May 8, 2009

Regulation with a Side of Regulation
Dave Roberts tackles an important issue regarding climate change legislation -- why isn't cap-and-trade enough? Why do we need regulations that mandate utilities produce a certain amount of renewable energy in addition to a "market" price for carbon?
The answer is that unpriced carbon is not the only market failure. In fact, there are dozens, hundreds of such failures. If you sought to address them all with a carbon price -- a fairly blunt tool -- you'd need a very, very high price, and that's not going to happen. A politically realistic price on carbon, likely to be low at least for the first decade or two, will not address or overcome most of those failures.
He goes on to detail the reasons that utilities in particular require further regulation in order to move toward renewable energy (the short answer: the current regulatory regime incentivizes them to focus on the most capital-intensive solutions, like nuclear power or coal with carbon capture). The same is true, by the way, for vehicles. Cap-and-trade on its own isn't going to remake transportation in this country. We're still going to need new, much higher mileage requirements, huge investments in mass transit and, oh yeah, a non-joke "cash for clunkers" program would be nice, too. Anyway, everyone knows the answer to all our transportation problems is the anti-matter powered Warp Drive.

The important point here is that the ongoing debate over market forces vs. regulation is entirely misplaced. The government runs markets in this country. It's that simple. There's really no economic transaction of any significance, even in the laissez-faire US of A, that hasn't been shaped by reams of regulation and legislation. The simple act of going down to the corner store to buy a gallon of milk is informed by a long legislative process that runs from agricultural policy (setting the price of milk) to zoning law (determining the location of commercial enterprises) -- A to Z, nice huh?

To suggest that we can transition to a low-carbon economy via a single, "simple" solution, as proponents of a carbon tax do, is frankly unserious. It demonstrates, at best, a misunderstanding about markets and, at worst, a lack of interest in the entire low-carbon enterprise.

The same is true in our attempts to address food and agricultural policy. As I've discussed before, attempts to "reintroduce" the free market into agriculture is just code for "regulations that favor our interests" -- whether that's environmental subsidies for factory farms or crop subsidies that cause prices to drop below the cost of production and thus aid food processors from ADM or General Mills (couldn't think of a 'Z' company). If we were serious about getting healthy food to people who need it, we would quit screwing around and have the federal government mandate (and presumably fund) the presence of produce markets based on population density. No more fretting about food deserts then. The profit motive and price signals can't do it all by themselves, whether we're talking about climate change, food and agriculture or health care. Until we admit that fact and let government get into the re-regulation business, we're never going to be able to solve any of the problems we face.

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Anonymous Petey said...

First of all, (real) anti-matter can power a lot more than (fictional) warp drive. However, it generates so much intense energy that it creates way more radioactive waste than a nuclear reactor.

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