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A logical first topic to connect the new Reasonable People series to my earlier posts on carbon taxes: what might a reasonable person advocate?

At minimum the “no regrets” price for carbon is appropriate but probably the ideal is likely the median damage estimate among studies published in reputable journals. Deep uncertainty about the extent, effects, and ideal response to climate change is the reasonable position, but the air quality benefits from the correlates of carbon combustion alone justify a level somewhere between “no regrets” and the median estimate. See Robin Hanson on particulate emissions and air quality issues generally still being higher than one would expect today. This meta-analysis [possibly gated] found a mean estimate of $49/ton on air quality co-benefits alone. Reasonable people disagree about what constitutes the ideally optimal price,  but a carbon price ramp starting at $30/ton in 2013 is an uncontroversial lower bound when accompanied by dollar-for-dollar reductions in distortionary taxes on capital and labor. If anything it would be controversially low.

It bears mention that overoptimism on the upper bound of the “no regrets” carbon price is a tempting pitfall in midst of the strongly anti-carbon contemporary mood. Carbon demand is more elastic than labor supply in the long run; payroll taxes over time don’t reduce work hours as much as carbon taxes over time reduce carbon emissions at current margins. As such, my own earlier posts were highly contingent recommendations: ending regressive payroll taxes for a carbon tax that raises equal first-period revenue is “no-regrets” tax policy over the status quo only if the resulting future spending cuts necessary from falling carbon use (falling revenues) don’t have large net negative consequences. Any foregone net benefits of federal spending at those falling margins eats away at the “free lunch” of environmental improvements that confer “no regrets” status to the reform. The more valuable the marginal dollar of federal spending, the greater the need for certainty on the marginal damages of carbon/air quality in order to weigh that tradeoff.

For other common externality hobbyhorses, e.g. alcohol and tobacco, taxes at the median estimate are tolerable, but I don’t seek them personally. Throw in the Montreal Protocol and the SO2 market portion of the Clean Air Act for path dependence reasons, or design optimal taxes to replace them if it makes sense. Now that we’ve sunk the costs of designing the current regimes I’m unsure of the net benefit of designing optimal replacements. 

Is there anything else in the Clean Air/Water Acts that a reasonable person supports? Or is it fine to revive an updated version of common law riparian rights so long as we have carbon/SO2/CFCs under control? I assume as long as carbon/SO2 are controlled, NOx and particulates are ipso facto controlled since they’re all combustion products, but maybe include median damage estimates when calculating the excise taxes on carbon sources to get the relative prices closer to ideal on coal vs. natural gas vs. oil. Probably include median estimates for mercury in there too (primarily a coal problem, and coal will already be all-but-gone). Coal is among the few environmental targets whose real calculus is aligned with the extreme rhetoric. There are actually estimates that every ton of bituminous coal burned in developed countries causes a net loss in well-being thanks to its mining and combustion characteristics. The “oomph” of that assertion comes from income effects but still, it’s pretty impressive. (Citation? I think I read that in a Nordhaus paper a long time ago.)

Should a reasonable person want to keep the EPA otherwise? Comments and questions on those remaining functions bulleted below:

