One feature of economic incentive-based environmental policy is that it is possible to achieve (1) a given amount of emissions reductions at lower cost and/or (2) additional emissions reductions at the same cost relative to environmental standards (i.e., command and control regulation):
Gov. Jerry Brown issued an executive order Wednesday dramatically ramping up this state’s already ambitious program aimed at curbing greenhouse gas emissions, saying it was critical to address what he called “an ever-growing threat” posed by global warming to the state’s economy and well-being.
Under Mr. Brown’s order, emissions would have to be reduced by 40 percent over 1990 levels by 2030. Under existing state law, emissions are supposed to be cut back by 80 percent over 1990 levels by 2050, and Mr. Brown said this tough new interim target was essential to helping the state make investment and regulatory decisions that will assure that goal is reached.
Mr. Brown’s order marks an aggressive turn in what had already been among the toughest programs in the nation aimed at reducing greenhouse gas emissions. Under the law put into place by Mr. Brown’s predecessor, Arnold Schwarzenegger, the state was required to reduce greenhouse gas emissions to 1990 levels by 2020 on the way to reach the 2050 target; California is already well on its way to meeting the 2020 goal, and may exceed it, officials said Wednesday.
The IPCC expects a 5-degree world to be characterized by "major extinctions around the globe" and a "reconfiguration of coastlines worldwide." Just beyond that, at 6 degrees, we're looking a "catastro-f***" that would be almost "infinitely costly," said [Gernot Wagner], the Environmental Defense Fund economist [and sporadic contributor to Env-Econ]. "It's akin to killing the planet, basically. Or society on the planet."
Yesterday the nine states that participate in the Regional Greenhouse Gas Initiative (RGGI) released a report that highlights the continuing success of the nation’s longest-running carbon market. The big takeaway: yes, it is possible to tackle our climate and energy challenges while delivering huge benefits to consumers!
Nine New England and Mid-Atlantic states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont) currently participate in the RGGI program, which limits power plant carbon emissions. Allowances issued under the emissions cap are auctioned to generate revenues that can be used for a variety of purposes.
RGGI states’ CO2 emissions and GDP. Source: RGGI
The latest RGGI report, which tracks the program’s impact through 2013, is full of good news:
Together, the RGGI states have cut emissions by 40 percent since 2005, while their economies have grown a robust 8 percent.
The $1.4 billion in auction proceeds invested to date will return more than $2.9 billion in lifetime energy bill savings to more than 3.7 million participating households and 17,800 businesses.
Investments in clean energy and direct bill assistance programs also helped save consumers money.
RGGI’s recipe is simple: put a price on a “bad” (carbon emissions) and use the money for “good” stuff like investing in clean energy, energy efficiency, and other measures that help lower consumer electricity bills.
In fact, RGGI has been so successful at achieving its goals that the program participants made the decision to further tighten the emissions cap. By 2020, emissions from the nine RGGI states are projected to be 50 percent below 2005 levels. If that progress continues through 2030, they will collectively be on track to achieve their Clean Power Plan goals. ...
On Monday, researchers from Yale and Utah State University unveiled a new statistical technique that allows an in-depth accounting of Americans’ attitudes toward global warming. The resulting maps—down to the county level—reveal some interesting takeaways.
Canada’s provinces are taking command of the nation’s battle against climate change, seizing the initiative from a reluctant federal government as the clock ticks down to a crucial international climate agreement later this year.
Ontario Premier Kathleen Wynne on Monday signed a historic deal to join Quebec’s cap-and-trade system for carbon emissions, while British Columbia Premier Christy Clark was invited to promote her province’s carbon tax at the World Bank – an honour not usually accorded to a provincial leader. ...
Many of the details in Ontario’s cap-and-trade system still have to be worked out over the next six months, but it is likely to look similar to the joint system run by Quebec and California. In that model, the government sets a cap on emissions and hands out some permits to industry for free while auctioning others off. The proceeds are then plowed back into other green programs, such as public transit.
Once Ontario’s system is operating, 62 per cent of Canada’s population and more than half its economy will be under the same carbon market. Including B.C., which uses a carbon tax instead, some three quarters of Canadians will be covered by provincial-level carbon pricing. ...
