The Volokh Conspiracy - Sunstein and the Political Economy of Climate Policy:

No international agreement to control greenhouse gas emissions will have a meaningful effect on future projections of global climate change without the active participation of the United States and China. Yet as University of Chicago law professor Cass Sunstein argues in his paper, "The Complex Climate Change Incentives of China and the United States," neither nation has much of an incentive to participate in such a regime. Whatever the global benefits of an international emission-control regime, the U.S. and China are unlikely to agree to such an agreement given the existing economic incentives they each face. According to Sunstein, there are two possible solutions. The first would be to alter each nation's perceived ratio of costs to benefits for emission controls. The second would be for the two nations to recognize a moral obligation to limit greenhouse gas emissions so as to limit likely adverse effects on the most vulnerable parts of the world.

I served as a commenter on Sunstein's paper at a recent conference on cost-benefit analysis sponsored by the Searle Center at the Northwestern University Law School. Following is a summary of my comments.

As an initial matter, Sunstein's analysis provides a useful, albeit sobering, dose of realism to climate policy discussions. Among other things, it helps illustrate how economic realities reinforce political resolve against significant emission controls. Yet Sunstein's analysis also has its limits. In particular, his reliance upon nationwide estimates of costs and benefits is ultimately of limited value in assessing the likelihood of political action in the United States. As public choice analyses have demonstrated, national policy is not always driven by aggregate costs and benefits for the nation as a whole. Rather, various interest groups with concentrated costs or benefits often drive policy decisions at the expense of taxpayers and consumers. As a result, we often see the adoption of national policies for which the nationwide costs clearly exceed the benefits, but which provide concentrated benefits to powerful lobbying groups. Trade policy is rife with such policies, but it is hardly the only context in which this occurs in the United States.

At the same time, interest group pressures can prevent the adoption of economically optimal policy measures. Consider the possibility of a carbon tax. Such a tax would reduce greenhouse gas emissions and increase energy conservation. Assume for the moment that such a tax could be adopted in a revenue neutral manner by replacing existing corporate taxes and excises, and that such a shift in tax policy would not compromise economic growth. Even under such assumptions, it is quite likely that those interest groups most likely to bear the brunt of such a policy change would mobilize against it, and that the built in inertia within the political system would prevent its adoption. I do not know whether China is subject to the same sorts of pressures, but the United States is hardly the only nation in which such public choice problems can be observed.

Despite this caveat, Sunstein is correct that a shift in the perceived costs and benefits of climate mitigation measures will increase the likelihood such measures will be adopted. The Bush Administration's climate policy initiative, such as it is, embraces this sort of approach insofar as it seeks to encourage the deployment of advanced energy technologies and reduce the carbon intensity of the U.S. economy. More aggressive policies of this sort might seek to provide super-competitive returns for low-emission energy technologies (such as through prizes), reduce regulatory barriers and transaction costs for alternative energy sources, or a shift in tax policy, such as that suggested above. Unfortunately, there is relatively little serious discussion of policy proposals designed to reduce the costs or increase the benefits of emission reducing measures. It is simply assumed that if regulatory controls are adopted, the necessary innovation will come. Unfortunately it does not always work this way. See, for instance, California's efforts to mandate the sale of electric cars.

Sunstein is also correct that were Americans to become convinced that they are under a moral obligation to prevent or reduce the climate-related risks faced by developing nations, the political process might respond with meaningful policies. Here, however, it is important to note that the recognition of such a moral obligation would not necessarily lead to the embrace of emission control measures, and almost certainly would not result in the adoption of emission controls to the exclusion of other risk-reducing measures. Rather, the likely outcome would be the adoption of a mix of emission reduction and adaptation measures, and it is quite possible that the latter would predominate.

To illustrate this point, consider the following thought experiment. Imagine that anthropogenic contributions to climate change were recognized as nuisance under international law -- an action that violates the property rights of harmed nations -- and that there was some institutional mechanism to enforce such property interests in a bilateral context. Assume further that the property interest were protected by a property rule -- that is, assume that a threatened developing nation, such as, say, Bangladesh, could seek injunctive relief against the United States. Would this mean that Bangladesh would seek the imposition of dramatic greenhouse gas emission controls in the United States? Or would Bangladesh prefer compensation for the violation of its property rights in the form of foreign aid, development assistance, disaster preparedness, and the like. Given the choice of indemnification and adaptive assistance or the imposition of emission controls on the United States that could have negative implications for the global economy, on what basis would we assume that Bangladesh would prefer the latter? When one considers many predicted climate change impacts, including sea-level rise and a shift of disease vectors, investments in adaptation purchase greater risk reduction than even stringent emission limits in the near-to-medium term. Therefore, if we assume that developed nations would behave rationally, they might well prefer adaptation assistance over emission control.

The point of this thought experiment is to illustrate that the acknowledgement of a moral obligation on the part of the United States to reduce the harm of its greenhouse gas emissions on other nations is not sufficient, by itself, to make the case for emission controls. To the contrary, insofar as adaptive measures offer more cost-effective risk reduction, the United States might actually have a moral obligation to support such measures in the near-to-medium term before embracing emission limitations that could have substantial negative economic repercussions around the globe.

These comments notwithstanding, the Sunstein paper makes a useful contribution to the study of the political economy of climate change policy, and I look forward to reading his continuing contributions to the climate policy literature.

