Wednesday, November 7, 2007

Carbon Caps

Carbon caps are coming. The pressure for some form of regulation of greenhouse gases in America has reached a critical threshold. The question is no longer if we will have such regulation, but what form it will take.

To review the basic economics, carbon dioxide emissions can be thought of as an externality, or a cost to society that is not paid by the manufacturer or the consumer. There are several possible ways to address an externality, including taxing carbon dioxide production or placing absolute limits on emissions. The Kyoto Protocol has been the most widely promoted method, and the European Union has implemented legislation based on its model. A compelling article titled "The Carbon Calculus" in today's New York Times offers a good overview of the issues.

The federal government has done a remarkable job of sidestepping the carbon issue. However, this neglect is about to end. Simply put, there is too much pressure coming from too many angles to stonewall the issue for much longer. People are increasingly skeptical of attacks on the science of global warming and the Nobel Prize won by Al Gore and the IPCC has brought renewed attention to climate change. More importantly, energy companies themselves are joining the party. They recognize that some form of regulation is inevitable, and they would rather have the rules set so that they can adapt their long-term business plans accordingly versus operating in an uncertain world.

All of this is good news. However, we must stay vigilant and realize that all carbon capping bills are not created equal. Industry and their Republican allies have become very adept at controlling debates on political issues. My favorite example of this is the bill sponsored by the coal industry known as the “Clear Skies Initiative.” Under a seemingly environmental name, this proposal was designed to increase the pollution coal plants would be allowed to emit. Another example is when President Bush increased fuel mileage standards, but did so by such a small amount that the measure has had little discernable effect on oil consumption.

As citizens, we must watch the debate to ensure that the legislation that emerges from this process is not a paper tiger. It will not be easy. Billions of dollars are at stake for energy companies and they will spend correspondingly to protect their interests. However, we can improve our chances by asking the right questions, such as: how stringent are the regulations? Are the requirements informed by scientific consensus on climate change? Is support built in for the development of alternative energy technologies? Do the regulations let Big Coal and Big Oil off the hook through grandfathering clauses, subsidies, or exceptions? What are the enforcement mechanisms?

Carbon capping may be inevitable, but the form it will take is not. One battle has been won but a much larger war is about to begin.


Drew said...

Well said, Chris.

I say, "Tax Carbon." That way, we create the incentive to innovate and reduce emissions.


Doug said...

yes--some companies want to know the regulations, but on the other hand, given the huge sunk costs and institutional momentum of large automobile and energy companies, such regulations are profoundly threatening to their operations