Tag Archives: AB 32

How do we best induce technological innovation? We’ve already run that experiment

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Improvement in new and existing technologies’ performance and costs is a function of responses to a mix of market and regulatory signals. Finding empirical measures of differing innovation influences is difficult due to confounding influences. Yet we may be able to look at broader economic trends to discern the relative merit of different approaches.

The most salient example could be the assessment of comparative performances after the fall of the Berlin Wall. The Allies conducted a 45-year experiment in which Germany was first split after World War II with largely equivalent cultures and per capita endowments, but one used a largely market-based economy and the other relied on central economic planning. When the two nations reunited in 1990, the eastern centrally-planned portion was significantly behind in both overall well-being and in technological innovations and adoption. West Germany had doubled the economic output of centrally-planned East Germany.

More importantly, West Germany had become one of the most technologically-advanced and environmentally-benign economies while East Germany was still reliant on dirty, obsolete technologies. For example, a coal-to-oil refinery in the former East Germany was still using World War II-era technology. West Germany’s better environmental situation probably arose from the fact that firms and the government were in an adversarial setting in which the firms focused on the most efficient use of resources and were insulated from political interest group pressures. On the other hand, resource allocation decisions in East Germany had to also consider interest group pressures that tended to protect old technologies and industries because these were state-owned enterprises.

The transformation of the West German economy, both technologically and institutionally, was akin to what we will need to meet current GHG reduction goals and beyond. This more clearly than any other example demonstrates how reliance on central planning, as attractive as it appears to achieving specific goals, can be overwhelmed by the complexity of our societies and economies. Despite explicit policies to pursue technological innovations, a market-based system progressed much more rapidly and further.

Not talking past each other on California’s transportation fuels cap & trade implementation

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Last week, 16 Democratic legislators sent a letter to ARB Chair Mary Nichols asking for a delay in adding transportation fuels to the AB 32 cap and trade program starting January 1, 2015. The legislators raise concerns about how a 15 cent per gallon increase could impact the state’s poor.

I was asked by EDF to sign on to a letter in response. That letter focuses on how much of the anticipated innovation arising from AB 32 is dependent on implementing this phase of cap and trade. However, I think the proposed letter misses an important point by the legislators.

Our state legislators are rightfully concerned about the impacts on those among us who have the least.  Nevertheless, that problem is easily addressed with the tools and resources that are already available to the state. Those families and households who now qualify for the CARE and FERA electric and natural gas utilities rate discounts can be made eligible for an annual rebate equal to the average annual gasoline consumption multiplied by the amount of the GHG allowance cost embedded in the gasoline price.  This rebate could be funded out of the state’s allowance revenue fund. For example, if the price is increased by 15 cents per gallon and the average automobile uses 650 gallons per year, an eligible household could receive $97.50 for each car.

About 30% of households are currently eligible for CARE or FERA. On a statewide basis, the program would cost about $650 million, which is comparable to the cost for CARE for a single utility like PG&E or Southern California Edison. Those legislators who are most concerned can coauthor legislation to put this program in place.

 

Think Globally, Act Beyond Locally

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Two blog posts of interest on how climate change policy needs to focus on the much bigger picture and not just on local, or even statewide, strategies. If local and state policies are not attractive and readily transferable to other jurisdictions then we’re wasting our time (, California…)  Getting the last ton can be counterproductive if it creates too much complexity or becomes politically unpalatable.
Severin Borenstein from UC Berkeley on California’s policies.

And Jeffrey Rissman from Energy Innovation on three policy approaches.