Climate policy myths A Grist Special Series

Simple is as simple does

Myth: Climate policy must be simple 10

14 Apr 2009 2:24 PM
by David Roberts
- Author Feed
Posted in
- Politics,
- Climate & Energy
Read More About
- cap-and-trade,
- carbon regulation,
- carbon tax,
- finance,
- financial crisis

Among the weird memes that has grown up around the cap-and-trade debate, one of the most puzzling to me is that C&T is fatally flawed because it is complex. Americans don’t “get it.” They’ll only support a climate policy that is so “simple and transparent” that you can explain it on a napkin. (Like a carbon tax, which Americans “get,” and thus support. Supposedly. All evidence to the contrary.)

The twin energy and climate crises are incredibly complex and far-reaching. Should federal policy designed to address complex, far-reaching problems be simple enough to explain to your grandmother?

As far as I can tell, that requirement was invented out of whole cloth, specifically for this problem, more specifically for this particular way of dealing with this problem. Yet despite being completely made up, it’s something people repeat to each other all the time, with serene confidence, as though it’s self-evident. It’s crazy.

If you stop an average person on the street and ask them to explain how Social Security works, do you think you’ll get an accurate answer? How about Medicare or Medicaid? How about, oh, governance of public lands? Defense appropriations? Pick a federal policy out of a hat. The mechanics are probably complex. Why? Because the problems are complex, the government is huge, and there are lots of competing interests involved. Such is life in a wealthy, developed democracy.

Now, people can probably explain the basic goal of Social Security. “It protects old people from poverty.” Medicare? “It’s health care for old people.” Medicaid? “Health care for poor people.” Defense? “It protects the country.” Income taxes? “Pay for gov’t services.”

But of course they can explain the goal of cap-and-trade, too: “Prevent climate change and shift to clean energy.”

Perhaps the difference is that climate policy is asking people to sacrifice, and if we want them to sacrifice, we have to have their buy-in. They have to know what they’re sacrificing for, and how it works.

Far as I can tell, though, this notion is just a weird outgrowth of the moralizing that attends climate policy discussions. Climate policy will redirect money from certain parts of the economy to other parts of the economy. It uses the public’s money to secure public goods. In that, it is exactly like all public policy. Any reallocation of money asks (some) people to sacrifice, insofar as by “sacrifice” we mean “pay for it.” Taxpayers “sacrifice” to fund Social Security, to build highways, to clean up Superfund sites, to run fire departments, etc. They also benefit, as they will benefit from increased energy efficiency, new jobs, new industries, and of course, avoided global warming.

Regardless, the fact that someone pays doesn’t obviously entail that climate policy, any more than all the other policies for which someone pays, should be simple enough to fit on a napkin.

Perhaps the problem is that complexity means the policy will be ridden with cheating and gaming of the system. Once you have more than one or two moving parts, it becomes anarchy! Who can keep track? But of course, as Eric pointed out the other day, we have C&T systems running now, and they’re administered quite well.

Of course the collapse of the financial system has raised a general hostility toward anything that smacks of finance. But this is just commodity trading, of a substance that is fairly easily measured (is already measured in most cases). The gimmicky financial instruments that could or could not be used to package and distort commodity prices and risks also could or could not be used on other commodities, and will be prevented, or won’t, by decent financial regulation. We’re a rich country full of smart people. I bet we could figure out how to run a working market. Despite the financial hysteria going on, there are actually lots and lots of working markets going on all around us.

Taxpayers express their goals to their elected representatives. Those representatives then determine how to accomplish the goals and how to pay for it. The notion that the process has somehow gone wrong once it reaches a point where average taxpayers no longer understand its detailed mechanics it is just wacky, invented out of the blue. Applying that constraint to all federal policy would be crippling.

Government of a huge, diverse country is complicated. Markets are complicated. Life is complicated. Climate policy will inevitably be complicated, no matter what form it takes. Again: such is life in a wealthy, developed democracy.

(Having said all that, I should add as an addendum: I don’t even really see how cap-and-trade is particularly complex, as public policies go. You put a declining cap on emissions, you issue permits, people trade the permits. There’s my napkin summary!)

