Geoscience Reference
In-Depth Information
BALANCE SHEET ON ALTERNATIVE APPROACHES
This chapter has examined alternative approaches to raising carbon
prices as tools for reducing CO 2 and other greenhouse gases. To begin
with the positive side, it is clear that the economy is full of ineffi cient de-
cisions on energy use. The syndrome of energy-cost myopia seems perva-
sive among consumers. Carefully designed regulations in a few areas
can probably reduce CO 2 emissions at low or possibly zero cost.
Moreover, effi cient regulations can supplement and buttress carbon
price policies. Even if countries implement policies that raise carbon
prices using cap and trade or tax approaches, there will always remain
political uncertainties about whether the winds will shift and the regu-
lations or taxes will be reduced. In this environment, regulatory emis-
sions limits will ensure that businesses continue to move toward a
low-carbon economy through the changing political weather.
But the shortcomings of relying primarily on regulations are severe.
One problem is that undertaking most of the emissions reductions by
regulation would involve literally thousands of technologies and mil-
lions of decisions. Governments would be saying, “Do this, but don't do
that” about the entire economy. Realistically, governments do not have
suffi cient information to write regulations for the entire economy.
Additionally, people in market democracies will not tolerate so much
intrusion into their lives.
This leads to the second point: Regulatory policies alone cannot
come close to solving the global warming problem by themselves. It is
impossible to design regulations for every sector, energy good, and ser-
vice. So while governments can write regulations for automobile fuel
effi ciency, they cannot realistically order people not to drive or order
airlines not to use jet fuel.
Third, regulations can be very costly or even counterproductive if
they are not carefully designed. The example of ethanol subsidies in the
United States is a reminder that seemingly sensible policies can end up
worthless or even counterproductive.
Given the unfavorable record of the regulatory approach, you might
wonder why governments universally employ regulatory tools when
 
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