Articles by Robert Stavins
Robert N. Stavins is the Albert Pratt Professor of Business and Government, Director of the Harvard Environmental Economics Program, and Chairman of the Environment and Natural Resources Faculty Group at Harvard University's John F. Kennedy School of Government.
Whether they are called “revenue enhancements” or “user charges,” fear of the political consequences of taxes restricts debate on energy and environmental policy options in Washington. In a March 7 post on “green jobs,” in which I argued that it is not always best to try to address two challenges with a single policy instrument, […]
The January 12, 2009 issue of The New Yorker includes a well-written and in some ways inspiring article by Elizabeth Kolbert, profiling Van Jones, founder and president of Green for All. In the article, "Greening the Ghetto: Can a Remedy Serve for Both Global Warming and Poverty," Kolbert includes the following passage:
When I presented Jones's arguments to Robert Stavins, a professor of business and government at Harvard who studies the economics of environmental regulation, he offered the following analogy: "Let's say I want to have a dinner party. It's important that I cook dinner, and I'd also like to take a shower before the guests arrive. You might think, Well, it would be really efficient for me to cook dinner in the shower. But it turns out that if I try that I'm not going to get very clean and it's not going to be a very good dinner. And that is an illustration of the fact that it is not always best to try to address two challenges with what in the policy world we call a single policy instrument."
That brief quote generated a considerable amount of commentary in the blogosphere, much of it negative, and some of it downright hostile. This surprised me, because I didn't consider the proposition to be controversial, and I had chosen my words carefully, simply stating that "it is not always best to try to address two challenges with ... a single policy instrument." Two activities -- each with a sensible purpose -- can be very effective if done separately, but sometimes combining them means that one does a poor job with one, the other, or even both.
In the policy world, such dual-purpose policy instruments are sometimes a good, even great idea (gas taxes are an example), but other times, they are not. Whether trying to kill two birds with one stone makes sense depends upon the proximity of the birds, the weapon being used, and the accuracy of the stone-thrower. In the real world of important policy challenges -- such as environmental degradation and economic recession -- these are empirical questions and need to be examined case by case, which was my point in the brief quote. Since my further explanation of this point in the green jobs context (in an interview that lasted 30 to 60 minutes -- I don't recall) did not find its way into Ms. Kolbert's article (no fault of hers -- she had plenty of sources, plenty of material, and limited space), let me provide that explanation here.
Last week, California Governor Arnold Schwarzenegger declared a state of emergency and warned of possible mandatory water rationing as the state struggled through its third consecutive year of drought. This well-intentioned response to the latest water crisis should not come as a surprise.
Whenever prolonged droughts take place -- anywhere in the United States -- public officials can be expected to give impassioned speeches, declare emergencies, and impose mandatory restrictions on water use. Citizens are frequently prohibited from watering lawns, and businesses are told to prepare emergency plans to cut their usage. A day after the restrictions are announced, the granting of special exemptions typically begins (as in Maryland a few years ago, when car washes were allowed to remain open even if they were not meeting conservation requirements).
The droughts eventually pass, and when they do, water users go back to business as usual, treating water as if it were not a scarce resource. Water conservation efforts become a thing of the past, until the next drought, until the next unnecessary crisis. Isn't there a better way?
I introduced my previous post by noting that there are several prevalent myths regarding how economists think about the environment, and I addressed the "myth of the universal market" Â-- the notion that economists believe that the market solves all problems. In response, I noted that economists recognize that in the environmental domain, perfectly functioning markets are the exception, not the rule. Governments can try to correct such market failures, for example by restricting pollutant emissions. It is to these government interventions that I turn this time.
A second common myth is that economists always recommend simple market solutions for market problems. Indeed, in a variety of contexts, economists tend to search for instruments of public policy that can fix one market by introducing another. If pollution imposes large external costs, the government can establish a market for rights to emit a limited amount of that pollutant under a so-called cap-and-trade system. Such a market for tradable allowances can be expected to work well if there are many buyers and sellers, all are well informed, and the other conditions I discussed in my last posting are met.
The government's role is then to enforce the rights and responsibilities of permit ownership, so that each unit of emissions is matched by the ownership of one permit. Equivalently, producers can be required to pay a tax on their emissions. Either way, the result -- in theory -- will be cost-effective pollution abatement, that is, overall abatement achieved at minimum aggregate cost.
The cap-and-trade approach has much to recommend it, and can be just the right solution in some cases, but it is still a market.