Bipartisan economists: Legislation Beats Regulation

The president has called for bold legislative action to create a clean energy economy. It would be a tragic mistake if this legislation did not include the broadest possible carbon pricing signal….

It would indeed be regrettable if Members of Congress, who universally prefer carbon markets over command-and-control regulation, could not enact a bill that spares us such regulation and begins to solve the climate problem.

Those are the opening and closing sentences of a Roll Call op-ed coauthored by economist Richard Schmalensee, director of MIT’s Center for Energy and Environmental Policy Research, who served on President George H.W. Bush’s Council of Economic Advisers.

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The other co-author is my long time friend and colleague from the Clinton DOE,Peter Fox-Penner, author of the must-read new book on electric utilities, Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities.”

Here’s are key excerpts that compare the Kerry-Lieberman climate bill with EPA regulations:

These two paths clearly illustrate the greenhouse gas choices before us. Under the legislative approach, we can create markets that send a carbon price signal “” ideally, throughout the economy “” which would stimulate innovations and reduce the cost of making emissions reductions. Under the EPA approach, we can try to get the job done by imposing one-size-fits-all control standards on new or expanded power plants and industrial facilities.

While EPA regulation may be better than doing nothing at all, we have experience with the disadvantages of this command and control approach. For starters, new, efficient plants are disadvantaged relative to old, inefficient plants, and the latter are thus encouraged to stay in operation as long as possible, continuing to emit greenhouse gases for free while new sources must pay to clean them up.

Once the standard for “best available control technology” is set, there will be no incentive for continued research and development or investments in technologies to beat the standard. This would only put us farther behind other countries, which are working hard to accelerate low emissions generators. Finally, the EPA rule does almost nothing to reduce emissions from existing plants, which will continue to operate for a long time, or to reward increases in energy efficiency, which also reduce carbon emissions.

To delay addressing climate change would raise the long-run costs of dealing with the climate problem. The real damage stems from the total concentration of greenhouse gasses in the atmosphere. Greenhouse gases, particularly carbon dioxide, can linger in the atmosphere for decades after they have been emitted. The higher the greenhouse gas concentration, the more climate disruption we will lock in now and for future generations.

The Earth has already warmed more than 1 degree Fahrenheit. Failing to make low-cost emissions cuts today would force us either to make more expensive cuts in the future or to see greenhouse gas concentrations rise to the point where severe damage to human and natural systems would become unavoidable. It is wiser and more economical to begin reducing emissions now.

The climate bills under development are inevitably imperfect. Conceptually, however, they represent an enormous improvement over a scenario in which the EPA regulates greenhouse gas emissions from a few plants using a few technologies, without the use of markets to seek out the cheapest solutions, stimulate innovation, and reward efficiency. These bills may be smaller steps than many people would like, but they are steps in the right direction. It would indeed be regrettable if Members of Congress, who universally prefer carbon markets over command-and-control regulation, could not enact a bill that spares us such regulation and begins to solve the climate problem.

Precisely.

Legislation Beats Regulation