To Design Good Climate Policy, Think Politics First and Often

What the Green New Deal gets that the carbon tax misses

By Nathan Lobel*
February 26, 2019

Image: Nelson Klein/Sunrise Movement

In October, the Intergovernmental Panel on Climate Change (IPCC) reported that we have little more than a decade to stave off climate catastrophe. Avoiding such a fate, the panel warned, “would require rapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and buildings), and industrial systems… unprecedented in terms of scale.”

Punctuating a year of natural and political climate-related disasters, the IPCC report sparked renewed calls for action. Economists, environmentalists, and policy elites took to the nation’s opinion pages with a common prescription: to fight climate change, Congress should put a price on carbon, thus “internalizing” the social cost of fossil fuel consumption.

From one perspective, converging on carbon pricing makes lots of sense—after all, carbon prices are often thought to be the most efficient means to mitigate climate change.

But, despite its theoretical utility, carbon pricing has also struggled to deliver the real and drastic emissions reductions that we so desperately need. A decade after President Obama’s attempt to price carbon flared out in 2010, carbon pricing and its disciples have found minimal political success. Even in Washington state, where climate ambition is among the strongest in the country, three separate attempts to tax carbon have similarly floundered.

Given carbon pricing’s underwhelming political performance, one has to wonder: why has carbon pricing remained such an article of faith for so many of the climate concerned? Might it be more strategic to explore other types of climate policies as well, like the command-and-control regulations favored by environmentalists of generations past or the Green New Deal advocated by Congresswoman Alexandria Ocasio-Cortez?

Political Sensitivity in Policy Analysis

The continued orthodoxy of carbon pricing advocacy reflects more about the process through which policies become considered “best practice” than it does about carbon pricing’s objective policy superiority. Through this lens, the same problems that dog the climate policy debate apply in other policy fora as well.

In no small part, policies derive legitimacy through the network of “experts”—academics, think tanks, and non-profit organizations—that analyze policies’ impacts in a given realm. The resulting analyses often rest on calculations that weigh policies’ expected benefits against their associated costs. “Best” policies are often assumed to be those projected to deliver policy objectives most efficiently in technical and economic terms.

However, such calculations overlook the politics of policymaking, which inform whether anticipated efficiencies are realized in practice. While these analyses can tell us a lot about expected impacts of adopted policies in theory, they tell us very little about how likely it is that policies will actually be adopted, or how advocating for them will impact efforts to advance complementary measures. They also do little to help advocates select among policy alternatives to achieve objectives at least political cost—those that are most politically efficient.

For the purposes of this blog, I focus predominantly on U.S. political systems, but the fundamental takeaway—that policy design and selection should be based on a combination of technical and political efficiency considerations in order to maximize impact—applies more broadly.

Unpacking Political Efficiency

Of course, political cost is more difficult to quantify than economic cost.

Nevertheless, analysts can begin to approximate policies’ political cost by understanding key decision-makers’ interests and incentives, and their effects on appetite for policies. For example, elected officials might be assumed to be more willing to adopt popular policies than unpopular policies, rendering unpopular policies more “costly” to pass.

Though popularity depends on factors beyond only policy content, technocrats can still craft policies strategically to foster political support. Broadly speaking, by assuming that people like policies that benefit them, and dislike policies that impose costs on them (whether in the form of taxes, bureaucracy, or constrained choice), policymakers can craft or choose policies with an eye toward popularity (or at the very least select against those likely to be very unpopular or politically costly).

In addition to the benefits and costs that policies deliver, the distribution of those benefits and costs also matters. We might expect, for example, policies that deliver benefits to broad constituencies to be more popular, and therefore less politically costly to advance, than policies that deliver benefits to narrow constituencies at broad constituencies’ expense.^[1]

However, policy popularity depends not on the real distribution of resulting costs and benefits, but rather on how those costs and benefits are perceived by the public. For that reason, political popularity will also vary in response to the extent, directness, and immediacy with which costs and benefits are experienced by various constituencies.

More “visible” benefits and costs can be expected to influence support more directly than “hidden” benefits and costs. Clearly attributable benefits, like public schools, may garner more support than less visible benefits, like tax credits for parents who send their kids to private schools; conversely, an income tax may elicit more political ill will than a value-added tax folded into the price of goods.

Integrating Political Cost into Climate Policy Analysis: A Case Study

Which brings us back to climate policy. These visibility and distributional concerns make the politics of climate policy tricky: mitigating climate change is often assumed to deliver diffuse benefits to future generations, while resulting costs can seem particularly immediate and concrete.

When economic theory and political reality collide

To date, economic efficiency analysis has often dominated climate policy debates, at times leading advocates to advance seemingly optimal policies that have found little political support nor practical success. More often than not, as we saw in the wake of the IPCC report, that “optimal” policy is thought to be a carbon price. By allowing actors to allocate spending freely in response to more accurate price signals, the argument goes, carbon pricing would reduce emissions more efficiently than public investments or strict climate regulations. It has, for that reason, won the support of a diverse and impressive array of policy elites, including Nobel prize-winning economists like William Nordhaus, progressive heroes like Bernie Sanders, former Republican Cabinet officials like James Baker, and even oil companies like ExxonMobil (at least nominally).

Unfortunately, however, the design of carbon pricing schemes often yields highly visible costs with few tangible present-day benefits. At least in part because of this, carbon pricing has had little political appeal, even in places where appetite for climate action is high.

Some recent carbon pricing proposals seem to recognize this, trying to provide visible benefits in policy design, either by returning revenues directly to citizens or investing revenues in communities. However, the high costs associated with carbon taxes have left these proposals nevertheless struggling to gain political traction.

Given this reality, Justin Gillis of the New York Times has argued that climate advocates should “Forget the Carbon Tax for Now.” Without criticizing carbon pricing on policy grounds, Gillis worries that “the climate movement has… turned this potentially useful tool into a fetish,” with non-trivial opportunity costs. “Invariably,” he writes, wherever carbon prices have been adopted, “huge political capital was spent to push through a carbon price too low to spur the rapid reductions in emissions that we need.” (By the Economist’s calculations, while roughly one-fifth of global emissions are subject to some sort of carbon price, “only about 1% of emissions subject to such schemes face a price as high as $40 per tonne of carbon dioxide, the bottom of the $40–80 range deemed necessary to limit warming to no more than 1.5°C.”).

In other words, even when carbon pricing has overcome the political hurdles to adoption, it has been in such a watered down form that it no longer delivers the anticipated benefits that made it the preferred policy in the first place.

Thus, embedded in political realities, the seemingly first-best option can become at best insufficient to achieve its original policy objectives, and at worst a costly distraction from other more viable alternatives.

A more robust real-world approach to evaluating policy options

Assessing proposed climate policies with respect to both economic and political efficiency, in contrast, might yield some valuable and surprising insights. Take the conservative Climate Leadership Council’s proposed climate policy (spearheaded by former Secretary James Baker noted above). Its carbon price package would: impose a $40/ton fee on emissions and return revenues to American families; roll back EPA climate regulations; and provide fossil fuel companies immunity from liability over their knowing contributions to climate change.

An economic cost-benefit analysis might find that such a policy would effectively reduce emissions at minimal overall economic cost. But a politically savvy observer would notice that it seems to trade relatively politically easy and popular emissions reduction tools, in the form of EPA regulations and civil liability, for politically costly carbon taxes. Even if this policy were to be adopted, it could hamstring our ability to implement other complementary policies needed to reach full decarbonization.

Instead, climate advocates should re-center proven and popular policies that deliver present-day benefit with less visible cost, like clean air regulations, clean energy mandates, and investments in green jobs and infrastructure.

New York Congresswoman Ocasio-Cortez and Massachusetts Senator Ed Markey have included these elements in their Green New Deal, which promises to leverage public investments and regulations to decarbonize the American economy, create millions of jobs, upgrade our infrastructure systems, and bridge historic economic and racial inequalities. Whatever you think of the policy, it would certainly represent the type of “unprecedented” transformation that the IPCC prescribes.

Notably, the Green New Deal’s proponents do not tie the policy to specific revenue generation tools. Instead, many suggest that it would be financed through congressionally authorized discretionary spending in the same way that schools, wars, and climate-related disaster relief are funded, though some suggest raising taxes on the extremely wealthy to ensure funding for all public goods (while others have waved off concern about how to pay for the policy altogether).

In doing so, the Green New Deal foregrounds visible benefits in the form of good jobs, renewable energy, and infrastructure improvements, while downplaying costs. This strategy seems to be working: the Yale Program on Climate Change Communication has found exceptional bipartisan support for the policy (although many voters still know little about it).

That popularity has also begun to trickle into political support. As of February 26th, 89 representatives and 11 senators had co-sponsored Ocasio-Cortez and Markey’s Green New Deal resolution, including at least five declared presidential candidates.

Conclusion

Comparing the potential costs and anticipated benefits across a range of policy options—economic or technical—will (and should) remain an important factor in crafting policy agendas and making policy recommendations. But theoretically smart policies are worth little without the political will and wherewithal to adopt and implement them effectively. When policymakers or advisors fail to consider political factors, they risk inefficient expenditure of political capital by advancing policy options that are unlikely to be adopted or implemented as intended.

Especially in cases where costs of inaction are catastrophically high, as for climate, they should instead advocate policies that have the greatest chance of achieving actual progress: those that maximize a combination of political savvy and economic efficiency, even if those policies might not appear optimal when evaluated on purely economic grounds.

Failing to do so can impede the achievement of critical policy objectives. On climate and so many other pressing policy challenges, we don’t have time to waste.

[1] For the purposes of this blog I do not address policy support among powerful and influential constituencies, though a more sophisticated political efficiency analysis would surely account for interest group influence and power in governance systems.

* Nathan Lobel is Special Assistant to the Director at the Columbia Center on Sustainable Investment. Leila Kazemi, Michael Ross, Michael Burger, Lisa Sachs, Hannah Sachs, and Sarah Fecht provided helpful comments and review.

This blog has also been posted on the Earth Institute’s State of the Planet.