Last week, presidential candidate Hillary Clinton detailed her positions on energy and climate change, setting the goal of generating 33 percent of America’s electricity from renewable sources by 2027. While I believe we can do better than that, her goal would create momentum toward the transition to a renewable and sustainable economy and is worth pursuing. She would use tax incentives and other federal authorities to promote renewable energy. Clinton also supports the Obama Administration’s effort to regulate greenhouse gases as pollutants under the Clean Air Act. I assume she will continue to support the more stringent policy announced by the President today. In the New York Times story describing Clinton’s climate plan, Trip Gabriel and Coral Davenport reported that:
Mrs. Clinton’s campaign chairman, John Podesta, was the architect of Mr. Obama’s signature climate change policy, a set of E.P.A. regulations to cut carbon emissions from power plants. Mrs. Clinton’s new plan appears explicitly designed to build on that plan.
Obama and Clinton appear to be in synch on climate policy. While Clinton’s climate policy seems like an important step forward, it is not good enough for the New York Times Editorial Board. In criticizing her policy stance, the Times attacks her vision by stating that “renewables can be only part of a comprehensive energy strategy.” It’s hard to understand what they mean since the move to renewables is the goal of a sustainable energy policy. But then, the Times’ real issue becomes clear as they once again roll out their usual suspect, the carbon tax. According to the Times editorial:
There is no mention, however, of the one mechanism that would guarantee a shift in the way the country produces and consumes energy, namely putting a price on carbon emissions, presumably with a tax.
Since a carbon tax is not politically feasible, it would actually guarantee nothing; but even if it was feasible, given the current state of energy technology the most likely outcome of a carbon tax would be more expensive energy in the United States. By supporting climate regulation under the Clean Air Act, Clinton is advocating a policy that indirectly prices carbon and has the advantage of already being the law of the land. Regulation can raise prices if businesses pass along the cost of compliance to consumers. This more gradual policy instrument lacks the drama and blunt edge of a carbon tax, but has the advantage of being real, focused, and something government and industry knows how to do. Regulation will take longer to fully implement, is far from perfect, and will be modified during years of court fights, but it is in place. Moreover, clean air regulations focus most of their attention on businesses. A carbon tax directly impacts both producers and consumers.
A carbon tax would have massive indirect and unanticipated impacts. How would the sudden increase in energy cost affect poor people? How would it affect inflation? How would the tax affect economic growth and unemployment? It’s hard to tell since we haven’t done it yet. Since it would not be imposed in the rapidly growing economies of China and India, it would also do little to reduce global carbon emissions. The argument for a U.S. carbon tax is that it would provide leadership and would indirectly unleash the creative forces of technological innovation by bringing renewable energy to the market faster since fossil fuels would instantly rise in price. Economists believe correctly that price influences behavior, but it does not determine or guarantee behavior. Nothing does. With apologies to the Times Editorial Board, no public policy guarantees anything.
An ideological preference for a single policy instrument is a very incomplete approach to public policy formulation. The tools of government influence include more than one policy instrument. Price can work. Education can work. Command and control regulation can work. Incentives and funding technological development can work. Often we need a combination of all of them to make dramatic change. In a true emergency, there are stronger tools available to government – to mobilize for World War II the government virtually took over the economy mandating the conversion of most industrial capacity for the war effort. Whenever I hear the carbon tax presented as the answer, I always think of the famous quote attributed to both Bernard Baruch and Abraham Maslow: “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” Fortunately, we have many tools in the policy toolbox. And price is not the only way to influence behavior.
I would argue that given human behavior and organizational inertia it is better to subsidize something new than tax something old. A subsidy, like a sale, sometimes stimulates changed behavior. But a tax may or may not influence behavior. People may continue using fossil fuels out of habit or due to the sunk costs they have already invested in fossil fuel equipment and infrastructure. They may eat the additional cost to save the trouble and possible cost of changing what they do. It is true that if you tax something and make it more expensive, people will tend to use less of it. Of course, they may also buy it illegally. Cigarettes may be an instructive case in point. They are almost as addictive as energy, and they are heavily taxed. The taxation of cigarettes has had an impact, but so too have education programs showing the impact of lung cancer. Alone, the tax is no magic bullet. People continue to smoke those things and there is a huge black market in untaxed cigarettes. If the carbon tax has the impact of the cigarette tax, don’t expect much reduction in greenhouse gases.
While Hillary Clinton’s emphasis on deploying existing technology makes sense, I would urge her to go further and focus on a massive research and development effort to identify and commercialize new renewable energy technologies. Current renewable technologies are good, but not great. We need a transformative technology. We need breakthroughs in energy storage technology and in solar cells.
If we are to solve the climate problem we need to focus our attention on policies and programs that are practical and politically feasible. Even if a second President Clinton had a Democratic Congress she would have trouble getting a carbon tax enacted. But a massive research program to reduce the cost and environmental impact of energy would be as popular as ice cream on a hot summer day. Even a Republican Congress might go along for that ride.
The continued insistence on solutions that are not politically feasible makes no sense whatsoever. Climate policy advocacy needs to move past the symbolic and move on to real, operational, feasible policy prescriptions. The vast global pressure for economic development provides a political imperative for immediate economic growth. The equally intense pressure for maintaining the way of life we enjoy in the developed world creates similar political imperatives. Modern economic life requires massive amounts of energy and this energy must be made available now. Taxing fossil fuels will only reduce their use if there are feasible substitutes available. If such substitutes are available it is more politically attractive to create incentives to make renewables less expensive than to make fossil fuels more expensive. Along with the price signal, government must also send other messages. For example, government should:
- Favor renewable energy and energy efficiency in its own operations and procurement policies.
- Train and educate people to adopt socially responsible energy consumption practices, and include energy utilities in these efforts.
- Fund basic research in renewable energy and energy storage technology.
- Provide tax incentives for energy efficiency and for switching from fossil fuels to renewable energy.
- Fund the implementation of smart grid and microgrid infrastructure.
All over the world, thoughtful people and forward looking institutions have come to the conclusion that our economies must make the transition from the one time use of finite resources, to a system based on renewable, sustainable resources. Along with my colleagues William Eimicke and Alison Miller I recently wrote a book entitled Sustainability Policy that provides scores of examples of exciting efforts to begin this transition. We need to build on these small-scale efforts at the community, local and state level and focus attention on those places. We need to look at what is working, try to figure out what makes it work, and then increase the pace of the transition that has already begun. Hillary Clinton’s ideas are a step in the right direction. They are simple, practical and politically feasible.