Myth: Climate policy is primarily about putting a price on carbon 9

Environmentalists and economists alike are obsessed with putting a price on greenhouse gas emissions, and with good reason: climate pollution is a classic “externality,” a cost paid not by polluters but by society at large. Pricing carbon internalizes that cost. The policy is “market-based” because it is agnostic toward particular practices,  products, or technologies; the market’s “invisible hand” is set loose to find the cheapest emission reductions without undue micromanaging by the dread “government bureaucrats.”

Which is great, as far as it goes. But raising the price of carbon will lead to the cheapest, fastest emission reductions only if all else is equal, and in the real world, all else is not equal. Unpriced externalities are but one of many, many market failures around energy. Trying to correct them all with a carbon price is like trying to build a house using only a hammer. Not everything is a nail! Ultimately the effort will require lots and lots of what wonky greens have taken to calling, somewhat misleadingly,  “complementary policies.” (Kind of like how the other members of a soccer team are “complementary” to the goalie.)

It’s difficult to summarize All the Other Stuff, but such policies include efficiency standards, low carbon fuel standards, reform of electricity grid interconnect rules, minimum renewable energy or efficiency mandates, infrastructure investments (think grid and public transit), and ...  on and on.

These policies are every bit as important—more important, in aggregate—as pricing carbon. They can help reduce the overall cost of a price-based policy. They can help address emissions sources that are not covered by a carbon pricing scheme (think agriculture). They can correct or compensate for other market failures. (For more on this, see a Powerpoint presentation from Holmes Hummel: “The Essential Role of Complementary Policies in Climate Policy Design.”)

In other words, the work of tackling climate change need not wait for a price on carbon, and it will not end when a price is in place.  That is but one step in a long road.

David Roberts is staff writer for Grist. You can follow his Twitter feed at twitter.com/drgrist.

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  1. KenGreen's avatar

    KenGreen Posted 10:19 am
    03 Apr 2009

    Dave - Your point about market distortions in energy is very good: I agree completely, energy markets are so distorted that simply pricing carbon doesn't guarantee that you'll get the fastest, most-efficient, or cheapest emission reductions.But your answer, layering yet more distortions on the market in the forlorn hope that somehow clever enviro-planners will understand the distorted markets well enough to counter the distortions with "complementary" policies. This is Hayek's "Fatal Conceit" write large. All that's likely to happen is still greater market distortion and a shifting and proliferation of still worse externalities.A vastly better plan is to levy a revenue neutral carbon tax while ripping out the distortions in energy markets by aggressively eliminating all subsidies, streamlining regulatory processes and standardizing them across states, and removing the regulations - such as CAFE, appliance standards, etc.  - that would be redundant in a world where the carbon externality was priced right.

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    1. David Roberts's avatar

      David Roberts Posted 3:37 pm
      03 Apr 2009

      Ken, not only do I not see a single, solitary conservative politician advocating for that strategy, I don't even see conservative advocacy orgs like AEI advocating it! All you do is battle against new policies, the ones meant to level the playing field for clean energy. I don't see you aggressively challenging the big industries and conservative politicians who benefit from current market distortions. Given your funding sources it's understandable why, but it renders your alleged fondness for open and competitive markets a little ... suspect.

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  2. sindark's avatar

    sindark Posted 12:14 pm
    06 Apr 2009

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    </style> One important element of carbon pricing isn't actually economic, but
    conceptual. Right now, people might have a general sense that their emissions
    cause harm to those alive today and future generations. A carbon price will
    help to make that more concrete and meaningful, entrenching the idea that we
    are accountable to other people for the greenhouse gasses we emit. That being said, I agree that a carbon price is a necessary
    but non-sufficient part of an overall climate change framework.

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  3. sindark's avatar

    sindark Posted 12:16 pm
    06 Apr 2009

    Sorry about that horrible stuff above my comment. Is there any way to opt out of the new 'rich text' editor?

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    1. David Roberts's avatar

      David Roberts Posted 12:56 pm
      06 Apr 2009

      Sindark, all that stuff comes from pasting from Word. If you must paste from Word, use the little button at the top with a W on it. That will strip out all the weird coding.As for opting out of the WYSIWYG ... maybe. We've got a few more urgent things on our plate at the moment!

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  4. sindark's avatar

    sindark Posted 12:58 pm
    06 Apr 2009

    Thanks for the response.Given that the rich text editor has built-in spellchecking, I suppose there is no need to go from WordPad to Word to the comment box.

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    1. David Roberts's avatar

      David Roberts Posted 2:14 pm
      06 Apr 2009

      Also, try using "reply" when you're replying to someone! (I'm going to be the in-house nag for this feature. Nag nag!)Note also that Firefox has a built-in spellchecker, which operates in all text fields, so you don't really need Word or this editor for that feature. You just need Firefox. (For so many reasons!)

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      1. sindark's avatar

        sindark Posted 2:22 pm
        06 Apr 2009

        The Firefox spell-checker doesn't seem to work in the new comment box, possibly because I use the NoScript add-on.

        I am allowing grist and google analytics, but not zedo.com (whatever that might be).

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  5. Michael Posted 10:07 am
    08 Apr 2009

    With the exception of the very important issue of the grid, which is a collective action problem whose non-resolutioin will stop us from making best use of many of the best *generation* sources (notably baseload solar (=Concentrating Solar Power (CSP) -- NOT photovoltaics!)), it seems to me that all of the complementary policies are made unnecessary by a carbon pricing scheme. That is, the whole point of a carbon pricing system is that all the planet cares about is the carbon reduction, not how I get there: whether I make a very efficient engine and run it with a high-carbon fuel, or a relatively inefficient engine and run a very low-carbon fuel, or some intermediate combination, doesn't matter so long as the absolute CO2 output is the same. By putting a ceiling on, we bring the absolute CO2 down by the price mechanism -- and it lets many different ways of achieving that goal compete, so that the most cost-effective or otherwise-preferable ways of achieving the goal become dominant.And, the comment about agriculture seems a non sequitur: the solution there is just to bring agriculture under the system, as Vilsack is already proposing. My house's electricity comes from a manure methane capture system, eg, and teh green-eyeshade crew we can certainly come up with numbers for nitrogen fertilizers and cow burps.

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Series Intro
Myth: Climate policy is primarily about putting a price on carbon 9
Myth: There is a "free market" in energy 4
Myth: Pricing carbon will destroy the economy 3
Myth: Tackling climate change requires fundamental technological breakthroughs 4
Myth: Solving climate change is primarily about finding cleaner sources of energy 20
Myth: Using less energy = sacrifice 8
Myth: Consensus on policy is possible even among those who disagree about climate change 0
Myth: Europe's experience shows that cap-and-trade can't work 1
Myth: Unlike cap-and-trade, a carbon tax is simple, immune to manipulation, & politically palatable 44
Myth: Democrats support good climate policy and Republicans oppose it 13
Myth: Climate policy must be simple 10
Myth: Waxman-Markey gives away 85 percent of allowances to polluters 16
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