I didn't know Quebec was in AB32 but here is a news release from October 2013 that says they've been working on it for five years:
California and Quebec took another step toward linking their cap and trade programs when representatives of the two jurisdictions signed an agreement outlining steps and procedures to fully harmonize and integrate the two programs.
Signing the agreement is the latest step in a process to link the two jurisdictions that began more than five years ago. ... In April 2013 the Air Resources Board adopted a regulation setting January 1, 2014 as the start of the linkage, which will enable carbon allowances and offset credits to be exchanged between participants in the two jurisdictions’ programs. ...
"The sale of emission allowances will generate at least $2.5 billion in revenue by 2020 in Quebec. These funds will be fully reinvested in initiatives to fight climate change, including facilitating the conversion to renewable energy, promoting energy efficiency, improving industrial processes, and preparing Quebec society to adapt to the impacts of climate change. The electrification of transportation is another major project on which our government will labor over the coming months," said Minister Blanchet.
The linked programs will provide a working model for other states and provinces that are seeking cost-effective approaches to reducing their greenhouse gas emissions. The recent announcement by the U.S. EPA regarding limits on greenhouse gas emissions from power plants, for example, could lead to state-by-state caps and a system that would allow them to trade credits with other similar programs. The California-Quebec arrangement could be the template for that effort.
It shouldn't be much of a problem to work northeast from California and southwest from Ontario to include all of both countries, should it?
The contrast with climate policy in southern states is stark:
... [Washington Governor Jay Inslee] has proposed collecting a new charge on emissions from oil refineries, power plants and other industries that would reap an estimated $1.3 billion in the first year. But in contrast to similar systems in California and the Northeast, energy experts said, Mr. Inslee’s plan would use most of the new revenue for education and transportation rather than on climate or energy projects.
By linking the money to broadly popular bread-and-butter programs, he hopes to build support for an antipollution policy that faces stiff opposition from Republicans and some industry groups. He is also trying to solve two problems with one policy. Washington has been cited for contempt by the state’s highest court, which said the government violated the State Constitution by underfunding schools by billions of dollars. ...
... the state would set an overall cap on carbon emissions and require the state's biggest polluters to pay for each metric ton of pollution emitted. The price would be set at an auction, and buyers of emission allowances could sell the amounts they did not need.
The governor's allies on environmental issues are already talking about taking his ideas directly to voters in a referendum, perhaps in 2016, if the Legislature does not pass them.
I appreciated your recent post in reply to mine on carbon taxes. I've written a reply here where I've tried to make my point more explicitly and clearly, because I think there was some misunderstanding in terms of the case I was trying to make:
Thanks for the clarification. I tried to post a comment at your blog but I haven't gotten email permission in 30 minutes.
The big problem, I think, is that you said "In this way, a carbon tax could make global warming worse." This statement is misleading. If you actually meant to say that a carbon tax could make climate change worse relative to solar innovation grants then it would be more accurate to say that a carbon tax might be less effective at arresting climate change than solar innovation subsidies. Taken out of context, like Tyler Cowen did at MR, the statement can be interpreted to make the case that "free market environmentalism" (for lack of a better term) would be a much more effective non-policy than an actual government policy like a carbon tax. There are many readers out there who would rejoice at this interpretation. Everyone likes a free lunch.
I'm not convinced that solar innovation grants would be more effective than a carbon tax for several (largely uniformed) reasons: how does government pick these winners? Would the innovations affect fixed costs or variable costs? If fixed costs, then that would have less of an effect on price (is that right?). I still think any solar subsidy (per unit or innovation grants) lowers the price path and so we're still talking about reaching the switch point sooner or later. Looking at your graphs, it really matters how elastic vs inelastic those supply curves are. You picked the extremes to make the point but the relative elasticities are not that extreme, are they? And it seems like your model suggests that firms try to maximize market share instead of maximizing profit. If the industry is competitive then in the long run they will earn zero economic profits and then it doesn't really matter how much market share you might have.
