[lbo-talk] The Planet is Fine

Gar Lipow gar.lipow at gmail.com
Thu Dec 22 16:41:59 PST 2011


On Thu, Dec 22, 2011 at 1:16 PM, nathan tankus <somekindofheterodox at gmail.com> wrote:
>
Me
> "The mere fact that c&c regulations have a cost does not mean that
> humans respond to them in the same way we would to a tax"
>

Tankus
> but we're not talking about people responding. we're talking about
> corporations. these entities are infamous for eating fines rather then
> upgrading (Horizon disaster etc). Without jail time for perpetrators
> or fines that hit people personally many corporations are inclined to
> treat it as a cost of doing business if being fined costs less then
> compliance
> --
> -Nathan Tankus

Not the same for the following reasons:

1) A lot of the people these regulations apply to are individuals

2) A lot who are not individuals are small businesses. Small businesses tend not to do the particular calculation you mention because of legal costs unless the fines are very small indeed. They often will ignore regulations if they think they have good chance of not getting caught. But that is a problem for any policy option. If people have a realistic estimate that they can avoid paying the tax or buying the permit or obeying the rule, then enforcement is too weak.

3) In terms of big companies - one of the big areas for efficiency rules is building efficiency. But most buildings owned by large corporations are leased, with a management company making operational and even capital investment decisions (with the owner having veto power over the latter). If a management company chooses to violate a rule, the money saved goes to the owner, but the liability may well be with the management company. So the actual decision maker has an incentive to obey rules - a principal/agent or "split incentives" case that actually works in favor of social responsibility.

4) Another area where there has been a lot experience with big companies in the U.S. and regulations is automobile efficiency. And while there has been a ton of gaming the system there has been very little outright rule breaking. For various reason not an area where paying fines over complying with the rules is treated as a cost of doing business.

In energy and greenhouse gas economics it is really important to look at the specific cases, and not be too quick to assume that generalizations that work elsewhere apply. Even on a general level, we are dealing with capital investment that affects flow costs - and that combination produces a lot of exceptions where approximations that normally work don't. Secondly, the way demand functions work varies a lot in response to particular circumstances, such as energy sector in a way even heterodox economists are not prepared to deal with. The economics of electric generation is different in very fundamental ways from the economics of energy use in buildings, which is different in turn from the economics of energy use in transportation (especially automobiles and trucks) which in turn differs from the economics of energy and emissions in manufacturing.

The best way to get working generalizations is through multiple bottom up analysis. For example, the way I came to the conclusion that public investment and rule based regulationare the priority was to look at the actual ranges of possible technological replacement for emitting process (including not only clean energy and efficiency, but conservation) . And I found that when we look at what is possible with today's technology, excluding stuff that does not yet exist or is not mature, the following: 1) In buildings what is needed is overwhelming stuff that people tend to implement when it is required or given away for free 2) In ground transport - a massive requirement for new public goods, plus regulation. 3) In electric generation, large scale public investment in the form of renewable subsidies probably in the form of feed-in tariffs, plus long distance power lines plus storage. Also if we want reliable renewables we need to start doing actual planning, to decide how much wind, solar , long distance transmission, and storage we want where so that clean energy source that are variable in isolation become reliable systematically.

Those three sectors - buildings, ground transport and electricity generation are responsible for the overwhelming majority of fossil fuel emissions (counting building electricity use as electricity only direct fossil fuel use for space and water heating and cooling as building emissions).

Of course even in these sectors price can play an important role in reinforcement. Manufacturing industry, planes and ships are the three areas where price is the policy that will do the most good, though there are substantial roles for regulation and public investment as reinforcement and to capture saving price can't drive. Lastly there are sectors like agriculture, forestry, waste management, land use, solvents. And those sectors are close to impossible to change with an emissions tax.

Of course the above just outlines the argument with out providing the specifics. (I have posted some specifics on Grist in the past. And you will be able to see them in depth in my upcoming book "Solving the Climate Crisis". site for the book http://stcc.be )
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