... but. (FYI, I have much respect for ED, the environmental group formerly known as Prince, er, the Environmental Defense Fund, their president and their economists [who were instrumental in making cap and trade a relatively mundance environmental policy instrument {and that's a good thing}]). In a post on California's Global Warming Solutions Act I boldly went where most economists will always go:
I don't buy into the idea that the GWSA will be costless. Nothing ever is, right?
Eric Haxthausen, an economist at EDF, commented (and I received a nice email from him):
How is it possible? First, evidence suggests that aggressive implementation of energy efficiency measures can reduce energy demand at a “negative” cost. BP added nearly $650 million in net present value to the company's bottom line while achieving reductions of 12.8 million metric tons of GHG emissions, and DuPont reduced its emissions by some 65 million tons, saving the company $2 billion.
I commented on these stats, reported in BusinessWeek, back in December in a post inanely titled Free Lunch Money. In short, I don't believe the evidence that energy efficiency, prompted by government regulation, increases profits.
And this debate is summed up nicely at the end of a long article (5 web pages! I had to pop the top on a second beer) in the NYTimes (California, ...):
Perhaps the most ambitious measure California has undertaken is the newly mandated 25 percent reduction in carbon dioxide emissions. “If we do it right,” Mr. Schwarzenegger* said at a news conference, “it can be an example for the rest of the world and the rest of the country to see.” If not, the concept could be discredited.
The law, sponsored by Ms. Pavley and the Assembly speaker, Fabian Núñez, Democrat of Los Angeles, gives the California Air Resources Board authority to set industry-specific targets for emissions reductions, effective in 2012, and to establish mechanisms — including the creation of emissions allowances that companies might trade or bank — to facilitate compliance. These targets would be adjusted from 2012 to 2020 to meet the 25 percent goal.
Those who have studied the question agree that the new system will cost consumers more. “A cap-and-trade system will raise the cost of electricity to consumers to some degree,” said Lawrence H. Goulder, a professor of environmental and resource economics at Stanford University.
As the European Union found after the 1997 Kyoto Protocol, figuring out how to assign emissions credits is not easy.
Whatever the decisions, chances are that they will be met by a lawsuit. Margo Thorning, the chief economist at the American Council for Capital Formation, a group supporting business interests, argues in a study that “sharp cutbacks in California’s energy use would be necessary to close the 41 percent gap in 2020 between projected emissions” and the cuts the law requires. Dr. Thorning added in an interview, “The technologies that will enable us to move quickly in a cost-effective way away from fossil fuel just aren’t there yet.”
Allan Zaremberg, president of the state Chamber of Commerce, predicted that businesses would flee to unregulated areas and continue to emit climate-changing gases.
Dr. Thorning’s study was countered in mid-August with a study by David Roland-Holst, an adjunct professor of agricultural and resource economics at the University of California, Berkeley. Professor Roland-Holst argued that the new law would add $60 billion and 17,000 jobs — in fields like alternative energy — to the California economy by 2020 by attracting new investment.
James D. Marston, the head of state global warming programs for Environmental Defense, the New York group that helped lead the fight for California’s new carbon cap, said, “We’ll look back in 10 years and say this was the final breakthrough and the final political consensus that we have to do something meaningful on global warming.”
Sign me up as in agreement with Goulder, as if I had much of a choice: "Those who have studied the question agree that the new system will cost consumers more. 'A cap-and-trade system will raise the cost of electricity to consumers to some degree,' said Lawrence H. Goulder, a professor of environmental and resource economics at Stanford University."
The question is whether the costs will be big or small. My hunch is that energy efficiencies will be found that the net costs will be positive but small. But, I've been addicted to econ-crack for a number of years and maybe the arguments of Environmental Defense are correct. And I hope so! It won't ruin the econo-party.
*Note: Here is Peter King's "Bizarre, Ridiculous Quote of the Week":
"Since Art Shell came back, this is a miracle performed here today.''
-- California Governor Arnold Schwarzenegger, during the third quarter of last Monday's Raiders-Chargers game on ESPN.Ahh-nold, just a note to you: The team playing poorly, and the team way behind, is usually not the miracle team. They're the lousy, underachieving team. And re: Art Shell? What sort of miracle, exactly, is it when your team doesn't show up for the first game of the year when it's on national TV?
