Misinformed Environmental Policy: Incentivization versus Taxation in the 2016 Election & Beyond

by Wesley Sheker

Since the 2015 U.N. Climate Change Conference in Paris, adapting policy to address environmental degradation has become a pivotal issue in the current election cycle. Perhaps more importantly, it represents a polarizing and distinguishable dividing issue that separates the major political parties. Unfortunately, the official positions of both parties involve inefficient or non-existent solutions to a problem that 52% of voters characterize as critical[1]. Current proposals almost entirely consist of discussing either inaction or taxation, contrary to the recommendations provided by the Environmental Protection Agency and other organizations. The world continues to debate solutions to anthropogenic climate change, but these proposals are misguided. Instead, policy should be broadly focused on incentivization, with other non-incentivizing regulatory economic instruments being used only sparingly in the industries within which they are most effective.

A consistent barrier to addressing climate change is the debate over the extent of human impact. The level of human impact on carbon dioxide emissions, although certainly non-negligible, is somewhat debatable in scale. Therefore, a more effective discussion begins not with carbon dioxide, but with atmospheric levels of sulfur dioxide—a greenhouse gas with clear anthropogenic origins. Since levels began to be recorded in 1850, atmospheric sulfur dioxide emissions rose from nearly zero to over 140,000 gigagrams.[2] Since sulfur dioxide poses a significant health threat in high concentrations, there is a quantifiable need for public policy to successfully regulate the environment. This can also be seen in the theory of externalities, as Baumol and Oates suggest in demonstrating that “so long as the number of persons affected significantly by emissions is substantial, the process of direct negotiation and agreement will generally be unmanageable.”[3] In other words, a command-and-control approach involving government monitoring of every corporation is inefficient and unmanageable, whereas an incentive based  policy allows corporations to act in mutual benefit with societal emissions reductions goals.

The need for environmental regulation has been met significantly since the 1970s in the form of comprehensive regulatory statutes. Two prominent examples are expansive European environmental policies and the influential Clean Water Act (CWA) in the United States. One of the most significant developments in the politics of the environment was the establishment of the ‘polluter pays principle,’ adopted by the Organization for Economic Cooperation and Development around 1970. Part of this policy advocated a shift from direct government monitoring and attempted control “of emissions and environmental quality”[4] to a market-based approach through taxation. The argument in favor of environmental taxation is largely based on the principle of negative externalities. This taxation policy has been widely adopted in European environmental regulation, with various kinds of taxes instituted by France, Sweden, the UK, and others.[5] In the United States, the CWA in 1972 adopted an alternative regulatory approach, one which required reporting of specific pollution metrics and strict penalties for failing to adhere to an acceptable range. The Act had significant positive benefits (such as increasing wastewater treatment by 32%),[6] but there exists considerable debate about the cost effectiveness of the act, with critics arguing for a transition to state regulation to improve cost efficiency.[7] It is interesting to note that the failures of the Clean Water Act are predominantly in areas not under private jurisdiction (like watersheds). This contrasts with the privately contracted development of treatment plants, which saw more competition, suggesting that competition, and incentivizing adherence to environmental responsibility, is a far more cost efficient solution than taxation.

In the 2016 Democratic Party platform ratified at the DNC, the Democratic Party stated “that carbon dioxide, methane, and other greenhouse gases should be priced to reflect their negative externalities,” a concept reflected by prevailing European policy. Moreover, the Party established large goals for emissions reductions, adopted a vehemently anti-fracking stance, and stated a desire to expand clean energy infrastructure while simultaneously rejecting the further development of non-renewable energy infrastructure.[8] Adopting an opposite  stance, the Republican platform implies that the government should be responsible for covering negative externalities, suggesting that companies be compensated for “environmental regulations that destroy or diminish the property’s value.”[9] Moreover, the Republican Party argues for regulation by states, a narrative shared by opponents to the Clean Water Act in its current form.[10] Hillary Clinton’s environmental policy is nearly identical to that of her Party, advocating a regulation-induced shift to clean energy through a Clean Water Act-style system, excluding the elements of competition found in the CWA’s methodology.[11] Donald Trump’s campaign has not published an official environmental policy, but he called climate change, “a very, expensive, hoax (sic.)” on social media. This position, claiming a solution by denying the problem, is inherently counterproductive. Neither solution, however, offers a viable path to energy independence and successful environmental regulation, and both reflect misguided (although different kinds of misguided) environmental policy. Clinton’s command-and-control approach neglects to consider the expense, both economic and administrative, that results from active monitoring of polluters across the country, while Trump’s solution is nonexistent.

