Footnote to the preceding, The Market Heats Up Div.

This past Friday, the New York Times editorialized about combating global warming and in so doing illustrated much of what is wrong with the debate on the matter among "serious" people.

It started out reasonably enough, praising the Senate for passing higher fuel economy standards (without, however, expressing any thoughts about the fate the measure may suffer once it comes under the baleful glare of Rep. John Dingell [D-GeneralMotors], chair of the House Energy and Commerce Committee). But then it started to go wrong, arguing that

for all the talk about warming, leading politicians have yet to educate their constituents (and their colleagues) about an unpleasant and inescapable truth: any serious effort to fight warming will require everyone to pay more for energy. ... [U]nless Americans understand and accept the trade-off - higher prices today to avoid calamity later - the requisite public support for real change is unlikely to build.

The editorial goes on to note two different routes the government can take in dealing with the "market failure" of cheap energy: a carbon tax and a cap-and-trade system.

There are two issues here: One is the idea, so commonplace, so routinely accepted that it wasn't even felt necessary to point it out, that the road to conservation is paved with higher prices, that conservation and cost rise and fall in tandem: If you have to pay more, you'll use less. The other is the two proposed means of driving those higher prices. Both have serious, serious problems.

With regard to the first, the idea of an inevitable, direct link between consumption and cost could only be true in the case of a commodity whose consumption is highly elastic and not affected by factors other than price. That's rarely true in a real-world situation and especially unlikely in an area like energy, where people often have baseline needs that are very inflexible and so not responsive to price changes.

In fact, the real world speaks against the Times' notion in at least in one area of significant energy use: private cars. This past November, Cambridge Energy Research Associates tried to pitch the "price drives conservation" argument after its study showed that in 2005 Americans drove less for the first time in 25 years, the result, it said, of high gasoline prices. However, its own figures undercut that claim. First, the "drop" amounted to 0.4% - yes, that's zero point four percent, which hardly deserves the descriptor "drop." Second, the drop was in the average for individual drivers. But as I noted at the time,

[i]ndividuals don’t bear the cost of gasoline, households do. Unless you have a comparison of the average number of drivers per household, the figure for the average individual doesn’t mean much in this context, especially since demand for gasoline actually rose slightly in 2005,

as the study itself noted. (Emphasis added.)

Bear in mind, too, that between 1981 (when gasoline prices hit a then-record high) and 1986, gas prices tumbled. After that, prices at the pump rose an average of 5.2% per year until 1997 and nearly 10% per year since then to hit an all-time high in May. Throughout that time, the Cambridge group itself reported, Americans kept driving more and more each year, directly contrary to what its own argument about prices and consumption declares. The "tipping point," the price for gasoline at which our driving habits were going to dramatically change, has moved over the years from $1 per gallon to $2 per gallon to $3 per gallon and most recently to $3.25 a gallon, and in each case as that price barrier has been broken, the fabled tipping point has risen to the next higher symbolic figure.

The point is that the received wisdom that higher prices equals less consumption doesn't hold up in the face of real world experience, at least in the area of energy, which is of course what's at issue here. Instead, for many of us, again facing baseline needs, higher energy costs just mean higher costs and greater economic stress, not less consumption.

Which brings us to the pair of proposals to drive conservation via prices. Since, as explained above, there is good reason to doubt that either one will work as advertised in promoting conservation, it might seem unnecessary to look at them, which is true enough but there are a few other points to be made.

Taking the two in reverse order, cap-and-trade schemes have become popular among politicians, industry, and even some environmental groups eager to show how "serious" and "responsible" they are. The Times' description of them will serve:

The government would impose a cap on the overall amount of carbon that could be emitted and at the same time allow regulated firms, like utilities and oil refiners, to buy and sell the right to those limited emissions. Firms that could easily reduce their emissions could sell their allowances to firms that could not.

The big plus is that the nation would set an enforceable ceiling on carbon emissions, which would be lowered over time. Such a system has worked well to lower emissions of sulfur dioxide and other power plant pollutants and its proponents believe it can do the same for greenhouse gases.

