Articles by Gar Lipow

Regulation and public investment are more efficient means to reduce GHGs than emissions pricing

When I sat down to write about why so-called "command and control" methods are often the most effective and efficient means of fighting climate chaos, I found that Kevin Drum had posted exactly the argument I wanted to refute.

After conceding that it will take more than emissions pricing to lower greenhouse gas emissions, and that response to price signals tends to be small and slow, Drum argues that a price mechanism should be the primary means to fight climate chaos: "Still, generally speaking, taxes and carbon trading are more efficient regulatory mechanisms than command and control, so the more you can rely on them the better."

I think this default conventional wisdom is just plain wrong. Not only is elasticity low, but there are also simple standards by which we can measure energy and greenhouse-gas efficiency. Further, suitable means for increasing efficiency and lowering emissions are known. Given these three conditions, price is not the most efficient way to change behavior.

As examples, consider weather and duct sealing. It's widely acknowledged that sealing buildings yields fast paybacks -- two years or less. Yet most buildings remain under-sealed, with leaky frames and ducts. How do we change this? Well, we can raise the price of energy until people become desperate and seek out contractors. But since we already have quick paybacks, any amount we raise the price is far beyond the cost of saving the energy.

If, as I have suggested in surveys of the literature, demand response to price increases is around -.5, that means it will require $200 in emissions charges to motivate each $100 of consumer investment in energy efficiency. In contrast, investing public funds could insure that a nice woman working for an energy-efficiency utility could seal your home for around $100, plus a bit for administration. Even if that $100+ came from regressive taxation, it would still cost consumers less than a primarily price-driven policy. And if the payback is really two years or less, the government could use its ability to borrow to provide low interest financing, thus bringing the cost to consumers down below the business-as-usual price.

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