There has been a lot of environmental news lately.
At the national level, last week the White House unveiled a new plan to cut carbon emissions from power plants. The target for the emissions reductions is 30 percent below 2005 levels, but each state has its own target (performance standard) based on current emissions. Emissions from power plants are the largest single source of CO2 in the U.S., and most of the existing power plants are more than 40 years old. It's important to note that U.S. emissions have been declining since 2005, so some of the reductions have already been met.
This was interesting on a couple of levels. First, because of a 2007 Supreme Court ruling that gave the EPA authority to regulate CO2, coupled with a 2009 "endangerment finding" the President did not need approval of Congress for this new measure.
Second, the rules allow each state flexibility in terms of how they reach their target. States and power plants can use technology to directly reduce emissions (e.g. better scrubbers), they can covert coal plants to natural gas, they can subsidize or otherwise promote renewable energy sources, or they can engage in cap-and-trade systems. Combining a standard with this flexible approach should offset some of the efficiency loss, but we can probably expect energy prices to rise. However, the EPA suggests that the benefits will be 8-12 times greater than the costs. The benefits of the new rules are estimated to be between $55 and $93 billion, which includes avoiding thousands of premature deaths and over 100,000 asthma attacks per year, in addition to slowing climate change, enhancing agricultural productivity and reducing ecosystem and species loss.
Finally, one day after the announcement, China announced a plan to place a cap on CO2 emissions as part of its next 5-year plan.
Questions to consider:
Who is against the new regulations and why?
Who is in favor of the new regulations and why?
How will cap-and-trade work in this situation?
Will Pigouvian taxes or subsidies play a role?
What non-market costs and benefits might be affected?
What are the implications of China's announcement?
Objective responses please.
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11 comments:
The article states that coal plants with probably be hit the hardest from this regulation because they produce the most emissions. The coal-fired power plants would therefore be the most opposed to regulations because of the impact on the profits they can generate. Adapting new technology to adhere to such a performance standard will no doubt increase input costs for the firms and therefore increase costs of their outputs as well. Energy companies like Duke will need to adapt, but the costs would also be incurred upon the consumers. Rising energy bills should come in the near future.
Those who are in favor of this regulation are the environmentalists who oppose deregulation as a part of big business in the energy industry. Higher standards of emission control also benefit the health of the general public, as mentioned in the first article.
Question: How much of the costs would be passed on to the consumers in this case?
We have generally dealt with situations in this class that were subject to analysis on the micro level. I believe the announcement by Chine to regulate emissions is a perfect subject to analyze on the Macro level. According to a March 2012 report in "The Economist" labor rates alone have risen 20% throughout China's manufacturing facilities and began cutting into profit margins. With the new regulations we can expect an even larger reduction in profit margins unless technology improves. The reason for this is because negative externalities have arisen in the market, and governments will now correct for these externalities. Not only can we expect prices to rise, but countries around the world may experience industries leaving China in search for a cheaper location to manufacture/produce goods. China's low cost manufacturing will not be so low cost anymore.
The news of the benefitting regulations is significant. The cost benefit analysis that was done by the EPA was probably a leading factor in the decision of this regulation. There could be some taxes or subsidies, depending on how much the energy prices rise and the reaction from the general public. China's announcement shows that the US is influencing other nations, but I would need to look more into the China policy to determine how much the new regulations that they set will impact China's CO2 emissions.
The EPA is most in favor of the new regulations and believe that the benefits will be significantly greater than the costs. They are in favor because the benefits are estimated to be over $50 billion. The costs will be much less than that. The (over) $50 billion includes preventing 100,000 asthma attacks per year. Climate change will also be slowed, which is good. Some state governments may be against the new regulations because of the costs. Energy prices will likely rise, which will negatively affect many. Coal plants will suffer as well.
Many older power plants, coal plants, and consumers will be against these new regulations. No matter what some consumers will always see higher prices of a product or service as a bad thing even if there is net benefit to society. The discounting rate of value produced now in terms of lower prices may be high such that it is worth more to pay lower prices now and not worry about pricey affects and benefits lost in the future.
The regulations will benefit farmers, public health, tourism, and whoever manufactures or operates co2 scrubbers.
I think that China's announcement will spark competition between countries. The fact that two of the largest polluting countries, China and the US, are creating plans to put caps on emissions may spur other nations to create plans of their own, which may have stricter regulations or that are implemented quicker in order to gain positive publicity as being good environmental stewards.
Environmental groups and health professionals will be in favor of the new regulations because cleaner air makes for a healthier environment and will reduce the occurrence of respiratory problems caused by harmful emissions.
Fiscal conservatives may be opposed to the new regulations due to the potential lost jobs and higher consumer costs.
It is interesting to note that some stockholders in companies that own power plants are already increasingly pushing for reduced emissions for environmental, health, and economic reasons. This may provide extra incentives to support the new regulations because companies want to keep stockholders satisfied so they will keep investing.
I remember years ago when the United States was the most reluctant to put caps on its CO2 emissions. Now that China and the United States are two of the most powerful countries and also two of the most polluting nations in the world I believe that one of them had to be the bigger person and enforce the regulation before the other one would be willing to do so. In some ways putting a cap on the CO2 emission will slow down economic growth and therefore neither one of them wanted to enforce the regulations without the other one. I am glad Obama stepped up to the plate.
People all across the country, especially in places like Kentucky are protesting and threatening to impeach the president. Although jobs will be lost, I think that this cap on carbon dioxide emissions is very necessary.
A cost which I think will definitely be affected is electricity. I also think that when China enforces its caps on CO2 their electricity may become more expensive and their production costs may increase. Maybe this will in some way force costs of importing consumer products from China to increase and reduce outsourcing.
The companies that are producing these emissions are probably going to be the ones against these new regulations because they don't want to have to restructure their operation and they will be opposed to increasing costs. The people will be in favor of these new regulations are citizens who live in areas that live near these factories and getting hit the hardest from pollution. Environmentalists will be in favor of these new regulations because it will reduce pollution. Ordinary people might be opposed to this because they do not want to pay more money but I think they will change their mind when they realize the benefits from reducing pollution. I think it is a big deal that China is putting cap and trade on their carbon emissions because they are one of the leading countries that produce a lot of pollution. I think it is a good thing to reduce coal emissions but switching to natural gas is also worrisome because when it is not done with great care many people are affected by things such as water contamination. I think that more research needs to go into safely and effectively gathering natural gas without destroying the environment.
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