First, the comparison to SO₂ emissions responsible for acid rain is irrelevant to the point of being bogus. For one thing, there were easily-available, well-established technologies to reduce such emissions for any company that cared to invest in them, which is less true today for greenhouse gas emissions. Further, with acid rain, the issue is the local concentration of sulfur dioxide. So cap-and-trade plans, which have the effect of spreading SO₂ pollution around, can lower incidence of acid rain. But with global warming, the issue is the total amount of emissions of CO₂ and other greenhouse gases. Just spreading them around won't help; we've got to reduce the actual amount.

Cap-and-trade schemes will not help with that. There is no way the initial ceiling could be significantly below - or perhaps below at all - the current level of emissions. And once that level is set, industries could then buy. Or sell. Or conserve. Or not. Or develop new technologies. Or not. Companies would remain free to do whatever they thought was in their best, short-term, profit-seeking, interest - which is exactly why business interests like the idea.

Even under its proponents' assessment, and accepting the assumption (and it is only that) that new, energy-saving technologies will emerge from the scheme, the idea of cap-and-trade is that emissions ceilings "would be lowered over time." Lowered by how much over how long? No one says. No one can say - because ultimately the feasibility of lowered ceilings depends on what the regulated industries find in their own interest.

But every year we continue to pump massive amount of greenhouse gases into the atmosphere, every year we add stress to the climate system, is a year after which we'd later have to cut back even further in order to try to undo the damage done. Already, according to the EPA, to get our total net greenhouse gas emissions back to 1990 levels, we'd have to cut them by 14% below 2005 levels. For carbon dioxide in particular, the cut would be 17%. Planning to gradually reduce emissions over an unknown period of years in a program that's wholly dependent on market forces for its success is not good enough. Not when the future of wide areas of the planet as places fit for human habitation is potentially at risk. Cap-and-trade does not protect the climate, it protects the corporations. It should be dumped.

Which is why the idea of a carbon tax, which the editorial calls "a nonstarter, at least for now," is preferable, as it is a direct cost to the polluters. (Which, of course, is precisely why it's a nonstarter.) It has its flaws: If the cost is successfully passed on to consumers, it becomes a form of sales tax with all the regressive features associated with such taxes when applied to commodities that lower-income people can't avoid, such as gas, heat, and electricity, i.e., energy. However, producers know they can't successfully pass on all those costs to consumers; that's why businesses are always against business taxes, because they do wind up bearing a good part of the cost. So a carbon tax would present a direct economic incentive to producers to invest in non-greenhouse gas-producing technologies: While consumers may have relatively little choice in how they consume energy, producers have a fair amount of choice in how they produce it.

Again, a carbon tax is not without its drawbacks (not the least of which is the dreaded word "tax") but in terms of actually promising a meaningful reduction in greenhouse gas emissions, while clearly inferior to a program of strictly-enforced emissions limits combined with large-scale public investment in clean energy technologies, it still beats out nice-sounding but ultimately pointless cap-and-trade schemes.

Footnote: The Times editorial also says that "energy is currently underpriced in part because its cost does not reflect the damage inflicted by fossil fuels." Which makes it, although this was surely not the intention, a good example of why market forces can't be relied on to achieve socially-useful ends: By its nature The Market (Praise Its name) pushes for private profits and socialized costs.

Footnote Two: Some years ago, I ran for Congress. My energy program at the time was called "No One Answer," in response to the arguments of the time, which seemed to revolve around which energy source was going to be "the" answer to our energy supply and which thus rejected renewables because none of them were universally viable. I said that was true, that no renewable energy technology would work everywhere - but that everywhere, some renewable technology would work. So the policy would be to determine which renewable technology or technologies were best suited for a given area - solar here, geothermal there, hydro over there, wind somewhere else - and focus on getting those technologies up and running in those areas. Still seems like a better idea than a lot of what's being tossed around now.