Painting the White House Green by Lutter Randall;Shogren Jason F.; & Jason F. Shogren

Author:Lutter, Randall;Shogren, Jason F.; & Jason F. Shogren
Language: eng
Format: epub
Publisher: Taylor & Francis Group

DEVELOPING DOMESTIC CLIMATE CHANGE POLICIES

“ [C]osts depend critically on how emission reduction policies are implemented, and it boils down to this: If we do it dumb, it could cost a lot, but if we do it smart, it will cost much less, and indeed it could produce net benefits in the long run.”

—CEA chair Janet Yellen, testifying at a 1997 congressional hearing23

How does one define “doing it smart”? In the case of the Kyoto Protocol, economists would likely envision a “smart” policy as one that facilitated cost-effective attainment of the Kyoto target. Any evaluation of a proposed emissions abatement or sequestration policy would necessarily involve a comparison with other alternatives to determine whether the proposal passes a cost-effectiveness test. By publicly stating that the Kyoto Protocol could cost $23 per ton, and reinforcing it with claims of “modest” costs, the administration had effectively established the standard by which to judge domestic policy proposals. “Could” easily became “would” as interpreted inside the Beltway, so any policy that would result in a marginal cost of abatement less than $23 per ton would be cost-effective. Any policy exceeding that value would not be cost-effective. Or put another way, policies with marginal costs below $23 per ton would be “smart,” and those exceeding $23 per ton would be “dumb.”

This simple characterization of cost-effectiveness potentially influenced domestic policy through both external pressure and internal deliberation. The administration’s proposed policies on tax credits and research and development (R&D) funding for renewable energy and energy efficiency, referred to as the Climate Change Technology Initiative (CCTI), failed to garner congressional support in part because of questions about cost-effectiveness. In 1997, the president had announced the CCTI as a way to “prime the pump” for technological development and deployment, and this served as the core of the first part of his three-stage plan to address climate change.24 Elements of the CCTI package included tax credits for electric and fuel cell vehicles, rooftop solar photovoltaic systems, and windbased electricity generation, as well as R&D funding for combined heat and power systems, renewable electricity sources, and energy-efficient housing. The president originally proposed $5 billion over five years for the program, although the administration requested more than $6 billion for these tax credits and R&D for fiscal year 1999.

The CCTI drew significant criticism from Congress. Some of the opposition reflected the antipathy some members of Congress felt toward anything potentially related to the implementation of the Kyoto Protocol; other members raised legitimate questions about how much “bang for the buck” the CCTI would deliver.25 To determine the cost-effectiveness of the CCTI proposals, Congressmen James Sensenbrenner and David McIntosh requested that EIA conduct analyses of the administration’s FY2000 and FY2001 CCTI proposals.26 The results of the EIA (2000a) analysis make for imperfect comparisons with the administration’s analysis of the Kyoto Protocol, as EIA estimated the average revenue reduction per ton of CO2 abated, whereas the administration estimated the marginal cost of the last ton reduced to comply with the Kyoto target. Nevertheless, the EIA analysis can provide some sense of the relative cost-effectiveness of the CCTI proposals.

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