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Supply Side Climate Policy


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If it works for bringing taxes down, it should work for bringing emissions down:


TL,DR: Clintonish neo-liberal policy wonks and neo-liberal economists have colluded with republicans and conservatives and utterly ignored the single most effective aspect of climate change policy: controlling the supply side of fossil fuels.

This collusion fundamentally handicaps efforts to fight climate change, and while it is not the only element that should be implemented, it should absolutely be part of the portfolio of policy efforts in climate change policy.  All other climate change policies are rendered less effective by the absence of supply side policies, and some climate change policies have little to no impact when the supply side policies are absent. 

Additionally, people view supply side constraints as more fair and the costs as more invisible and minimal, and thus building public support for supply side constraints is much easier. The Clintonish neo-liberal neo-economist collusion prefers to use climate policy that distributes most of the costs directly onto the people (who naturally view this distribution as more unfair, the costs as direct and onerous and thus building public opposition is much easier (as Fox News and the Kochs have proven).

Every piece of fossil fuel infrastructure is permanent, because producers will keep operating that infrastructure so long as the marginal costs of production are covered, even if they are not producing profits. in other words, there is a lot of low hanging fruit out there in terms of fossil fuel supply that could be taken off the market without necessarily really impinging the pocket books of the owners of the capital.


The four quadrants of climate policy

Climate policies can apply to the supply side (production of fossil fuels) or the demand side (consumption of FF), and they can be restrictive or supportive. That creates a grid with four quadrants:

  1. Restrictive supply side: policies that cut off FF supply, including declining quotas, supply taxes, and subsidy reductions
  2. Restrictive demand side: policies that restrict demand for FF, including carbon prices and declining emission caps
  3. Supportive supply side: policies that support the supply of FF alternatives, like renewable energy subsidies and mandates
  4. Supportive demand side: policies that support demand for FF alternatives, like subsidies for purchase of energy-efficiency appliances or favorable government procurement policies



Supply Side policies are easier to administer

“Both carbon taxes and cap-and-trade schemes,” they write, “require detailed and complex rules, procedures and regulatory institutions for the monitoring, reporting and verification (MRV) of greenhouse gas emissions at facility/installation level (e.g. power plants, steel mills), often across hundreds or even thousands of facilities/installations.”

All this complicated monitoring and reporting reduces economic efficiency, creates an informational asymmetry (facilities will always know more about their emissions than regulators do) and thus incentive to game the system, and generally restricts such systems to major emitters, leaving substantial swaths of emissions unregulated.

By contrast, RSS policies target a relatively small number of sources, rely on data that is already gathered for other purposes, and by definition cover all downstream consumers. They are much easier to verify, which makes them politically potent both domestically and internationally (see below).



Supply Side Policies fill in the weaknesses in demand side policy

Climate wonks and economists are very taken with the fact that, in theory, the “least cost” way to reduce emissions is to pass technology-neutral, sector-neutral pricing policies that cover the entire global economy, allowing distributed, profit-maximizing actors to find the cheapest ways to cut CO2.

In the real world, considerations like MRV costs and “leakage” (any jurisdiction that passes a pricing policy threatens to drive some consumption to neighboring jurisdictions) mean that pricing policies are never economy-wide or entirely neutral.

Pricing policy that isn’t universal — like all current and foreseeable pricing policies — threatens, by lowering demand for fossil fuels, to also suppress FF prices and thus increase consumption outside policy barriers. Areas that aren’t covered by pricing policy will use more fossil fuels and the industrial shift to clean energy will be slowed.

“Restrictive supply-side policy has an important role to play in limiting countervailing price effects” from non-universal pricing policies, the authors write. “The combination of supply-side and demand-side policies will thus hasten the industrial transformation required to meet climate mitigation objectives.”



Political science has traced support for climate policies to, roughly speaking: “(i) the perceived benefits of the policy, (ii) the perceived personal and public costs of the policy, and (iii) the perceived distributional fairness of the policy.”

On all three scores, they say, RSS policies do well. First, where demand-side policies typically foreground carbon reductions, the benefits of which are widely spread in time and space, RSS policies target fossil fuel reductions, with a wider range of benefits — air and water pollution reductions, health improvements, and punishment for big fossil fuel companies, which are politically unpopular.

This broader portfolio of benefits is more likely to mobilize public support. It “enables proposals to be framed in ways that are more resonant with voters and more resilient to counter-attack by opposing interest groups; facilitates alliance-building among diverse groups with wide-ranging concerns about fossil fuels; and facilitates network-building among groups at different advocacy- and policy-relevant scales.” All those effects build political strength for future battles.

Second, where demand-side policies tend to place the costs visibly on consumers, the perceived costs of RSS policies fall on fossil fuel companies themselves. Of course, those costs are at least partially passed downstream to consumers eventually, but they are relatively more “hidden” that way, and thus more politically palatable. “Accordingly,” Green and Denniss write, “we would expect that people would perceive the costs to themselves of supply-side policies to be lower, or the distribution of the costs to be fairer, or both — and thus support for such policies to be higher.”


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The US has done supply-side climate policy, with emissions restrictions on coal plants and other such regulation. The problem is that it's much more politically difficult to do that at a large scale than demand-side reductions - I don't buy the argument that it's easier because it "only" hits the suppliers up-stream. Those suppliers are often politically connected, they employ a ton of people (and are one of the few remaining sources of good-paying jobs available to people without college degrees in the US), and they're regionally quite important to a number of states. 

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True, but there are thousands of little oil wells scattered around Oklahoma, for example, that maybe profit only a couple hundred bucks after operations costs are deducted, or break even.  A federal program that paid people ten thousand a well to start sealing off and capping these small scale productions would be a good supply side reduction, pumping marginally less oil, but directly removing some of the permanent infrastructure (naturally if the feds did this, they'd get mineral rights in the bargain and hold them as a public trust for the kind of fossil fuel being extracted, so that the land owner can't just sink a new well once being paid off). For people that own wells, this is a good bargain, a slight reduction in supply will help boost prices, and 10,000 can be more than the well will earn in profits in twenty years, you could even set up a generous tax incentive as well where they can write off the capital loss from closing down the well and take the direct payment check.  Sure it's just pecking around at the edges, but this is the sort of low hanging fruit that can be harvested now and used as a basis for bigger efforts later.  


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and I think, the article is arguing that emissions are not supply side constraints. A supply side constraint would be not mining the coal in the first place, not a far downstream legalese restriction on emissions from burning the coal in a power plant. 

A supply side constraint would be closing down the well, or not drilling a new well and leaving the fossil fuel where it is.

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