on the electric side, we have 100 years of regulation that explicitly discourages electric utilities from investments in energy efficiency. The result is that we have a massive opportunity to lower GHG emissions and lower our cost of energy. And yet we frame the debate not as an economic growth policy, but as a fight over which stakeholder should lose. This is not productive, as evidenced by the fact that 16 years after the Rio summit, we’re still arguing about losers instead of investing in our economic growth. And we will continue to do so for as long as we keep asking the wrong questions.

The result is that every climate policy — starting with Kyoto, through RGGI, and now in Lieberman-Warner — starts with the idea that someone has to lose, and therefore starts from a position of compromise. We do not need to take this approach. For example, if we assume that electric utilities will have to pay to lower their carbon, then we have a fight about losers. On the other hand, if we reframe that conversation as one that says “let’s let utilities keep some of the upside when they invest in efficiency,” we get the same outcome without the compromise. That is what we ought to demand, rather than simply accepting compromise as the inevitable cost of good — but imperfect — legislation.

Lieberman-Warner details

With that as background, here is a high-level summary of the problems with the L-W details. Remember, the problem is with the rail cars, not the train.

1. It includes small sticks, but no carrots. Lowering our GHG emissions will require massive capital investment, meaning that GHG policy better provide incentives for the private sector to start deploying capital as fast as possible. Lieberman-Warner confuses political pork with carrots. This rail car can be replaced. (Good news for all you vegetarians who prefer carrots anyway!)
2. It conflates GHG policy with social policy. This is unfortunately true for almost all GHG policy discussions, which see a massive amount of money coming from polluters and begin to salivate over who we ought to nominate as recipients of that largesse. Those of a moral bent pick social programs (à la “cap and dividend“). Those of a greedier bent simply stick out their hands. But the net result of both approaches is one in which polluters pay and government-mandated winners get paid. This may or may not be good social policy, but it certainly isn’t a good GHG policy, for the simple reason that it directs money away from GHG reduction and towards something else. It is analogous to the public school that spends money on free lunches, busing, handicapped access, and all sorts of other (admittedly really noble) things and then finds that they don’t have enough resources left to provide the same level of education as the neighboring private school. L-W needs to be narrowed down to a GHG policy.
3. It puts the incentives in the wrong place. Suppose you were trying to build a basketball team, and you rounded up everyone in your neighborhood. You then single out the shortest, least agile kids and yell at them until they can dunk and reverse in the lane. Keep at it long enough, and you’ll have … a bunch of pissed-off short kids. That, in essence, is what Lieberman-Warner does. It imposes penalties (sticks) on entities who have very few options to lower their GHG signature and then provides no reward for those who do. Like our basketball team, it will absolutely piss people off … but it’s not at all clear whether it will lower GHG emissions.
4. It gets really important details wrong. From additionality to decoupling, it’s just sloppy.

All of these flaws are fixable. More detail on each of the four points above to follow.