The new administration’s success with climate policy will depend on where they start

A few observations as to what we can expect from the incoming administration: What they ultimately get done may be a function of what they do first.

First off, our economic downturn is going to be long and deep. I have no ability to say how long nor how deep, but money not invested into the economy = factories not built = capital equipment purchases not made = people not hired to service, deliver, and build stuff (green or otherwise). Some recessions driven by temporary external factors, like 9/11, or single-sector bubbles, like the dot-com collapse, are shallow. Recessions driven by a seize up in the financial markets have a habit of being pretty deep.

Why does this matter to the environmental agenda?

The trouble with clean-energy tax credits

Round about the time I got out of college, I (like seemingly everyone else) got a Leatherman — the Swiss Army knife cum pliers cum screwdriver that fit in your pocket. Since I was finally in my own apartment, it was handy to have a tool to assemble the futon, replace a busted light fixture, and take care of other odd jobs.

The great thing about the Leatherman was that it was easy to use, portable, and great for my single-guy mojo (”wait, I can fix that, I happen to have a multi-tool in my pocket”). The downside? When all’s said and done, it’s not that great a tool. My fingers always got pinched in the pliers, the screwdriver didn’t have enough leverage, and the knife always seemed rusty and dull.

Tax credits are the Leatherman of US energy policy. They’ve got massive sex appeal, and they’re relatively easy to pass compared to other fiscal measures. But when all is said and done, they’re a lousy tool.

Upstream carbon prices will not substantially change downstream carbon-emitting behavior

With apologies to Little Milton.

Good news: With the incoming Obama administration, we are finally going to get some sort of a greenhouse gas (GHG) bill.

Bad news: We are still having an inane, economically uninformed conversation about GHG policy.

Many of the ideas that pass for Serious GHG Policy are silly, not because they aren’t serious but because they are based on economic theories that are as widely believed as they are at odds with the way all of us (economists included) actually behave.

The crux of the problem lies in the fact that policymakers, economists, and, yeah, some bloggers completely misunderstand the link between costs and prices.

Decoupling is all the rage. The Obama campaign has made it a key part of their plan (as David gushed here), and many states have instituted decoupling proceedings to change the way that their electric and gas utilities get paid.

The good news on decoupling is directional; utilities currently have a strong incentive to keep their customers from investing in energy efficiency, and decoupling provides a way to address that.

But decoupling is hardly a panacea. We need quick, large-scale changes in fossil energy consumption to address climate change. From my vantage point, we need a long-yardage pass play, and decoupling — while still heading down the field — is a short-yardage running play up the middle.

In all cases though, as the decoupling concept gains momentum, it is critical we understand the nuances. Here is my attempt to provide some…

Why current cap-and-trade proposals are more tax than trade

A great frustration for those who (a) really care about reducing CO2, and (b) believe in the power of well-structured market mechanisms is that the current discussion around carbon policy has bastardized the language of environmental economics. There are tremendous economic and environmental benefits to be gained by a true cap-and-trade CO2 system. Unfortunately, all the plans that are currently being bandied about as cap-and-trade structures are really carbon taxes.

To understand why, we need to review a couple basic environmental economic concepts. There are essentially three ways that government can induce environmentally responsible behavior: mandates, taxes, and tradeable permits.