Thursday, May 20, 2010

Glaeser on the "American Power Act"

Harvard economist Edward Glaeser had a column (here) a couple of days ago in the New York Times in which he decried the length and complexity of the Kerry-Lieberman Senate Climate bill and placed himself firmly on the fence as between passing the bill and taking no action on climate policy. I agree with him that the bill is long and complicated, but it's not obvious to me that long and complicated necessarily equates with bad.

The Clean Air Act (here) is about the same length as the Kerry-Lieberman bill (after adjusting for differences in spacing); and it is certainly as complicated. It is also one of the most environmentally and economically successful pieces of social/environmental welfare legislation ever enacted, having reduced emissions conventional air pollutants. Between 1980 and 2008, emissions of the seven criteria pollutants declined by between 40% and 99%, and overall air quality (from decreases in ambient concentration levels of those pollutants) improved by between 46% and 92% (see here). Meanwhile, according to the most comprehensive post hoc regulatory benefit-cost analysis ever undertaken (available here), between 1970 and 1990 the CAA produced net, direct, monetized benefits $21.7 trillion (central estimate). A prospective study for the years 1990-2010 estimated a benefit-to-cost ratio of 4/1 (central estimate), despite increasing marginal costs and declining marginal benefits of attaining higher levels of air pollution control and air quality.

As Professor Glaeser notes, one of the main reasons the Senate climate bill is so large and complicated is that it does much more than set up a cap-and-trade system for carbon dioxide emissions. It is not just a climate  bill, but a comprehensive energy policy bill that provides subsidies for nuclear power, expands offshore oil drilling, and promotes "green" transportation. Professor Glaeser is quite right that "many of these interventions would be unnecessary if we had the right tax on carbon emissions," but getting the "right tax" on carbon is easier said than done. Even if it is technically feasible, as a matter of practical politics it is inconceivable. Moreover, Glaeser quite rightly points out "[f]ixing the number of permits may actually be the right thing to do" (according to Marty Weitzman's model of quantity regulations versus taxes) because "we may arguably be more confident that the amount of carbon should stay relatively flat than we are about the per-ton damage from carbon emissions."

Given that observation, and the rest his comments, I frankly do not understand why or how Professor Glaeser winds up sitting on the fence between supporting the Kerry-Lieberman bill and no climate policy. Like him, I find several aspects of the legislation troubling, including the offset provisions (read, farm subsidies), which Professor Glaeser does not mention. On balance, however, this legislation, however imperfect, is plainly better than doing nothing on the climate problem. It may not move the ball very far, but it moves it generally in the right direction, which is probably the most for which we can reasonably hope.

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