David Leonhardt has a good article that is making the rounds about how it increasingly looks like non-market means of energy regulation are going to be how we fight climate change, rather than a much more efficient market oriented approach like carbon taxes. Matt Yglesias rightly lays blame at the feet of conservatives who have worked hard to stigmatize taxes in the public’s mind, and have thus poisoned anything labeled a tax; even good, market oriented things:
But overall what you’re seeing here is that creating a political culture in which “tax” is a four-letter word doesn’t eliminate the demand for government to try to achieve certain goals, including curbing negative externalities. It certainly doesn’t kill off “big government.” What it does is cut out efficient solutions to public problems, push the impact of government policy off the balance sheet, and generally obscure what’s going on.
I agree with all of that, but I think that many liberals also share the blame for a failure to pass a carbon tax because of their high demand for and tolerance of inefficient and wasteful energy policies. Part of the problem is exactly demonstrated by Yglesias and Leonhardt in their acceptance of the sort of command and control government policies they recognize are inferior to a carbon tax. Here is Leonhardt on energy efficiency:
The ideal energy policy, in fact, would include some ironclad rules and regulations, because people do not always respond rationally to prices. Consultants at McKinsey & Company argue that many families and businesses could already save money by taking simple energy-saving steps, yet they don’t do so. Building standards could overcome their inertia.
And Yglesias agrees that “an ideal world would still retain a role for a certain amount of command-oriented regulation, especially on the efficiency side.” This is several paragraphs after David told us that:
Under a command-and-control system, businesses and consumers have to focus not just on carbon use but also on the details of the government’s rules: the intricacies of vehicle and building standards, the types of appliances that qualify for subsidies, the fine print of the Energy Department’s loan applications. Each bit of compliance brings costs.
And how does he know that these costs are outweighed by the benefits? If we’re talking about government subsidies for weatherization, then you’ve got inefficient bureaucracy on both sides: the tax collection and the subsidy dispersal. In addition, weatherizing the country on a grand scale obviously involves a lot of bureaucratic problems and the use of government contractors above market wages, both of which introduce more inefficiency into the problem. And yet there is high demand for such policies from liberals, and it seems to me a completely unwarranted optimism about their cost effectiveness.
A similar example is found in Leonhardt’s discussion of vehicle mileage standards:
Fuel economy rules have cut per-mile gasoline use by 40 percent since 1975. As a result, vehicles have made more progress on energy efficiency than office buildings, houses and apartments.
Have fuel economy rules caused per-mile gasoline use to fall, or has technology, wealth, and a growing preference for high-mileage cars done it? And are cars getting more energy-efficient faster than buildings because of regulations, or because the energy efficiency is more transparent and observable in vehicles than in buildings? Apparently we need professionals to come in and tell us whether buildings are energy efficient or not, but no such service is required for cars. Energy regulation has I’m sure had some impact, but less than real prices, preferences, and technology. But David, in contrast, just assumes regulation has done all the work here. Again, this shows an unwarranted liberal optimism for command and control energy regulation, even in the middle of an article about the downsides of command and control energy regulation!
The problem here is twofold: conservatives hate taxes, and liberals have too much demand and tolerance for inefficient and wasteful energy policies. So the clear path for politicians is to avoid taxes and use the inefficient command and control instead. This is why I get so bothered about things like fuel economy standards: they are substitutes for making the right choices; both in a political capital sense, and in a real economic sense. To the extent that inefficient command and control policies actually help prevent global warming, they decrease the optimal price, welfare gains, and therefore benefits of a carbon tax.
If politicians knew that liberals were going to resist inefficient attempts to stop global warming, then they wouldn’t be so happy to substitute them for efficient policies like carbon taxes. Yes we would be better if conservatives would examine taxes on their merits, but we would also be better off if liberals got as outraged as libertarians about higher fuel economy standards. Every time a politician proposes an inefficient policy liberals should shoot them down and say “No! You do it the right way this time!”
There are libertarians and conservatives who want to cooperate on this, but every crappy energy policy that gets passed with liberal support undermines the notion that cooperating with liberals will result in policy that is not incredibly wasteful and inefficient. It’s hard to bargain for something as a group when you know that half of the group will settle for a shit offer.