Making Climate Policy Economically Profitable

Reality deniers are hard at work, with $100s of millions supporting them, arguing that doing something about global warming would be disastrous for the economy. Let us be clear: THIS IS FALSE! Smart climate policy will, even within traditional economic definitions, pay off for the economy. But, in fact, there are a multitude of payoffs here:

  • Insurance: Reducing emissions (even going to carbon negative) is an insurance policy against potential impacts of catastrophic climate change. There will be impacts but we have, hopefully, the chance to control how bad they will be.
  • Security: Reducing Global Warming impacts will improve national security (by reducing risks), but a key path will also mean reduced oil imports which might lead to lower global tensions and fewer drives for deployments of military forces into conflict situations.
  • Economics: Well, the economic payoffs are enormous, from reduced health care costs from lowered pollution, to improved balance of payments due to lowered oil imports and increased exports of green technologies, to green jobs, to …
  • As for the last, let’s take two great examples from the Sightline Institute that each highlight the payoff potential, along with innovative thoughts on how to accelerate and improve the payoffs.

    Riding Herd on Refrigerators: “Financing free fridges for fairness.”

    Refrigerators are a great poster child for energy efficiency and the value of standards. Average annual power use for refrigerators has fallen roughly by two-thirds over the past 20 years, meaning new refrigerators use about 1000 kilowatt hours less per year. For every 10 old refrigerators replaced, that is about the equivalent of taking a house off the grid. Hmmm … not bad.

    But, this bumps into the classic upfront capital versus long-term savings from efficiency challenge. One that is difficult for those lower on the economic spectrum to deal with and one counter to how our culture considers economic payoffs (individuals in their own lives), as we discount future savings too heavily.

    In an environment of profit decoupling, where the utility has a value for fostering reduced power use, why not set up a program where utilities bulk-buy refrigerators and offer them for purchase, with the payback to occur via the monthly electric bill. This can help get past “one of the stickiest problems in energy conservation”, the landlord-renter challenge as the landlord wouldn’t have to pay for the appliance, since it would go into the utility bill. If we want to talk 15+ year old refrigerators, how many do we think are sitting in low-end rental units around the country?

    Take a look. A sensible path for, effectively, taking a huge chunk of homes off the grid.

    Cap and Caulk: How Smart Climate Policy can cut our energy prices

    This is a truly excellent discussion, right into many of my own passion zones, and very highly recommended reading. Alan Durning discusses low-income energy improvements in Cascadia, how the programs are highly successful, but resources fall far short of demand. $8 million per year for 5 million homes, with ten times as much money going to bill paying assistance (giving the man a fish) as opposed to energy efficiency (teaching people to fish). Roughly 4 percent of relevant homes have been treated … over the past 30 years. Do we have 750 years to make it 100 percent?

    What Derning does, quite effectively in this piece, is link fairness with a cap on emissions and how energy efficiency programs for lower-efficiency people could promote fairness and lower the cost of energy.

    Under a cap, one thing that efficiency programs most assuredly do is lower the price of carbon pollution permits. When Pacific Power drops out of the market for certain permits, there is less demand for the permits, so ExxonMobil or Northwest Natural gets the permits for a slightly lower price. Ultimately, consumers pay lower prices than they otherwise would have. After all, consumer prices are dictated by the market value of permits.

    Energy price reductions are a good thing (in a capped carbon economy), because higher energy prices are economically regressive. They’re also a good thing because high prices are politically perilous: they might prompt legislators to raise—or poke holes in—the cap.

    Durning discusses many other benefits from energy effficiency programs from better utility bill payment rates, reduced homelessness (a little), improved health, etc …

    As is typical, Durning has written something worth reading … and incorporating into policy.

    Just a taste …

    Despite what one might hear from fear-mongers like the National Association of Manufacturing, George Will, the coal industry, James Inhofe, Robert Samuelson, and others, choosing to deal with Global Warming has the potential for creating tremendous opportunities. If we do this in a smart way, Energizing America will create a path toward a prosperous, climate-friendly society.

    Now, “cap and caulk” doesn’t solve everything, it doesn’t mitigate cost implications in transport and products from sensible climate legislation. Thus, other paths for fairness (like a partial dividend) will be required. But, cap and caulk is an excellent discussion of the type of win-win opportunity that the entire strategy of striking fear about economic costs of dealing with global warming is choosing to ignore.

    2 responses to “Making Climate Policy Economically Profitable

    1. Why is it always necessary today to strain credulity by deny that environmental legislation will not adversely affecting today’s economy and standard of living? During the 1970s, the Clean Air and Clean Water acts contributed to a decade of stagnation. By the 1980s, Detroit had stopped producing 8 cylinder cars, leaving us with high mpg vehicles with far less acceleration. Speed limits fell to 55, windfall oil profits were taxed, and the Feds subsidized for solar and other renewables. There was virtually no net business investment needed to raise productivity and advance technology. Instead, the economy sank hundreds of billions for required compliance in pollution control equipment for mills and factories. Billions more were dedicated to retrofitting homes with insulation to raise R-values. Yet few complained as real incomes declined because it meant rivers stopped catching fire, smog alerts were fewer, species and national parks were saved, and we could see mountains again and swim in our lakes. Yet the Zero Sum Society of “you can’t get there from here” invaded our ideologically-polarized politics and lobby-driven public policy since the Reagan era. Today, we heavily “discount” the interests of future generations who have no votes as we irrevocably destroy their future and reject our caretaker responsibilities for the planet. The very same groups that attack “pro choice” supporters for ignoring the rights of the unborn do not recognize their hypocrisy in ecologically trashing the future of the next generation.

    2. EconProf:

      One of the things that I have a feeling we might agree on is the question as to the implications of defining economy and value.

      As I recall, the GDP actually rose when Exxon-Valdez occurred due to the costs of conducting a clean-up operation. Would anyone, seriously, argue that the oil spill was “good” or that it strengthened the economy?

      Your valuing and defining does not provide a $ value for “rivers stopped catching fire, smog alerts were fewer,” etc …

      The problem, I (and others) would suggest, is that we have a skewed accounting of “economy” where “external costs” often are not counted or are counted in a bizaare fashion.

      For example, if I could snap my fingers and halve the illnesses in the United States, it is quite possible that that would hurt the economy due to reduced demand for medical services (from hospitals to over the counter medicines to reduced sales of Kleenex tissues). Yet, would that be “bad” for the society and does not that societal value merit accounting?

      As I would suspect that you are quite aware, there is a robust literature and discussion of how to have statistics for tracking society and “economy” that are more reflective of real values.

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