Articles by Sean Casten

What good carbon policy should — but often doesn’t — reward

Too much of the debate on carbon-control policy starts from flawed assumptions. Take those assumptions away, and one quickly realizes that we have a lot of pretty good options.

Let's parse the carbon policy argument, and think for a moment about how to best engender the most economically beneficial carbon reduction policy.

First, let's strike any false assumptions from our logic:

1. Let's not assume that it costs money to reduce carbon emissions until proven otherwise.
2. Let's not presume that any of us know what the answer is.

Take these away, and you can pretty quickly get a good model. Picture, if you will, a 2x2 matrix of all the world's policy options. On one axis we list things that reduce or increase carbon emissions. On the other, we list things that cause GDP to grow or shrink. The middle of the plot (0,0) is the status quo. No change in emissions, no change in the economy.

Clearly, we ought to preferentially deploy resources towards those options that win on both metrics. Equally clearly, we ought not to spend any time on options that lose on both metrics. And once we've picked up all the low-hanging fruit in that win/win box, we can start getting into really hard political debates about whether win/lose beats lose/win.

And yet ... and yet.

Political courage needed for change

Getting our energy policy right does not require new technology, added societal cost, or economic disruption. However, it does require the political courage to question the sacred cows that have shaped 100 years of electric-market regulation.

A few ideas that are missing from the energy debate:

1. Fossil fuel use in the U.S. is split approximately in thirds between transportation fuels, electric power generation, and heat generation (buildings, industrials, etc.). GHG emissions track accordingly.
2. The electric industry is -- with very limited exceptions -- a regulated monopoly, subject to cost-plus pricing. This has been the case for 100 years. In other words, they have had a 100-year incentive to overconsume fossil fuel.
3. Adam Smith never said anything about profits causing the public good. What he did say is that the pursuit of profits in a competitive market engenders the public good. The second half of this clause is entirely missing from the electric sector.

Why this matters: