Mark Jaccard’s article in Policy Options has generated a lot of interest. It is a provocative article that challenges the economic orthodoxy that prioritizes carbon pricing above all else. Jaccard calls for a host of “smart” regulations that progressively introduce zero-emission technologies within specific sectors such as vehicles, electricity, housing, and appliances. “Political reality” is the reason he calls for this broader mix of regulatory policies, usually grudgingly accepted by economists as “second best”.
It is refreshing to see an economist recognizing the need for a political analysis. Yet, Jaccard does not explain the dynamics that cause some regulations to be more politically successful. Regulatory strategies can encounter the same difficulty as carbon pricing. If the benefits of environmental improvements are spread across a large number of people, and regulatory costs are borne by a powerful few, the powerful losers tend to block the policies through political mobilization. Regulatory policies are sustainable when there are clear beneficiaries who can mobilize politically. Insights from political science discuss the role of positive feedback between policies and the political coalitions that support those policies. How to create political coalitions and political bargains is the key question.
Citizen mobilizations for cleaner air were responsible for both Ontario’s coal phase out regulations and California’s vehicle standards, which Jaccard celebrates. The clear beneficiaries of the policies were citizens concentrated in Toronto and Los Angeles, respectively. Sometimes the beneficiaries of a policy aren’t as easy to organize. In these cases, progressive policy reformers can create the social and technological conditions that prepare society and markets for new regulatory standards.
One way to smooth the way for new regulatory standards is to promote technology demonstrations, green labels, retailer education, and to create initial markets for low-carbon technologies by offering direct incentives to consumers. Energy efficiency program administrators have experience running these “market transformation” programs in appliance sectors, and similar strategies can be used to pave the way for stronger regulations in transport and housing sectors.
Direct government involvement in technology development also influences the stringency and design of regulations. Jaccard praises the California vehicle standards, which helped create a market for hybrid vehicles. It is important to realize that the most successful hybrid – the Toyota Prius – did not come out of nowhere. It evolved out of decades of Japanese industrial policy exploring low emission vehicles through a complex process of trial-and-error learning.
The California standards also provide a story of losing regulatory momentum. Regulators relaxed the standards when US car companies resisted vehicle electrification and promised that they would introduce hydrogen-based future if given more time to develop the technology. The softened standards led to a lost decade in the electric vehicle industry. Political and economic momentum might have been sustained if the US government had pushed the transport sector into developing zero to low emission vehicle technologies earlier.
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There is also a role for embedding technologies within society. New regulations and technologies can increase social inequalities and create new social frictions, but there is also an opportunity to create political bargains with a wider policy mix. For example, California’s suite of climate policies have stronger buy-in because of provisions to ensure low-income citizens can participate in the energy transition through rate designs, as well as solar and energy efficiency programs that ensure energy affordability.
So if we are serious about implementing meaningful carbon pricing and regulations we need to think about creating the political dynamics that reinforce these policies. This calls for a much wider policy mix, including well designed energy efficiency and energy poverty programs, policies that “transform” and prepare markets, and green industrial policies that help create and diffuse new technologies.
While Jaccard makes an important contribution by opening up the policy discussion beyond carbon pricing towards regulations he does not seem prepared to accept that a broader suite of policies might have an important role to play. In fact, he leads off his article by dismissing energy efficiency, stating that “for three decades, governments and utilities have made efficiency the focus of their emission reduction efforts, with negligible results”. This is an odd statement, because federal efficiency programs have been inconsistent and none of the Canadian provinces are achieving the levels of savings seen in leading US states such as Massachusetts, Vermont, and California. (Nova Scotia was getting close, but the provincial government capped the energy efficiency budget). Energy efficiency is a low-carbon climate solution that shouldn’t be dismissed. Especially because well designed energy efficiency strategies can play a valuable role in transforming markets and creating political bargains.
So policymakers and climate activists should heed Jaccard’s advice in taking politics seriously. I would suggest that doing so requires thinking more about the kind of policy mix needed to reinforce economic transformations and paying less attention to economists fixated on “first-best” and “second-best” policy instruments, while dismissing everything else.