Broadly speaking, the U.S. government has three sets of policy options available when it comes to creating a greener global economy.
Far at one end is traditional regulation, that includes initiatives like mandated energy standards for washing machines and chirpy public education reminders to turn off the water when brushing teeth.
At the opposing end is innovation policy, where glamor and cash (and risk!) can be found. Big, publicly funded research projects, corporate and multilateral partnerships, and large scale deployments usually stem from innovation policies. An oft-cited example is the EPA’s new set of guidelines for emerging carbon capture techniques, specifically designed for firms planning to inject CO2 underground for the long term.
In the middle of the policy spectrum sits the big, white elephant: carbon pricing.
Broken down, carbon pricing involves taxation or a tradable emission permits scheme (cap-and-trade). Carbon pricing has grown as a regulatory instrument but mainly in Europe. Between July 2008 and July 2009, roughly 36 major carbon pricing developments were implemented in the EU. Over the same period, in the U.S., that number was 2.
In the United States, the biggest obstacle to limiting greenhouse emissions is disagreement over the legitimacy and fairness of either potential pricing solution. Whether the anticipated climate bill moves forward this year will depend on Congress and its general unwillingness to deal with climate change, its over-reliance on renewable energies and of course, its preoccupation with health care matters.
In yesterday’s New York Times, economics professor, Robert H. Frank provided a thoughtful commentary, suggesting that the prevention or passing of national climate legislation runs deeper than denial, partisan wars or political pragmatism. Though there is a growing agreement that something must be done about global warming, many associate its regulation with the sacrifice of individual rights:
[Taxation and cap-and-trade] have been attacked as unacceptable restrictions on individual liberty. The attacks have come from both sides of the political aisle, but have been pressed with particular insistence by conservatives and libertarians…Much of this opposition is rooted in a passionate distaste for ‘social engineering’ which, according to the conservative columnist Henry Lamb, ‘always ends in disaster.'”
This commentary piece relies heavily on the theories of the famous economist Ronald H. Coase who, at almost 100 years old, is still following the effects of negative externalities and how they relate to today’s proposed carbon pricing solutions. Though normally skeptical of government intervention (free markets always reach the most productive level of activity when left untouched), Coase concedes that markets have failed when it comes to global warming, namely because, for individual players, the transaction costs are prohibitive and negotiation is impractical.
Short of walking to your neighborhood smoke stack and politely asking its operator to reduce the smoggy output, the next best option is for government to mimic an emissions reduction solution that people would have adopted, had they perfect information and no obstacles to exchange.
