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Laws to Make Climate Change Mitigation Cheaper
Posted by Walt Vernon on December 22, 2009 at 11:42am
On December 16, the Obama administration unveiled a proposal to expand a Clean Energy Tax Credit by $5B. This is one example of laws aimed at combating climate change by offering incentives rather than by creating penalties. This, I think, is the absolute best way to create improvements.
There is a Danish economist named Bjorn Lomborg (I don’t have the fonts necessary to show the punctuation for his name correctly). Dr. Lomborg is roundly detested by the green community. He wrote a book called the skeptical environmentalist which seemed to argue that global warming was not real. This book was pretty much debunked, but Dr Lomborg has gone on to write other, also controversial works. His most recent book is called “Global Crises, Global Solutions.” (I have it sitting in front of me; I am a self-confessed tree-hugger, but I want to be an informed one, so I read what everyone writes, so I can be sure I understand issues from all perspectives.)
On at least one point, I agree completely with Dr. Lomborg. He writes about the cap and trade systems now being promoted, and actually instituted by some governments both in the US and abroad. Being an economist, he contrasts the costs of these kinds of systems, with another approach - taking the same money, and investing it in making greener solutions less expensive, and maybe, even less expensive that browner solutions. Dr. Lomborg argues that if we are able to do that, we won’t need to worry about laws, because people will naturally gravitate to what is less expensive out of self-interest. I think this is exactly right, and I think this is a great approach.
The trick, though, is finding ways to make things cheaper. I have been involved with a number of efforts by the state of California, and its utilities, to provide incentives to hospitals to do projects to lower their energy costs. These projects almost never go anywhere, for many many reasons. I recently talked with someone from a utility in Washington state who was now offering 100% rebates to hospitals to try to get them to do something. Hospitals are one of the trickier of institutions to aim incentives at, and we will need to be clever to figure out ways to make these things work. I am trying hard to find ways to make existing programs work for hospital clients, because I think we will all be better off by working in this kind of positive arrangement, than by creating laws and penalties, and beating people into compliance.
There are many benefits to this kind of approach. The Obama White House anticipates that this will be accepted by Congress, it will attract further outside investment, and it will create jobs. In the end, it will help the US develop a competitive position against other countries, and help the US create the kinds of industries that will make this country stronger in the future, as it competes against other countries.
One strand of the tapestry that is climate change law is the creation of economic models that incent better behavior. This is the strand that helps everyone win.
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