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Bruce Yandle on "no regrets", free-market approaches to climate change policy

April 4th, 2008 No comments

Bruce Yandle, Professor of Economics Emeritus at Clemson University and Senior Fellow at PERC (the “free market” environmentalism think tank founded by John Baden and now headed by Terry Anderson), has an article in PERC`s latest monthly report, in which he offers his thoughts on climate policy in the US: “A No-Regrets Carbon Reduction Policy”, http://www.perc.org/pdf/spr08%20Carbon%20Reduction.pdf.  Yandle is a respected thinker on common-law and free-market approaches to environmental problems.

I present here the “TT Notes” precis of Yandle-sensei`s article.

Yandle first notes that “most of our wealth-producing engines exhale carbon. Population growth and longer life expectancies mean more carbon dioxide emissions. More gross domestic product (GDP), translates into more carbon emissions. Proposals for dramatic, short-run reductions are not just costly in dollars, they are draconian in terms of human well-being.”

Notwithstanding the costs of GHG-control efforts, Yandle specifically notes that many economic actors are already quite active in this endeavor (in a manner that indicates they obviously consider the science sufficiently convincing and the costs merited by potential gains):

“There are a vast number of carbon reduction activities taking place in the developed world, with many involving major U.S. firms. … There is a developing regional trading community composed of 10 northeastern states. … Carbon offsets produced by Iowa farmers who modify how they plow fields are purchased by Canadian industrial firms.”

But aside from ongoing private efforts – including those in response to regulatory approaches adopted elsewhere – what public policy approaches might be most efficacious domestically? Yandle asks,

“Can free market environmentalism (FME) provide guidance as to which policies might best promote human well-being? Consider these principles:

• Incentives matter.

• Property rights that reward asset managers improve environmental outcomes.

• Competition among suppliers of goods desired by consumers generates a larger yield.

• Decentralization increases experimentation, leading to more innovation and environmental quality at lower costs.”

Yandle suggests that policy makers should consider at least four important policy considerations (aside from being careful not to cater only to special interests):

“1. To what extent is the United States a net carbon dioxide emitter, and are we as a nation equipped to determine when and how much progress is made in reducing emissions? Should we establish procedures to evaluate legislative actions in terms of their carbon emission impact?  [Yandle doesn`t discuss the baseline efforts that have been underway for years.]

2. What about actions that might be taken to hasten the adoption of lower carbon-emitting processes? Is it possible to adopt a “no regrets” policy — one that will generate net benefits even if Americans later reduce their concern about climate change?

3. Simultaneously, if climate change is occurring, what are the actions that might be taken to encourage human adaptation? Can these be framed as “no regrets”?

4. Why have a one-suit-fits-all climate change policy that applies nationwide, if not worldwide? Why not encourage experimentation across the United States?”

With respect to possible “no-regrets” policies, Yandle indicates that, so far, “Less attention has focused on longer-term decisions that will support targeted research and development, increase capital turnover, encourage new technologies, and hasten the expansion of safer nuclear power plants that eliminate carbon emissions entirely. These actions could form a “no regrets” bundle.”

“Taking an FME-based, no-regrets approach to carbon reduction will recognize that:

Deeply rooted technologies and energy sources can and will be replaced by alternate technologies and non-carbon emitting energy sources;

Rapid depreciation of existing capital and reductions in capital gains and corporate taxes will hasten adaptation; and

Subsidies and regulations that distort energy consumption and investment decisions and increase carbon emissions should be eliminated.”

In particular, Yandle argues that “Higher corporate taxes of all forms discourage formation of new capital, which delays the introduction of cleaner technologies. Eliminating capital gains taxes, reducing corporate income taxes, and accelerating depreciation would get the incentives right for replacing high carbon emitting machines and activities with cleaner processes. Doing so would also increase U.S. GDP and employment growth—a “no regrets” outcome.”

Yandle also argues that nuclear power should be encouraged: “Nuclear power produces no carbon emissions but it does come with some risks. To protect community property rights, the current liability cap provided to utility companies by Congress should be reevaluated in terms of experience and preferences for risk reduction. Property rights should be protected with a mean- ingful liability rule. Yes, there is nuclear waste to deal with, but this too can and should be addressed by the federal government. Developing an expedited nuclear power plant approval process and eliminating the nuclear waste bottleneck would contribute to a long-run reduction in carbon emissions—another “no regrets” policy.”

Query to Austrians – is Yandle rights by implicitly concluding that concerns about climate change present opportunities?  Or do such concerns only present costs and risks, to be avoided at all costs?

Yandle`s other work is described here: http://www.perc.org/about.php?id=711

http://www.fee.org/publications/the-freeman/article.asp?aid=4064

http://www.econtalk.org/archives/2007/10/yandle_on_the_t.html

 

 

 

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