[Reader-list] Greenhouse Policy Without Regrets

[Yazad Jal]

Regardless of Mr. Bush (and his muddled thinking) the Kyoto treaty is a bad
idea. I'm sending two articles to sarai on climate change that explain why.
-yazad


Greenhouse Policy Without Regrets: A Free Market Approach to the Uncertain
Risks of Climate Change
by Jonathan H. Adler
July 14, 2000

full study available in pdf format at
http://www.cei.org/pdf/1783.pdf

Executive Summary
Due to uncertainty about climate change, and human contributions thereto,
many policymakers call for "precautionary" measures to reduce the risk of
global warming.  Such policies are characterized as "insurance."  Such
insurance against the risks of climate change can be achieved by either
lessening the likelihood of change by reducing atmospheric concentrations of
greenhouse gases through a combination of emission controls and carbon
sequestration strategies, or by enacting mitigation measures to reduce the
possible economic and ecological impact of a potential climate change.

No insurance policy is worthwhile if the cost of the premiums exceeds the
protection purchased.  For greenhouse insurance to be worthwhile, it must
either reduce the risks of anthropogenic climate change or reduce the costs
of emission reductions designed to achieve the same goal, without imposing
off-setting risks, such as those which would result from policies that slow
economic growth and technological advance.  Currently proposed precautionary
measures, such as the Kyoto Protocol, call for government interventions to
control greenhouse-gas emissions and suppress the use of carbon-based fuels.
Such policies would impose substantial costs and yet do little, if anything,
to reduce the risks of climate change.  Such policies cannot be
characterized as cost-effective greenhouse "insurance."

Rather than adopt costly regulatory measures that serve to suppress energy
use and economic growth, policy makers should seek to eliminate government
interventions in the marketplace that obstruct emission reductions and
discourage the adoption of lower emission technologies.  Such an approach is
a "no regrets" strategy, as these policy recommendations will provide
economic and environmental benefits by fostering innovation and economic
efficiency whether or not climate change is a serious threat.   While fear
of global warming may prompt the enactment of these reforms, they merit
implementation even if we have nothing to fear from climate change.

A "no regrets" approach to climate change would incorporate the following
policy measures, among others:

1)   Remove Regulatory Barriers to Innovation: Existing regulatory programs,
and many environmental regulations in particular, create obstacles to the
development and deployment of emission-reducing and energy-saving
technologies.  Such regulations retard market-driven enhancements in
efficiency and environmental performance that reduce energy use and
emissions per unit of output.

2)   Eliminate Energy Subsidies: Government energy subsidies distort energy
markets and energy-related investment decisions without producing
off-setting returns.  The elimination of energy subsidies, in the United
States and abroad, would result in a more efficient energy sector.

3)   Deregulate Electricity Markets: Local electricity monopolies and
government utility regulation are significant barriers to innovation in the
energy sector.  Electricity deregulation and consumer choice will create
market opportunities for alternative energy sources and create further
pressure for greater efficiency and innovation in the energy sector.

4)   Deregulate Transportation Markets: Airline travel is a rapidly
increasing source of greenhouse gas emissions, yet air travel regulations
prevent airlines from flying the most cost-effective and energy-efficient
routes.  Allowing "free flight" could reduce per-flight energy use by as
much as 17 percent.  Lowering regulatory barriers to improvements in other
transportation sectors, such as road construction and management, could also
produce substantial emission reductions.

The aforementioned policies may not significantly reduce total
greenhouse-gas emissions, but they will reduce emissions per unit of output
and spur greater technological innovation.  Were it ever demonstrated that
emission controls were merited, the adoption of "no regrets" strategies
today would make it easier to meet those goals without compromising existing
standards of living.

The broader choice in climate change policy is between measures which
constrain economic choices and thereby hamper economic growth and
innovation, and those measures which free up society's creative energies to
spur innovation and enhance resiliency.  The human impact on the global
climate system will always be indeterminate to some degree.  Unforeseen
events, natural and human-induced, will occur.  For these reasons,  the best
insurance policy is one that improves society's generalized ability to cope
with disasters, environmental and otherwise.  Freeing up key sectors of the
economy, particularly those most reliant on energy, provides two forms of
insurance: It spurs innovation in the energy sector, increasing energy
efficiency and technological innovation, while also enhancing society's
overall resiliency.

A true "no regrets" approach to climate change is not greater government
controls on economic activity, but fewer.  Economic growth, market
institutions, and technological advance are often the most effective forms
of insurance that a civilization can have.  Policy efforts aimed at freeing
up the energy sector, and those segments of the economy that are most energy
intensive, will produce both economic and environmental gains.  The economic
gains will come from greater productivity and efficiency; the environmental
gains from increased production per unit of energy expended or emissions
released.  Such an approach will reduce whatever threat of human-induced
climate change might exist while spurring technological innovation and
economic development.  This strategy is the only approach to climate change
that can be pursued with "no regrets."