Changing Political Landscape and Paths Forward
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Transcript of Changing Political Landscape and Paths Forward
Changing Political Landscape and Paths Forward
Dallas BurtrawFebruary 9, 2010
Alternatives for US policy• Waxman-Markey/Kerry-Boxer• Energy leg., electricity-sector only
leg., standards• Cantwell-Collins (dividends)• Clean Air Act
The current situation?
The Waxman-Markey/Kerry Boxer approach solves many problems (competitiveness, low
income, electric utilities, cost) and suffers under the biggest one (allocation).
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0 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0
Percent of Emissions
Do
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Area of Rectangle= Allowance Value
Marginal Cost Schedule
Area of Triangle = Resource Cost
100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0
Percent of Emissions
Do
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Area of Rectangle= Allowance Value
Marginal Cost Schedule
Area of Triangle = Resource Cost
Partial Equilibrium Costs in Cap-and-Trade
PA
How households are affected depends much more importantly on what happens to the rectangle than on the size of the triangle.
Common Pool Resource1. Nonexcludable2. Depletable
Philosophical reference: the resource is owned in common.
Public Antagonism1. Wall Street shouldn’t get it2. Government shouldn’t get it3. Whose money is it anyway?4. Uncertainty…
• Climate change poses an extraordinary coordination and cost-sharing challenge.
• That challenge is amplified by the fundamental uncertainty about climate science.
• Economic response and technological change add additional uncertainty about costs.
• We find that policy implementation adds further uncertainty with respect to the effects on households.
• The more complex the policy, likely, the greater will be the uncertainty for individual households.
Does Policy Propagate Uncertainty?
Three Uncertain Aspects (2016):LDC Provisions, Renewables & Technology, Energy Efficiency*
Modeling H.R. 2454:
Net Avg CS Loss per hh
Allowance Price
OPTIMISTIC WAXMAN-MARKEY $137 $13.20
PESSIMISTIC WAXMAN-MARKEY $421 $23.43
75% CAP-AND-DIVIDEND $228 $17.37
Consumer Surplus Loss by Income Quintile
Avg
The Middle Class Energy Tax
Uncertainty fuels the notion that the technocrats don’t know what they are doing.
If the little guys can’t understand what is happening, the big guys win.
…The devil is in the details.
Options for Allocation
1. Interest group politics2. Surgical allocation to address leakage3. Invest4. Return to consumers
a. dividendsb. tax reform
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National Comparison
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Income Deciles
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Dark Blue: Effect of cap/taxLight Blue: Net effect after accounting for revenue
- National Tax Journal 2009
Cap and Dividend(nontaxable)
Income Deciles
Permit Price $20.87
Public finance view:achieve efficiencyuse other tools to achieve distributional goalsFor example, couple climate policy with separate tool for income redistribution
Common pool resource view: achieve fair, popular climate policyuse other tools to achieve efficiencyFor example, couple with reform of the tax preference for home mortgages
Strategy: Reinvest Dividends Couple with existing education, incentive programs Tax preferred expenditures Borrow future year dividends at zero-interest Tax-free revolving loan funds (Nudge) More
How will households designate the value that may be returned to them through dividends?
Thank you
LDC Provisions and Energy Efficiency/Technology Development in 2016
OPTIMISTIC CASE PESSIMISTIC CASE Percent Electricity LDC Allocated through fixed
charge on electricity bills Allocated through variable charge on
electricity bills
30.00
Various electricity efficiency provisions
Electricity consumption reduced at 2.8 cents/kwh
maps into $54/ton*
Revenue lost 5.30
Development of CCS technology Abatement at $50/ton** Revenue lost 1.75 Renewable energy Abatement at $34/ton** Revenue lost 3.39
Clean vehicle technology Abatement at $75/ton** Revenue lost 3.00 SUBTOTAL 43.44 *Affects households through both lower electricity bills and lower allowance price. **Affects households through lower allowance price.
Modeling H.R. 2454:
Remaining Provisions Held Constant
Percent Natural gas LDCs, home heating oil, some energy efficiency, trade vulnerable industries
Captured in MAC curve
25.44
Low-income consumers Per-capita dividend to low income households 15.00 Merchant coal, refiners Shareholders 7.25 Adaptation provisions Per-capita dividend to all households 2.64 International provisions Lost revenue overseas 7.00 SUB-TOTAL 57.33
Electricity Price Effects of Allowance AllocationAuction
Free Allocation to Generators
Free Allocation to Consumers (LDCs)…But, Allowance
Price Increases by 12-15% With Subsidy to Elec. Consumption
Reduces Price only in Regulated Regions
Efficiency Advantage Lowest Social Cost but Higher Prices