Comments

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

Sean Casten Posted 3:07 pm
14 Apr 2009
I mostly agree, but it bears noting that some of our really complex parties started simple and then got steadily more complicated (think: the tax code) while others started complicated and got moreso (think: the Clean Air Act). My general observation in all policy matters - from mundane corporate HR policies to highfalutin federal energy policies - is that we're much more likely to get favorable outcomes when the complexity emerges in response to failures of the simple initial efforts than when it is baked in at the start - for the simple reason that human nature is far too complex (and human beings are far too clever) to ever presume that a complex policy created out of whole cloth will lead to the exact anticipated behavior. The classic example of this failure is close to home: how does your employer calculate your incentive compensation every year? For every company with complicated targets (corporate, divisional, individual performance tied to earnings and personal targets along a 3-dimensional matrix....), there are as many employees behaving in ways that are quite counter to the organizations goals. This is why banks end up paying bonuses in the wake of a bailout - those employees really were meeting their goals, in many instances... but the goals were so complicated that they forced the company to pay out bonuses even if the company didn't have cash in the bank to pay them. Which seems like a reasonable limiting test on a bonus plan, but is very rarely included in anyone's calculation.So extrapolate this to cap & trade and there is a core problem with starting complicated, in that it will, without any doubt, create massive unintended consequences. And anyone who tells you that they are smart enough to know how society will respond to massively complicated legislation is either naive or lying. That's not to dispute your central point - simply to point out that there is a merit in pushing for regulatory simplicity.
Permalink
GreyFlcn Posted 3:46 pm
14 Apr 2009
The catch being that all of those other things are extremely tangible.
The other trick about those is that they don't have anything analogous to "offsets".So you have something that you can't see, can't monitor, which you have to assume "on faith" that the "market" will solve all problems.Complexity isn't really the issue. Transparency is.

_
The other issue I guess is that those other programs are relatively simple from a financing standpoint.
You give money to the Fed.
The Fed spends the money.
Permalink
Max8806 Posted 6:09 pm
14 Apr 2009
Mostly agree, but with a significant caveat. If someone asks you about a cap/trade bill (or any carbon price) "so where does the money go?" the answer should be able to be explained pretty simply without losing accuracy. Then again there are also some simple proposals that are pretty bad (e.g. spend it all on clean energy, which will get built one way or another under the cap anyway), so I would say simplicity here is a necessary but not sufficient condition. Just from the standpoint of if there are too many "and's" on where the money goes you know you're squandering it.
Permalink
Bart Anderson Posted 6:32 pm
14 Apr 2009
I think you're grasping at straws here, David, if you're arguing that complexity is not an issue.One of the few generalizations that one can make about policy is that simpler is better.Complex policies:make for bureaucracies and higher transaction costs.
favor organized interests (like industry groups) who can afford to monitor and lobby. The public interest suffers.Make it hard to figure out what is going on.Already the lobbyists are afoot, trying to grandfather in carbon credits.The consultants are licking their chops. As in all our regulatory agencies, there will be a highly profitable back-and-forth between corporations and government. You say that we are a rich country with smart people, and we can figure out how to make cap-and-trade work. Theoretically true. But if the past is any guide, we will have the cleverest people on the planet trying to game the system.So, whether we go for a carbon tax or cap-and-trade, we should strive for simplicity and transparency.
Permalink
1. SallyVCrockett Posted 8:21 am
  15 Apr 2009
  Bravo and Amen!
  Permalink
tidal Posted 7:39 am
15 Apr 2009
I am to the point that I just want some sort of meaningful price put on carbon. Even if we start with cap & trade, we can switch to a tax later if it is simpler, more efficient. In fact, that is the path I think most likely.

But I disagree about relative simplicity/complexity not mattering. I think it inevitable that we are going to have to - globally - price many more "externalities" in the future. If we have a hodge-podge of caps & trades, taxes, regulations and we need to keep layering in more and more of them, the strain on the system to coordinate them all individually and interactively could be overwhelming... POPs, nitrogen, heavy metals, fisheries, etc., etc.

In a correspondence I had with Thomas Homer-Dixon about this, he argues "that our environmental and resource challenges are a major driver of increasing institutional and technological complexity, and that this rise in complexity can�t be sustained indefinitely. In the terms of Holling�s panarchy theory, we are further extending the front loop of our adaptive cycle, well past the point at which resilience is maximized. In simple terms, the increasing complexity makes our societies and systems less flexible and more brittle."