	[Jonathan Adler, November 12, 2007 at 10:37pm] Trackbacks Sunstein and the Political Economy of Climate Policy: No international agreement to control greenhouse gas emissions will have a meaningful effect on future projections of global climate change without the active participation of the United States and China. Yet as University of Chicago law professor Cass Sunstein argues in his paper, "The Complex Climate Change Incentives of China and the United States," neither nation has much of an incentive to participate in such a regime. Whatever the global benefits of an international emission-control regime, the U.S. and China are unlikely to agree to such an agreement given the existing economic incentives they each face. According to Sunstein, there are two possible solutions. The first would be to alter each nation's perceived ratio of costs to benefits for emission controls. The second would be for the two nations to recognize a moral obligation to limit greenhouse gas emissions so as to limit likely adverse effects on the most vulnerable parts of the world. I served as a commenter on Sunstein's paper at a recent conference on cost-benefit analysis sponsored by the Searle Center at the Northwestern University Law School. Following is a summary of my comments. As an initial matter, Sunstein's analysis provides a useful, albeit sobering, dose of realism to climate policy discussions. Among other things, it helps illustrate how economic realities reinforce political resolve against significant emission controls. Yet Sunstein's analysis also has its limits. In particular, his reliance upon nationwide estimates of costs and benefits is ultimately of limited value in assessing the likelihood of political action in the United States. As public choice analyses have demonstrated, national policy is not always driven by aggregate costs and benefits for the nation as a whole. Rather, various interest groups with concentrated costs or benefits often drive policy decisions at the expense of taxpayers and consumers. As a result, we often see the adoption of national policies for which the nationwide costs clearly exceed the benefits, but which provide concentrated benefits to powerful lobbying groups. Trade policy is rife with such policies, but it is hardly the only context in which this occurs in the United States. At the same time, interest group pressures can prevent the adoption of economically optimal policy measures. Consider the possibility of a carbon tax. Such a tax would reduce greenhouse gas emissions and increase energy conservation. Assume for the moment that such a tax could be adopted in a revenue neutral manner by replacing existing corporate taxes and excises, and that such a shift in tax policy would not compromise economic growth. Even under such assumptions, it is quite likely that those interest groups most likely to bear the brunt of such a policy change would mobilize against it, and that the built in inertia within the political system would prevent its adoption. I do not know whether China is subject to the same sorts of pressures, but the United States is hardly the only nation in which such public choice problems can be observed. Despite this caveat, Sunstein is correct that a shift in the perceived costs and benefits of climate mitigation measures will increase the likelihood such measures will be adopted. The Bush Administration's climate policy initiative, such as it is, embraces this sort of approach insofar as it seeks to encourage the deployment of advanced energy technologies and reduce the carbon intensity of the U.S. economy. More aggressive policies of this sort might seek to provide super-competitive returns for low-emission energy technologies (such as through prizes), reduce regulatory barriers and transaction costs for alternative energy sources, or a shift in tax policy, such as that suggested above. Unfortunately, there is relatively little serious discussion of policy proposals designed to reduce the costs or increase the benefits of emission reducing measures. It is simply assumed that if regulatory controls are adopted, the necessary innovation will come. Unfortunately it does not always work this way. See, for instance, California's efforts to mandate the sale of electric cars. Sunstein is also correct that were Americans to become convinced that they are under a moral obligation to prevent or reduce the climate-related risks faced by developing nations, the political process might respond with meaningful policies. Here, however, it is important to note that the recognition of such a moral obligation would not necessarily lead to the embrace of emission control measures, and almost certainly would not result in the adoption of emission controls to the exclusion of other risk-reducing measures. Rather, the likely outcome would be the adoption of a mix of emission reduction and adaptation measures, and it is quite possible that the latter would predominate. To illustrate this point, consider the following thought experiment. Imagine that anthropogenic contributions to climate change were recognized as nuisance under international law -- an action that violates the property rights of harmed nations -- and that there was some institutional mechanism to enforce such property interests in a bilateral context. Assume further that the property interest were protected by a property rule -- that is, assume that a threatened developing nation, such as, say, Bangladesh, could seek injunctive relief against the United States. Would this mean that Bangladesh would seek the imposition of dramatic greenhouse gas emission controls in the United States? Or would Bangladesh prefer compensation for the violation of its property rights in the form of foreign aid, development assistance, disaster preparedness, and the like. Given the choice of indemnification and adaptive assistance or the imposition of emission controls on the United States that could have negative implications for the global economy, on what basis would we assume that Bangladesh would prefer the latter? When one considers many predicted climate change impacts, including sea-level rise and a shift of disease vectors, investments in adaptation purchase greater risk reduction than even stringent emission limits in the near-to-medium term. Therefore, if we assume that developed nations would behave rationally, they might well prefer adaptation assistance over emission control. The point of this thought experiment is to illustrate that the acknowledgement of a moral obligation on the part of the United States to reduce the harm of its greenhouse gas emissions on other nations is not sufficient, by itself, to make the case for emission controls. To the contrary, insofar as adaptive measures offer more cost-effective risk reduction, the United States might actually have a moral obligation to support such measures in the near-to-medium term before embracing emission limitations that could have substantial negative economic repercussions around the globe. These comments notwithstanding, the Sunstein paper makes a useful contribution to the study of the political economy of climate change policy, and I look forward to reading his continuing contributions to the climate policy literature.