Good carbon policy needs good monitoring

Our water expert Froude Reynolds paddled by yesterday and threw this post on the dock:

This report discussing the potential revenues from an auctioned cap and trade carbon emissions program points out that offsetting increased costs to the very poor and compensating energy companies for increased costs to them would only take about 30% of revenues raised at auction. If the charge is set at about the right level, the same would be true for a carbon charge. Then you would have great big bags of money left over to splurge on (for example) developing other forms of renewable energy. That’d probably be a good use of that money, but before we rush off to spend it, there’s one other thing that auctioned revenue should cover: the costs of monitoring and verifying carbon emissions.

Mundane as the insight is, it matters a lot that a carbon market be rigorously tethered to real emissions. My air quality friends tell me it isn’t that hard to do. Eight hundred or so large sources generate 94% of point-sources; most already have Continuous Emissions Monitoring Systems installed in their stacks. In our modern world, those monitoring systems should be (but arent yet) sampling carbon emissions every few seconds, then automatically reporting that data to an online public database. The California Air Resources Control Board estimates it will take $21M-$30M/year for reporting and verifying. That’s a small chunk out of auction revenues, but it is important that monitoring, verifying and enforcement have dedicated funding from this revenue. The alternative is what happens over on the water side of things.

The State Water Resources Control Board is supposed to monitor and enforce water rights throughout California. The analogy to carbon emissions isn’t that far-fetched: water diversions are spread throughout the state; there are large and small diversions; people individually put in physical systems to take water out of creeks and rivers; for both, the incentive structure is a Tragedy of the Commons. The State Water Board has paper records for every water right and diversion in the state, knows exactly how much each diverter should be taking when. But the State Water Board has no idea what is happening in the physical system. Eleven people are responsible for covering the entire state of California and checking whether diverters are taking the amount of water they are allowed at the times they are allowed. That’s just the legal diversion points. Unless someone complains, they have no way to know whether there are illegal pumps or siphons in rivers. There’s no patrol that actually goes to rivers to catch water theft. It doesn’t look like they catch a lot of people, either. Two actions in 2008, one in 2007, three in 2006, two in 2005. It might be that rivers are informally policed by locals who want formal water rights enforced. But it is more likely to mean that people take theirs (largely lawfully, unlawfully in some part) the fish have no way to complain and the State Water Resources Control Board never knows the difference.

This is not good enough for a carbon market, but it is what happens when monitoring and enforcement is left to the bizarre California budget process. There aren’t many constituencies lobbying for mundane things like monitoring and enforcement. [comment from MO’H: California? More than twenty years ago my wife was contracted to write a piece for the Audubon Society in Massachusetts called “How to lobby the budget,” because environmental advocates kept getting good laws passed that came up empty after enforcement and implementation were shorted in the budget.]

In tight times, it is easy to winch your staff down to paper trackers in Sacramento, especially when the governor is requiring an across-the-board ten percent budget slash for every state agency. Given that an auctioned cap and trade system would have considerable monies left after relieving increased energy costs on the poor, some of those should be dedicated to building and sustaining a rigorous monitoring and verification program for greenhouse gases. That’s the only way to be sure that your market is reducing these intangible invisible tiny things. I know that the Air Resources Board is putting a lot of thought into creating the right structures for a cap and trade system. Since we’re starting from scratch rather than dealing with a hundred year old evolved and accreted water rights system, there’s a great opportunity to get the monitoring portion right. Without money dedicated to that purpose, it is not ridiculous to say that the market could become entirely unmoored from the physical system. Sadly, there’s an equally important example of that happening right now.

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.