Between Too Little and Too Late: Political Opportunity Costs in Climate Policy Analysis

Abstract:

Discussion of climate policy has focused almost exclusively on comprehensive regulatory instruments to price emissions with tradeable permits or emissions taxes. More recently, a number of proposals have been advanced to abandon comprehensive emissions pricing in favor of focusing exclusively on clean-energy innovation. Neither approach adequately accounts for the combination of timing and scale. Advocates of emissions pricing are persuasive that this is the most likely way to reduce emissions sufficiently to stabilize greenhouse gas (GHG) concentrations at desirable levels. However, as innovation advocates point out, the political climate is inhospitable to such sweeping regulations and it is unlikely that comprehensive carbon pricing can be enacted and implemented in the next decade. However, clean-energy innovation by itself is a high-stakes gamble that may fail to reduce emissions sufficiently to stabilize GHG concentrations, and may reduce support for the kind of comprehensive pricing measures that could stabilize GHG concentrations.

We propose that analysis of climate policies take account of the opportunity costs associated with the process of enacting a proposed policy: If one measure is much more controversial than another, how does the difference in time necessary to persuade the public and legislators to adopt them affect their ultimate impact? As General Patton is reputed to have said, "A good solution applied with vigor now is better than a perfect solution applied ten minutes later." Similarly, it is important to consider whether adopting one measure would build or erode support for complementary ones.

As an example, we consider the largely neglected role of nonregulatory measures, such as private governance and household-level behavior change, as examples of actions that could buy time by producing rapid, although modest, impacts without eroding support for more comprehensive measures later on.