  • CAFE regulations are begging for admission to history’s garbage can. Could anyone explain Thomas Friedman’s NYTimes adoration of CAFE in the face of overwhelming evidence? I want to give him the benefit of the doubt but haven’t found a mental model where that position isn’t somewhere on the spectrum between “fairly wrong with good intentions” and “grievously wrong”.
  • Lead/asbestos etc abatement could be handled at the state level adequately, yes? Shall we take a roughly Hayekian approach and let states set their own rules, then monitor health outcomes? Probably not too many foreseeable gains from devolving to the states but that was Hayek’s whole point about decentralization…suggestions welcome.
  • Volatile Organic Compounds: What is a reasonable position? Firms already have market incentives to reduce these for consumer health/lifestyle reasons (stinkiness is a defining VOC characteristic!) Presumably California/NY/MA would just step in and require companies to continue providing the VOC ventilation warnings, and unlike automotive emission rules these are cheap and beneficial enough that firms are *very* unlikely to make a separate set of unlabeled paint cans and aerosol sprays just for conservative states. 
  • Superfund: is it worth keeping if its cost effectiveness thresholds were aligned closer with reality and other federal priorities? This is tricky because of how easily topics like “chemicals” are demagogued even in a more trustworthy political culture. Is it better in the long run to have a safety valve for political entrepreneurs when big cleanup projects arise, even when those spills/toxins are often much less severe than publicly perceived? Better the Superfund than some odds of banning half the petrochemical industry? I don’t know for sure.
  • Energy Star ratings: they’re far from perfect and I don’t see why similar/better ratings wouldn’t be privately provided. That would be an easy market for Consumer Reports to colonize (they already analyze energy use in their reporting; with the costs already sunk on testing appliances a stickered certification program is an easy and logical next step if the EPA weren’t crowding them out.) Besides, CR is already cleaning up after the EPA’s mess. Once again pretty small gains, but when they’re this easy and obvious we should take them.

Selected Environmental Issues Beyond the EPA:

National Parks: Only a hardcore anarchist would dare suggest total privatization. But nationally designated parks run by private concessionaires is a no-brainer. See CoyoteBlog for a concessionaire’s perspective!

Fisheries: Google “Coase Theorem”. Then worry about coordination costs and pray for international cooperation, but don’t hold your breath too long. It’s yet another problem with an easy theoretical fix but a slow and tricky practical one–though even the UN says it’s getting better.

Water Rights: They’re a broader mess that transcends local, state and federal levels; there are great books out there on this. There are also some terrible books so watch out and keep your circumspect/non-tribal brain active. Markets in water are always demagogued by the straw-man image of rich people washing their cars while the 99% stop taking showers. The rich take all the water and then literally turn their noses up at the unwashed masses (heh). More seriously, if distributional questions emerge as a gravely serious concern, and/or we want to indulge the idea that “water belongs to everybody”, we could entitle a “human right to water” of ~10 gallons/person/day at marginal cost (i.e. cheap), which is enough to drink/cook/flush/shower (European-style shower). Then price all water consumption above that in spot and futures markets and allow private/municipal water systems to connect as desired (ipso facto as guided by price signals). Critical human needs are guaranteed even as efficiency reigns.

Consult the literature (…ok just Google it Wink) to find out the remaining important details. Aquifers, as classic commons much like fisheries, will probably need maximum withdrawals specified and fishing/wildlife habitats in rivers/lakes/wetlands/hydropower projects will need minimum water allocations with a drought safety valve (e.g. don’t kill the fish unless water prices exceed X dollars for Y days). Though surely a high value, reasonable people will disagree on the exact dollar value of species and ecosystems…but even just the efficiencies enabled by ending water favoritism for farmers alone will leave a far larger water budget available for important ecology. In a better system we’re better able to afford a very high threshold for a species-harming drought safety valve; not only that, complete markets in water provide access to charities/NGOs/concerned individuals to buy water allocations on behalf of endangered species/ecologies above and beyond the minimum. Better supply management, better demand incentives, better access for concerned citizens.

At the very least we need to start with ending agricultural water subsidies. For a topic with such obvious available improvements we’re tragically caught up in status quo bias/anti-market hysteria and public choice governance problems generally.

 

7 Responses to “Reasonable People: Environmental Policy and Carbon Taxes”

  1. sherlock says:

    You missed out on one major function of the EPA. They regulate and control all pesticide products. A pesticide is defined as any product that claims to kill or mitigate a pest(ranging from insects to viruses) or regulate plant growth. These products have to prove their claims to the EPA and get approval from them. Once you got the approval you then have to register the specific product with each state indiviudally wherever that product is produced, sold, or distributed. And no, there isn’t a “Common App” for state registration. Each state has its own application, instructions, processes, and fees.