Finally, it is hard for me to get past the notion that government should tax a bad thing and not tax a good thing in order to increase the efficiency of the economy. A revenue neutral carbon tax seems like it does just that.
The value of many oceanfront properties on the East Coast could drop dramatically if Congress were to suddenly end federal beach nourishment subsidies, a new study by researchers at three universities finds.
In beach nourishment, new sand, often dredged from nearby inlets or the offshore sea floor, is added to an eroding beach to widen it and help prevent future erosion.
“The expectation that the federal government will continue to provide subsidies for erosion-control measures has significantly inflated property values in many coastal communities,” said Dylan E. McNamara, associate professor of physics and physical oceanography at the University of North Carolina Wilmington. “If these subsidies were suddenly removed, our model suggests values could experience a rapid and dramatic adjustment downward.”
“Values could erode by as much as 17 percent in towns with high property values and almost 34 percent in towns with low property values,” said Martin D. Smith, professor of environmental economics at Duke University. “This would be analogous to the bursting of a bubble.”
Researchers from the UNCW, Duke and The Ohio State University published their findings today in the open-access peer-reviewed journal PLOS One.
Alarming as the new numbers are, the researchers caution that their findings should not be viewed as the last word on the issue nor should they be interpreted as a policy recommendation to continue the federal subsidies.
“This analysis doesn’t include all the factors that affect coastal property values, but the erosion-related factors we examine are important ones, and the model is grounded in hard empirical data,” said A. Brad Murray, professor of earth and ocean sciences at Duke. “We expect our model’s predictions to be close to what could actually happen.”
To assess the effect federal beach nourishment subsidies have on property values -- and what the impact might be if subsidies abruptly ended -- the researchers incorporated historic and current resale values of oceanfront homes on nourished beaches and un-nourished beaches in North Carolina into a specially designed stochastic dynamic optimization model. They also incorporated three types of erosion that commonly affect beach width and stability in the state: chronic background erosion caused by rising sea levels or differences in alongshore sediment transport; sporadic erosion of nourished beaches from storms; and temporary increases in erosion that can occur as beaches adjust to recent nourishment.
By analyzing the data, the model clearly showed that “if the beach is being protected from erosion by nourishment, a large part of the value of the house comes from that protection,” said Sathya Gopalakrishnan, assistant professor of agricultural, environmental and development economics at Ohio State.
Though the model is based on North Carolina data, its findings are broadly applicable, said Gopalakrishnan. “It lines up well with the range of property values and environmental parameters found on most other East Coast sandy shorelines with the exception of a few urban areas like Atlantic City,” she said.
Between 1995 and 2002, the federal government spent $787 million on beach nourishment and has historically subsidized two-thirds of the total nourishment costs incurred by coastal communities. In recent years, however, some legislators have called for deep cuts in federal spending on nourishment or ending the subsidies outright.
“It’s a complicated issue, especially at a time when rising sea levels and increased storminess are projected.” said Smith. “No one wants to foot the bill for unnecessary subsidies. But if you don’t pay for defensive nourishment and end up having to pay more in disaster relief, it doesn’t make economic sense.”
Said McNamara, “Our results suggest that if nourishment isn’t a long-term strategy the federal government wants to use to manage eroding coastlines, a gradual removal is more likely to smooth the transition to more climate-resilient coastal communities.”
Dylan McNamara at University of North Carolina at Wilmington, and Marty Smith and Brad Murray at Duke (although I'm sue Sathya is the brains of the operation).
In the demented political mind of Ted Cruz, denying that climate change is caused by humans is equivalent to Galileo denying that the earth is flat (yep, that's the logic). Or perhaps there is a political motive behind this pronouncement (shocking, I know).
The astute will notice that one of these results is not like the others.
The Galileos on climate change are, like Galileo, the scientists. The people pushing back on the science are, like Cruz, those who favor the status quo. Cruz's comments, from start to finish, are simply not correct.
"This blog aims to look at more of the microeconomic ideas that can be used toward environmental ends. Bringing to bear a large quantity of external sources and articles, this blog presents a clear vision of what economic environmentalism can be."
Don't believe what they're saying
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