Posted by: jdantos | February 13, 2007

Energy Policy, First Post

So, the energy policy class I’m in requires several regular blog-like short papers.

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If I gave you a magic wand that allowed you to pick two energy related policies that will be implemented as designed (the magic part!) and will move the U.S. toward a sustainable future, what would you choose and why?
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I would choose 1) a mandatory carbon emissions cap-and-trade program, and 2) a national program of smart growth paired with mass transit investments.

First, a comprehensive, immediate, and stable carbon regulation and trading regime is the most clear-cut, crucial piece of energy policy for an environmentally sustainable future. Such a cap-and-trade program would cover all industries, apply to downstream emissions rather than upstream fuels, and would not include a safety valve, grandfathering, or initially free permits. Practical and administrative concerns might limit the trading system at first to commercial and industrial levels, but would eventually extend to consumers piggybacking on residential electric meters and odometer readings and emissions profiles from cars. A tax on carbon might achieve similar ends to a cap and trade system, but the tax could be easily set too high or too low, might be politically difficult to change, would do less to encourage green innovation, and might unfairly penalize older dirtier power plants whose stockholders are still counting on years of future returns. A vigorous carbon regulation program comes closest to sending real and efficient price signals to all corners of the market and best approximates economists’ Holy Grail: true marginal social cost pricing.

Many Americans are now beginning to see connections environmental degradation, geopolitical costs in the Middle East, and global climate change, and strong carbon regulation is the only policy that would clearly solve both three problems. Technology forcing can be bluntly effective, but inefficient and risky. For example, ethanol might reduce fossil fuel consumption, but might cause equal or greater environmental damage depending on how the biofuel is produced. High gasoline taxes might also reduce dependence on foreign oil, but might induce substitution from dirtier coal. Technology-forcing requires the government to predict scientific progress, while a cap-and-trade sets a pigouvian price and lets the market sort it out. Governmental market corrections are most efficient when linked directly to the source of market failure. Turning the wheels of a car or heating the temperature of a living room isn’t inherently bad; it’s the resultant atmospheric emissions that we are concerned with, and it’s what we should regulate. If we regulate carbon pollution, we get freedom from Middle Eastern oil along with it; the inverse isn’t true. Carbon regulation guarantees both environmental protection and freedom from Middle Eastern oil.

Second, a national urban development policy pairing smart growth with heavy investment in mass transit is a long-term solution to the energy dependence of the transportation sector. If history is any guide, technology will enable huge efficiency gains in how we heat and light buildings, manufacture goods, and grow food. But the technological prospects for emissions reductions in transportation, besides electric cars, appear limited. Skyrocketing demand for auto travel have historically offset any environmental benefits from technological efficiency gains from the CAFE program, and our growing and specialized economy will always depends on goods and passenger movement. More compact development lessens the energy impact of transportation in two synergistic ways: first, people are more likely to choose carbon-free or low-carbon modes like walking, bicycling, bus, and rail, and second, people simply travel less.

A national smart growth policy to do this must be paired with large, new investments in bus and rail systems in urban and suburban areas. Public transportation is effective energy and environmental policy for a number of reasons.
• Transit’s energy consumption and emissions on a per-passenger-mile basis is already lower than that of automobiles, and this potential efficiency is highly dependent on how many other passengers are onboard in addition to propulsion technology, adding extra leverage for efficiency beyond technology. By better organizing our land uses to maximize use of public transit, we can tap into energy gains beyond even the rosiest technology projections – passengers on an average full subway train today are moving at the equivalent of over 500 miles to the gallon.
• Realizing what economists call “network economies of density,” rail networks can become more efficient in the face of large increases in travel demand, whereas automobile networks suffer from congestion.
• Public transportation is an alternative to the non-energy-related environmental costs of the automobile system: water pollution from impervious surfaces, noise, habitat disruption, passenger safety, and urban sprawl.
Transit-supportive land use policies allowing density and a mix of uses are a necessary but insufficient precondition to transit-oriented development. When paired together, a national program of coherent urban development and expanded mass transit service would essentially design out both exponential growth in demand for travel and the seemingly inextricable energy challenges that arise from meeting that demand, and would endow us with a sustainable way to meet what future demand is left.

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Responses

  1. Would you extend carbon trading to the consumer level, or is it just at commercial and industrial scale? Could I, a Metro rider, sell my automobile carbon allowance to a trucking company?

    • a simple question, no easy answer
      Huh. This is tough one. The devil is in the details here. An allowance would be an allowance, regardless of buyer and quantity (I think). First-best rules say that it should be some kind of sensor at the end of every smokestack and tailpipe, but a “true” system like this with infinitely divisible allowances and millions of sensors could get really complicated really fast, to the point where administrative costs outweigh everything else. But moving away from direct emissions sacrifices that “pure” economic efficiency by relying on proxies. Hmmm…

      • Re: a simple question, no easy answer
        Over in Europe aren’t they building a system where citizens have a card which helps track their CO2 emissions, and somehow levies a cost based on their volume?
        Have I told you about my vehicle footprint based registration scheme? A car with higher MPG or lower annual miles would be charged less for registration. So, someone who commutes from Kern County to LA each day in their Ford Excursion would be paying alot more for their right to drive (the license plate) than would the Prius owner who bikes to work and only does errands in their car.
        Probably never happen, given the strength of the car and oil lobbies. Nice dream, though.

      • Re: a simple question, no easy answer
        Yes, distance-based pricing is a great idea whose time should have come decades ago. Many say we need to wait and do true electronic road pricing a la Singapore, and the technology is just now maturing. But by simply combining an average emissions profile based on vehicle make/type with miles driven, you get pretty gosh darn close. The idea has been tossed around academia for awhile, but Todd Litman has a good summation href=”http://www.vtpi.org/tdm/tdm10.htm”>here. The British government is seriously considering this policy as an alternative funding mechanism for their road system, on the theory that gasoline tax revenues will ultimately diminish. It amazes and encourages me that actual elected politicians in the UK talk about proposals like this seriously!
        I’m intrigued by this idea of an individual card… how would it work?

  2. Challenging the transit method
    (I am brainstorming these questions. I have not formulated my own position on this…challenging you to help me think it through, I guess!)
    I ride the LA metro to the lab every morning. There is one station stop (Memorial Park) near Old Town Pasadena, which is a retail and dining agglomeration.
    In the morning, the northbound (from LA proper) express train serves Mem Park, but the southbound does not. In the evening, the southbound does (towards LA proper), but the northbound does not. This patter is built from ridership, obviously. I think it also represents how the service-industry workers of Old Town are imported from lower-cost-of-living areas of the city. A no-brainer pattern, I bet.
    So, is the transit promoting a more sustainable city? Or is it a band-aid on the unsustainable automobile city? By extending transit’s reach, are we allowing the continued development of regional cities which require significant commuting (which, no matter how well we design the transit system, still consumes resources)? Should we instead be throwing all our weight into building villages within the city, where homes, jobs and the whole spectrum of workers are intermixed so as to diminish the need for commuting?


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