Feldstein on cap-and-trade

Martin Feldstein, whose intelligence often falls short of his own very high estimate thereof, pitches a few at the Waxman-Markey global warming bill this morning in the WaPo. That the giveaway of allowances, now up to 85%, is a terrible mistake explicable only by really disreputable cowardice in Congress, is a perfect strike. This legislation is having its teeth pulled before our eyes by the most self-serving circle-the-wagons behavior of regional interests, especially (at the moment) coal states. It is enabled by a desperate desire to have climate control without any actual consequences for anyone except maybe the Chinese. As long as they don’t raise prices on any of the stuff they sell us, of course. It was claimed in some circles that cap-and-trade would be preferable to a carbon charge because it would be less liable to political hanky-panky; right.

Feldstein correctly understands that there is no distinction between “higher prices for carbon-intensive stuff”, which especially and radiantly includes electricity made from coal, and climate stabilization. If you won’t accept the former, get ready to take in refugees from coastal cities. He makes the point, which needs to be shouted from the rooftops, in a rather indirect way; OK, this one gets the corner of the plate and I’ll give him another strike.

Finally, he asks us to compare $1600 per family to a 15% reduction in US CO2 output, noting that this is only 4% of world CO2 release, and proposes that we “wait until there is a global agreement on CO2 that includes China and India before committing to costly reductions in the United States.” Dang, struck batsman goes to first! This is the kind of putatively hard-headed thinking that makes people ridicule economists, but even economists understand the principles of a common-property resource and the prisoners’ dilemma, which Feldstein seems to have missed entirely.

First, to believe that Feldstein’s notional treaty, with sacrifice from poor countries first, can be achieved with no meaningful commitment by us after eight years of the US government straight-arming any climate change action, one has to think the Indians and Chinese to be world-class chumps. His recommendation might apply to a world with a different history and different players. But it isn’t even theoretically sound on that planet, because climate change benefits are not like local pollution reduction. They are instantly diluted across the whole world, so a net-beneficial investment of $1 that brings $1.10 of stabilization benefits to 7b people only brings our 300m about 4c worth. With that kind of calculation, climate stabilization is doomed and we are f_cked: if we think the rest of the world is going to step up and cool the planet, we’re better off doing nothing and free-riding on their efforts. And if we think the rest of the world is going to flake, we’re better off doing nothing than being chumps in the sense of Sonny Corleone.

The whole climate change enterprise has to proceed on the basis of a much more complicated, and other-regarding, philosophy, regarded as a game in which our willingness to incur costs with no certainty of reward (and if not us, who? and if not now, when?) changes the probability that others will do so. The ethics and political science applicable here are analyzed here [about 45s into the clip] and the consequences of getting it wrong here. We will more likely get it right to the extent that people like Feldstein don’t throw crossties across the tracks to show how smart and tough-minded and unsentimental they are, especially when they are as careless with the facts as David Roberts shows him to be. Even with a somewhat different strike zone, Feldstein doesn’t do any better.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.