Hey Easterbrook, where's the love for Env-Econ?

Gregg Easterbrook, ESPN.com's Tuesday Morning Quarterback and Brookings Institution visiting fellow, mentions "the top environmental economist in the United States" in his Tuesday ESPN column.  Unfortunately, it's not John or me.  But it is a past (and hopefully future?) Env-Econ contributor: Rob Stavins.

As debate heats up in the Senate regarding "carbon trading" legislation to reduce greenhouse gas emissions, I commend to readers this new paper by TMQ pal Robert Stavins of Harvard's Kennedy School of Government. Stavins is the top environmental economist in the United States, and his paper, though not exactly beach reading, tells you everything you need to know about carbon trading. Plus, Rob must be a great guy because he has nine titles.

Rob was heavily involved in the design of the U.S. SO2 market, so his paper should have some interesting insights into the design of a U.S. carbon market. 

Comments

[John Whitehead]

Wow, that really opens up a can of worms.

Who is the best environmental economist in the country?

[robertdfeinman]

I'll raise the same objection I always do to incentive programs that involve technology.

Making a certain course of action more profitable by means of incentives (or the reverse making it less profitable by means of taxes) may work fine when you want to limit tobacco use. What is happening in this case is that there is an implicit assumption that the invisible hand will make things turn out for the best. Unfortunately, incentives can promote innovation, but can't guarantee it. We have had 100 years of automotive development and there has yet to be a viable electric car, for example.

There are no viable technologies which will limit carbon dioxide emissions. There aren't even any on the drawing board awaiting implementation. All that incentive programs do is allow economists and politicians to wash their hands of the problems and state that the "market" will solve all.

If technological development is what is needed then why not fund it directly? It worked for the Manhattan Project, it worked for eliminating Polio and it may work for other health issues in the future. Indeed when left to the pressures of the market most drug companies work on me-too drugs or lifestyle drugs with a large potential market.

There is only one new technology that has the potential to solve the long-range energy problem and that is controlled fusion. The program has moved too quickly into the engineering phase and this has limited research to just two approaches (magnetic confinement and laser induced). Basic research may uncover new physical processes that might be easier to commercialize, but R&D is lacking for such an effort.

The reason is easy to see, the raw material is essentially free, the operating costs low and the only profit to be made will be by the operating companies and this will be modest. At the same time viable fusion would make most fossil fuels nearly worthless. It's always a case of whose ox gets gored.

It's about time that economists got over the myth of the power of the market to find solutions which are disruptive to the status quo.

Some carbon trading or taxing program will be passed and ten years from now people will be wondering why it hasn't helped. It's designed to fail, there still is money to be made on fossil fuels.

[john]

As much as economists are want to like their fancy market based interventions (taxes, cap-and-trade), because the invisible hand (well not so invisible really, more their hand in constructing their model)offers the least cost basis for GHG reduction, giving an incentive for innovation etc. Even if these systems could be made to work in the West, they presuppose a considerable insitutional framework that is simply not in place in developing countries.

For example, I am involved in the the development of carbon storage/sequestration schemes in SE Asia, and belive you me it is no easy matter making them work, illegal logging takes place becasue the government cannot control it. There is no simple fix. Even with the correct financial incentives in place.

I read a recent presentation by Stiglitz for the Bali conferance and agree that any market based mechanisms should be supplimented with, what the economists (at the World Bank) call 'command and control' (I always thought they had no rhetorical flare)mechanisms such as emissions standards.