What's Wrong With Regulating Carbon Dioxide Emissions?

What's Wrong With Regulating Carbon Dioxide Emissions?

October 11, 2001

 

Full text available in PDF Format

 

What’s Wrong With

Regulating Carbon Dioxide Emissions?

 

Ross McKitrick, Ph.D.

Associate Professor of Economics

The University of Guelph

Guelph Ontario Canada

N1G 2W1

(519) 824-4120 ext. 2532

rmckitri@uoguelph.ca

A Briefing at the United States Congress,

October 11, 2001

Sponsored by the Cooler Heads Coalition

 

 

Introduction

Suppose that the US decides to implement a policy to reduce CO2 emissions. There are six basic options:

- Command-and-Control

- Voluntary Measures

- CO2 Tax

- Auctioned Permits (Tradable permits sold at an auction)

- Cap and Trade (Tradable quotas given to existing emitters)

- Hybrid Tax-Permits Scheme

Our task is to pick the one that costs the least.

We can ignore the first one. Command-and-control is economist short-hand for any system that relies on central planning. Bureaucrats and cabinet ministers decide on targets, e.g. as of next Tuesday 15% of all gasoline must be made from ethanol. That’s the “command” part. The next is the “control” part, in which an enforcement agency goes out to harangue, harass and punish private firms and citizens until they are in compliance.

Command-and-control is the most common form of environmental policy, but it has a lot of problems. Principally, central planners can never get enough information to figure out the least-cost way to achieve a target. In the case of CO2 there are so many millions of emission points, and the costs of abatement at each point can be radically different than at other points, so any attempt at centralized micromanagement of emissions will end up being excessively costly. No matter what emissions reduction is eventually achieved it could have been done more cheaply with one of the other methods.

We can also ignore the second. It’s a free country and anyone who wants to reduce their CO2 emissions is welcome to do so. But you don’t need regulation for that. In fact it is a contradiction in terms to seek new regulations that would “impose” voluntary controls. When the push for voluntary action comes from industry it inevitably disguises either a plea for subsidies or jockeying for the formation of a state sanctioned cartel. We will discuss the problem of the “Carbon Cartel” below.

When the push for “voluntary” initiatives comes from government, it usually amounts to thinly-veiled hypocrisy. If the government really believes there is a problem worth addressing, why not address it fair and square with policies that apply to everyone? If they do not believe there is a problem requiring intervention, then leave it alone. “Voluntary” programs attempt to straddle the ditch, but the government just ends up falling in. It is an attempt to seem concerned about a problem without actually addressing it, and everyone can see through that game. In the case of global warming, if the government dismisses regulatory intervention but calls for voluntary cutbacks, then agitators on behalf of emission reductions will rightly skewer the government for its hypocrisy. If you think emissions should be cut, cut them. If not, don’t waste time with confusing symbolic gestures like voluntary emission reductions.