This commentary was originally published by The Regulatory Review. Reprinted with permission.
While most people were following the developments at the G20 meeting and the Climate Change Summit last week, or immersed in watching the outcomes of key elections in several states such as Virginia and New Jersey, I was waiting to learn the results of a referendum in Maine.
Last Tuesday, Maine voters approved a measure that prohibits the construction of a transmission line that would have delivered hydropower generated in Quebec to New England. New Hampshire refused to permit construction of the same transmission line last year.
The largely ignored vote in Maine may have a greater effect on the future of the United States than any of the highly publicized events of the past week. When states and localities block electricity transmission projects that are in the national interest, they threaten the country’s ability to mitigate climate change.
Effective climate change mitigation depends critically on the ability to substitute electricity for gasoline as the primary transportation fuel and to substitute carbon-free fuels for fossil fuels as the country’s primary source of electricity.
But the nation’s electricity transmission grid is woefully inadequate to accomplish these …
Editor’s Note: This is the second of two posts. Yesterday’s examined the need for a carbon tax as a way to reduce carbon emissions.
Real-time pricing of electricity is a logical complement to a carbon tax. Economists are fond of saying: “First, get the price right.” What they mean is, if we can take the actions needed to price a good or service at its full social cost, including externalities, we will have much less need to use crude and blunt instruments, like command and control regulation, to get results that maximize social welfare. By placing an appropriate price on carbon, we will take a major step in the direction of getting the price of electricity right by reflecting the social cost of the GHGs used to generate electricity in the price of electricity. We can complete the process of getting the price of electricity …
Editor’s Note: This is the first of two posts on market-based approaches to reducing carbon emissions. Today’s focuses on a carbon tax; tomorrow’s on real-time pricing of electricity.
There is a broad consensus among economists that we will not be able to mitigate climate change efficiently and effectively unless we place a price on carbon. Placing a price on carbon of $40 per ton or more would discourage use of carbon-based fuels. That, in turn, would reduce significantly the quantity of carbon dioxide, the most important greenhouse gas (GHG), that is emitted into the atmosphere.
Placing a price on carbon creates powerful incentives of two types. First, it encourages consumers to devise and implement methods of reducing their use of products and services that account for large emissions of GHGs. Second, it encourages tens of thousands of companies to increase significantly their research and …