Based on the ineffectiveness or mixed effectiveness of current policies and the sharp ideological divide between the solutions of inaction and taxation (and its regulatory complements), a perfect solution does not seem likely to exist; however, there are a series of solutions that offer a near-ideal application of incentivization without the economic disadvantages of taxation. First consider the concept of feed-in tariffs, which incentivize clean energy production with a payment per kilowatt hour. These feed-in tariff incentives “have proven to be one of the more effective policies in terms of stimulating investment,” but are costly for governments to maintain.[12] To remedy this solution, the feed-in tariff payments could be covered not by a lump sum payment, but rather by decreasing taxation on clean energy. For example, one of the major barriers to market entry for wind farms is the price of land—of which a large amount is needed. A state government could offer the price guarantee aspect of the feed-in tariff incentive in the form of a reduced property taxes at a rate determined per kilowatt hour of energy production.[13]

Abandoned mine land reclamation is another environmental policy that costs an enormous amount from the government, estimated to total “$4.06 billion in [federal] grants” to just 24 states since 1977 to pay for abandoned mine land reclamation projects.[14] In Pennsylvania, only in the year 2014, an amount of over $600 million led to the reclamation of only 67,041 in calculated acreage value.[15] A more efficient solution would be a type of abandoned mine land lease program. A selection of wind farms, such as the Somerset Wind Farm in Pennsylvania, have been established on abandoned mine lands, utilizing otherwise useless land while bioremediating the damages caused by mining. This arrangement could be expanded to an abandoned mine land lease program, where the state government provides a lease to clean energy companies free of charge upon the condition these companies bioremediate the land. This solution mutually benefits taxpayers, fossil fuel companies that do not have to pay for reclamation of mine land, and clean energy companies that are incentivized to become established while avoiding the high costs of key barriers to market entry.

Taxation represents an inefficient method of combatting the reliance, or potential overreliance, on non-renewable energy sources. It disproportionately affects consumers and inhibits small energy producers and competition in energy markets. In addition, a large number of families, especially in states like Pennsylvania, Texas, and North Dakota, are reliant on the non-renewable energy sector to provide jobs for their wellbeing. Inaction is often claimed the alternative to taxation: allowing the market to develop independently of government control. Although decreasing clean energy costs support this as an eventual possibility, incentivization provides a quicker and more efficient alternative. Selective application of cap-and-trade policy, improved forms of feed-in tariffs, and creative solutions like abandoned mine land leasing offer substantive policies that neither hamper economic progress nor prevent the development of a more environmentally-friendly country. The current political discussion is misinformed: incentivization, not taxation.

 

[1] “Top Voting Issues in 2016 Election,” Pew Research Center, last modified July 7, 2016.

[2] S.J. Smith et al, “Anthropogenic Sulfur Dioxide Emissions: 1850-2005,” Atmospheric Chemistry and Physics 11 (2011): 1101-1116.

[3] William J. Baumol and Wallace E. Oates, The Theory of Environmental Policy (Cambridge: Cambridge University Press, 1988), 10.

[4] Paul Ekins, “European Environmental Taxes and Charges: Recent Experience, Issues and Trends,” Ecological Economics 31 (1999): 39-62.

[5] Baumol and Oates, The Theory of Environmental Policy, 10.

[6] Robert W. Adler, Jessica C. Landman, and Diane M. Cameron, The Clean Water Act 20 Years Later (Washington D.C.: Island Press, 1993), 14.

[7] William L. Adreen, “Water Quality Today- Has the Clean Water Act been a Success?” Alabama Law Review 51 (2004): 537-593.

[8] Democratic Platform Committee, “2016 Democratic Party Platform” (paper presented at DNC, Philadelphia, PA, July 25-28, 2016), 28.

[9] Committee on Arrangements for the 2016 Republican National Convention, “Republican Platform 2016” (paper presented at RNC, Cleveland, OH, July 18-21, 2016), 15.

[10] Ibid., 18.

[11] “Hillary Clinton’s Plan to Fight for Environmental and Climate Justice,” Hillary for America.

[12] Marcel Brinkman, “Incentivizing Private Investment in Climate Change Mitigation,” in Climate Finance: Regulatory and Funding Strategies for Climate Change and Global Development, ed. Richard B. Steward et al. (New York: NYU Press, 2009), 140.

[13] Lincoln L. Davies, “Incentivizing Renewable Energy Deployment: Renewable Portfolio Standards and Feed-In Tariffs,” KLRI Journal of Law and Legislation 1 (2011): 41-91.

[14] “Abandoned Mine Lands,” Bureau of Land Management.

[15] “Abandoned Mine Land Inventory System,” Office of Surface Mining Reclamation & Enforcement.

 

Photos courtesy of the US Department of the Interior