The fine line of emissions reduction

I touched briefly in my previous post on the effect of the current economic crisis on future environmental policy . It is important to consider that emissions reduction and the promotion of renewable energy cut a fine line on the boundary between two competing public interests. Any emissions reduction scheme must meet some balance between environmental benefit gained, and economic productivity and prosperity lost.

There has been a troubling trend recently in the promotion of environmentalism without discussion of the costs involved. Greenhouse gas emissions reduction schemes and government spending towards renewable energy are likely in the best interest of the general public. However, they should be discussed with a full disclosure of the both the benefits and the costs. The tendency among both environmentalists and politicians of treating a green revolution as a panacea to both economic and environmental woes is false and should stop. Here’s why: an overreaching scheme sold to the public without full discussion of the economic consequences is at far greater risk of catastrophic failure.

It is self-evident that emissions reduction schemes designed to directly protect the environment aren’t going to benefit the economy in the near future. Any company that can improve their profitability by ‘going green’ will invariably already be doing so. Setting a price on emissions will have negative economic impacts in any energy-intensive sectors, particularly mining, minerals processing, and manufacturing. Due to the recent high commodity prices, many resource processing operations use low grade ores – now that the bottom has fallen out of the commodity market, these companies will likely struggle to stay afloat. Increases in electricity costs from emissions reduction schemes will hit these companies (and any others operating on very small margins) hard. This will have direct negative consequences for the economy in the short term.

Whether or not this is a bad thing is not necessarily clear cut. The loss is in short term economic prosperity. The benefits are in the longer-term shift towards a cleaner future, with the possibility for lost jobs being replaced by newer, greener options (specifically through changes in the market, not government spending). The point here is not whether this is a worthwhile tradeoff; it is that proposed environmental policy needs to be discussed from this perspective. Any new policies will have immediate effects as well as long-term ones, and they should be discussed in the public sphere. Marketing a policy to the public without acknowledgment of the short term effects risks a backlash.

It can be hard to predict exact effects of the policies, particularly in unstable and volatile market conditions. any governments are looking at policies with a multi-decade time span. Because of this, any emissions reduction scheme needs to be designed to be both robust and adjustable in the long term. An effective system should therefore aim to incorporate three fundamental characteristics:

• Transparency: to ensure that the public knows how effectively the system is progressing, and where weak points are, the scheme should involve full public disclosure. This should cover both operation, and the expected impacts before implementation.
• Accountability – to prevent misuse and bias of the system, any scheme should both prevent political intervention on the basis of individual cases or companies, and should have capability to hold those running the system accountable.
• Adaptability – in the event of the system not meeting emissions reduction targets, or having far different economic impact than expected, it needs to have the capacity for adjustment. One could imagine a system similar to central bank interest rates, but instead involving a change in the cost of government permits or emissions caps.

Good government policy on emissions reduction will incorporate these characteristics. As climate change and environmental impacts become increasingly important topics, transparency and public accountability only grow more vital.