DFL gubernatorial candidate Mike Hatch wants to set arbitrary requirements for renewable energy use. Incumbent Gov. Tim Pawlenty, a Republican, agrees completely and notes he had the idea first.
While these candidates are united in support of command-and-control environmental policy, economists are united in thinking that arbitrary mandates — such as percentages of ethanol in gasoline or electricity from wind — are the stupidest way to reduce energy use and pollution.
Regular readers of this column know what is coming next: For more than a century, economists have agreed that the most effective way to reduce harmful pollution — or something else like energy use that has external costs — is to tax it. Such taxes achieve a greater reduction of these problems at the lowest cost to society.
Despite remarkable agreement among economists, politicians obviously are not convinced, even though conservative think tanks and liberal environmental groups crank out policy studies supporting the economists. Aren’t economists just Johnny-One-Notes on this issue? Why don’t we simply give up and shut up?
The answer is that the issue is too important to abandon. With concern about climate change and turmoil in the Mideast, it is more important than ever to reduce the external costs of excessive oil use and pollution.
Replacing current command-and-control regulations with taxes on crude oil and on harmful emissions is a win-win freebie. We will achieve greater reduction in energy use and pollution than we will with current measures. And we will have more resources left over to meet other needs of our society than if we imposed additional mandates.
This is particularly important in designing state policies. Reductions in pollution and energy use spill across state borders. If Minnesota unilaterally reduces energy use and pollution, many of the benefits accrue to other states and even nations. The total benefits to society might exceed the costs but Minnesotans will bear virtually all the costs and reap only part of the benefits.
Reducing pollution and energy use as a state still might be the right thing to do, especially if the federal government continues to be paralyzed on environmental and energy issues. But when others reap many of the benefits, the issue of results achieved versus resources used is even more important.
Political candidates shy away from proposing taxes, even on pollution, because they perceive the subject as political suicide. The better-informed ones know that arbitrary mandates impose a hidden tax and are the high-cost way to achieve even the most desirable goals. But they judge it better to impose a hidden tax that saps economic efficiency rather than an explicit one that saves resources. They will change their approach only when the general public understands the issues well enough to demand effectiveness over self-delusion.
© 2006 Edward Lotterman
Chanarambie Consulting, Inc.