I know that sounds somewhat abstract, but I think it is very important going forward. (He elaborates on that a great deal more in The Upside of Down.) And I think the current financial crisis and the way the shock has been transmitted through the entire global economy is not unrelated to "complexity".

Longer-term, I think we are going to favour simplicity wherever we can and that probably will also favour, in many cases, the kind of simple tax-at-point-source schemes that Jim Hansen and others advocate.

But, like I said, right now I don't care. Just get a damn price on carbon somehow. Now.
Permalink
sindark Posted 7:47 am
15 Apr 2009
One aspect of complexity that must be considered is the scope it grants for special favours and corruption.A consequence of having an opaque and highly complex system is being able to grant hidden favours to friends and contributors. As
soon as you start giving away ‘grandfathered’ permits, creating tax exemptions,
and the like you, open the door to both soft and hard forms of corruption. The
more complex the set of regulations, the easier it is to conceal this. Once you
start stacking on special rules for new facilities, different modes of
compliance, and complex interactions between carbon policies and other forms of
taxation and subsidy, you gain a dense canopy of rules, under which all sorts of
shady business can be undertaken.
Permalink
davefordemocracy Posted 12:50 pm
16 Apr 2009
I for one don't think cap and trade is even that complicated. You show that it can be explained on a napkin. Here's what I think your napkin is missing, and what a lot of us forget to explain:Carbon already has a cost.As the sea level rises, we as a society will have to spend money to protect places like Venice Beach and New York City. As the sea level rises, we as individuals will have to spend money to move inland and resettle. Then there are abnormal weather events, tropical disease, whatever. We're going to pay for it.So make the power companies pay for it. How? As you wrote on the napkin, "You put a declining cap on emissions, you issue permits, people trade the permits."Yes, there is a complexity to this and it's all the negotiables. Do we give out free permits? How many? How do we decide who gets them? Do we put a ceiling on the price? A floor? Do we issue offsets? For what? How many? Can we restrict speculators? Do we want to?All that stuff is secondary. It will be decided, it wil be tweaked, and it will never be perfect. But none of those complexities are inherent to cap and trade. They're part of the deeper discussion, not part of the initial explanation. Cap and trade is simple. And proven. And hopefully by the end of the year, everyone who's paying any attention will get it.
Permalink
wolfger Posted 4:25 am
17 Apr 2009
I am impressed by the many excellent arguments against C&T and for a simpler carbon tax approach. Simplicity does matter if you want buy-in from the affected public. As was already pointed out, the public wants to know where the money is going and they'd like it to go there directly, like Social Security.No matter what system we end up with, for energy generation to reflect its true costs, it will end up costing more. If we tax the bad carbon-heavy energy producers, that money is best used to to support efficiency efforts and those most vulnerable to increased energy costs.Maybe the first thing we should do is to have fossil fuel prices reflect the true cost of using them for energy production. How about doing away with any remaining special tax treament, depletion allowances, etc. and start charging the oil companies for the military costs for stabilizing and supporting the oil-procuding nations and shipping lanes. Once carbon-based energy is priced to reflect its true cost, carbon-free energy sources will rapidly come on line.The twin energy and climate crises are incredibly complex and far-reaching? Not really, it's largely a problem of 6.7 billion and heading toward 10 billion people. It wouldn't be much of a problem with only 1 billion people. Maybe that's where we should be putting our real effort, reducing our population via education and family planning assistance, which really works and quickly. Technology alone cannot solve our energy problem.Finally consider that the Commission on Population Growth and the American Future (Rockefeller Commission report) in 1972 stated, “After two years of concentrated effort, we have concluded that, in the long run, no substantial benefits will result from further growth of the Nation’s population, rather that the gradual stabilization of our population through voluntary means would contribute significantly to the Nation’s ability to solve its problems. We have looked for, and have not found, any convincing economic argument for continued population growth. The health of our country does not depend on it, nor does the vitality of business nor the welfare of the average person.”
Permalink
jestbill Posted 9:32 am
17 Apr 2009
As they say: "Figures never lie but liars always figure."Neither system is expecially complex in concept, neither needs to be complex in application.But that's not how our system works: simply to argue for one over the other is to add complexity because it's understood (in our real world) that one expects to gain some tiny advantage by his choice. BTW: If "population control" really is the "only" way to "solving" our problems, then wouldn't it be efficient to let GCC take its course and drown that extra couple of billion? Let's not go there.
Permalink