    • aarmlovi says:

      Sherlock: That’s an interesting point; can you share a normative prescription for pesticide regulation at the EPA level? The big related issue that comes to mind is international trade; unharmonized pesticide controls could constitute a non-tariff trade barrier on imported food and yet US states cannot conduct foreign policy or interfere with interstate commerce. Thus it seems practical to have Federal rules…would you suggest ending the redundant registration process at the State level?

  2. sherlock says:

    And that comment wasn’t supposed to be a “Ha! You forgot this”. You know way more about the EPA as a whole than I do. It’s just that the regulations concerned with pesticides is part my job with my company so I felt obligated to bring it up.

  3. Harry says:

    Alex, I scarcely know where to begin, the above being a huge mouthful of assumptions to swallow before we get started.

    This includes the part about being “reasonable,” which sounds reasonable, as in, “Who would choose to poison Socrates voluntarily?” If that leads to the question of what carbon taxes the philosopher king should impose, you had better lay the groundwork for the question, and that is a tall order.

    For example, a similar question might be, “What torture should the medieval prince mete upon his serfs and vassals to maximize the harvest of the hops crop in the valley below, and should the prince consult with the more learned prince across the mountain before using just the rack, or should he use the iron maiden too?” Note we have not yet touched on free trade.

    Yes, today we tax fuel to finance roads; that is a far cry from what the IPCC thinks about carbon taxes, and they think they are reasonable, or clever.

    • aarmlovi says:

      Harry,

      I’ve long been fascinated by your narrative voice. I’m glad I have your lively engagement! I take it the Machiavelli reference is a (hyberbolic, I hope) way of saying that output-oriented cost/benefit calculations can be normatively alienated from the preferences of individuals, i.e. that policymakers can maximize measurable variables but it’s not clear that democratic feedback on those variables has as potent a “normative imbuement”, if you will, of value that the measurable consequences of voluntary exchanges enjoy. Ergo your phrasing of the risk that the maximization criterion might be anywhere between an axis of torture and an axis of enlightened preference satisfaction (though obviously the ‘democracy’ part means the lower-binding axis is less “torture” and more “voter irrationality-induced incompetence along the lines of Bryan Caplan’s thesis”.)

      Regarding the Plato reference, I am not quite asking what the philosopher king would impose. That’s asking literally about the Platonically ideal policy. I’m asking instead a realistic, grounded version of Rawls’ question. Rawls asked “What does a reasonable citizen in a pluralistic democracy advocate behind the veil of ignorance?” I am asking instead “What does a reasonable citizen in a pluralistic but realistically functioning high-trust democracy advocate?” The reasonable citizen in my question doesn’t have to be operating on a fairness intuition behind the veil in my question, though like Smith’s impartial observer it’s a possible thought device. The reasonable citizen might also be reasoning from a social welfare function. Most likely it’s an ethical pluralism of the sort necessary to navigate any appreciable political cooperation, i.e. seeking welfare maximization bounded by fairness intuitions in some emergent mix.

      And remember, I’m not defending IPCC. When substituting for other distortionary taxes and including the imputed market value of air quality, you don’t need to believe in climate change whatsoever. Tax interaction effects a la L.H. Goulder are only a threat with a truly revenue-neutral reform. As long as we cut taxes and taper down spending in the way indicated, it really is “no-regrets” policy!

    • aarmlovi says:

      Needless to say, great question and I hope my response was helpful.

      • Harry says:

        What I meant was that there were so many points of discussion that it is difficult to deal with them all in fewer than, say, 50,000 pages.

        Wintercow often asks us to accept a premise or two to confine the question so we can deal with one thing at a time.

        “Carbon Taxes” is a great subject. Once one accepts that a government can tax a fundamental building block of life, you have captured the biggest tax base of all. The only problem for the tyrant becomes how to measure carbon consumption. For, example, it would be difficult even for the UN to affix CO2 meters on three billion people. You would need at least a hundred million inspectors in powder-blue helmets to do that.

        BTW, I believe the climate is changing all the time, and my guess is that we are in a warming period, but I also am aware of the imprecision of the data we have, and there other epistemological questions.

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