Not quite sure what to make of this post from Megan:
There is some very angry back and forth about the CBO’s scoring of the Waxman-Markey climate change bill.Â Economically, I agree, the per-household costs seem to be small.Â Politically, they may be much larger than their economic cost, for two reasons:Â first, I’m not sure people are going to put any rebate in the same mental basket as the higher prices, and second, people aren’t going to pay the costs on a per-household basis.Â Some households will suffer a lot, while others will be net beneficiaries.Â Matt, Ezra, Ryan and I are all probably among the net beneficiaries.
But the real question, I think, is whether the low cost is a feature or a bug.Â The only way a bill is going to have an impact is if it causes real financial pain to American households–enough to get them to change their behavior.Â Waxman-Markey obviously is not going to do that.Â And indeed, the projections of its effect on global warming are entirely negligible.
So the reason to get this mad about Waxman-Markey is either that you think it provides a framework for future action, or that you think it will persuade China and India to get on board.Â The latter is, I think, entirely wishful thinking on the part of American environmentalists.Â China is not going to let its citizens languish in subsistence farming because 30 years from now, some computer models say there will be some not-well-specified bad effects from high temperatures. Nor is India.Â Global warming isn’t even high on the list of environmental concerns they’ll want to attack as they get rich; local air pollution is far more pressing.Â Thinking that we’re somehow going to lead them by example is like thinking that poor rural teens are going to buy electric cars because Ed Begley jr. has one.
No, I think the argument has to rest on the notion that Waxman-Markey gives us a framework to advance.Â And it might.Â But then again, Europe’s much-vaunted system has had multiple spectacular failures, and the only reductions it has actually achieved seem to come largely from controversial offsets with large auditing problems.
Color me perplexed on several counts. First off, does the post to which she links come across as very angry? I didn’t swear or anything, which is usually the first thing that happens when I’m very angry. Second, while Megan is correct that household experiences will vary, I’m not sure I’d agree that the folks she cites are going to be among net beneficiaries. I don’t want to talk out of turn, but I would guess that none of us are in the lowest income quintile. Sure, our tastes tend to run toward a more sustainable lifestyle — smaller homes, less driving and such. But direct relief under the law as a share of total income just wouldn’t be all that high for us. Which is as it should be.
Is the only way for emissions pricing to have an impact on emissions through “real financial pain?” Well, that depends. “Pain” in this context is primarily about the availability of good substitutes for carbon-intensive goods and activities. If there are very good substitutes available, such that consumers are nearly indifferent between products, then emissions pricing involves practically no pain at all. If there are almost no substitutes, then emission reductions are very painful, indeed. But it’s important to note that demand becomes more elastic over time. If the price of gasoline rises 100% against a basket of goods in the space of a few weeks, that’s very painful. Households have little choice but to drive less, which is hard, or pay more, which is expensive. If the relative price of gasoline rises 100% over the course of two years, however, then the pain felt by consumers is much reduced. There is more time to adjust choices so as to minimize the effect of the price increase. This is why you don’t start pricing off with a big bang.
To jump ahead a paragraph, does Waxman-Markey then give us a framework to ramp up the price of carbon over time? Well, it unequivocally calls for a steady increase in price. If that increase is unlikely to be sufficient (and at the moment it’s unlikely to be sufficient) does the bill at least provide us with a law that can be improved and tightened over time? It’s difficult to say. It seems clear to me that governments will only get more serious about climate policy as time goes on, but that’s just my opinion. Here’s something that isn’t my opinion, however: adopting a mild and insufficient emissions reduction program now will make it less costly to adopt a stringent program later. Really.
I’m frankly a little disappointed by the middle paragraph on climate policy in places like China and India. This, in particular, is inexcusable:
China is not going to let its citizens languish in subsistence farming because 30 years from now, some computer models say there will be some not-well-specified bad effects from high temperatures.
What to say? The potential impact of climate change on China and India is significant, and Chinese and Indian leaders, not being idiots, no doubt recognize this. Flooding and droughts, increased damage from tropical cyclones, reduced agricultural yields in nations with over a billion people each — these are huge concerns. And not just humanitarian or political concerns; there are serious security issues at stake in this region. But what’s really ridiculous is this choice Megan offers — continued, unabated growth in emissions or subsistence farming forever.
I mean, I suppose that if this were the way one looked at Waxman-Markey, one would be pretty skeptical of the bill. But why would one look at Waxman-Markey this way?