College of Business: University of Illinois at Urbana-Champaign

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Affecting Climate Change


11/10/2009

by Sarah Small

A panel discussion on climate change, held November 3, hosted three panelists who brought forward different perspectives on addressing the issue of climate change and how this issue is being combated on national and international levels.

The event was sponsored by the Center for Business and Public Policy, the Institute of Government and Public Affairs and the Environmental Change Institute. The panelists were Charles Kolstad, an economist from the University of California Santa Barbara, Don Fullerton, professor of finance at ILLINOIS, and Nat Keohane, director of economic policy and analysis at the Environmental Finance Fund.

The three panelists focused their presentations on the need to regulate carbon emissions and the economic and financial effects of proposed regulations.

One method they discussed as a way to reduce carbon emissions was the cap-and-trade policy. This mode highlights fast-declining limits of pollution and creates government allowances for each ton of carbon dioxide. Having a restricted amount of carbon dioxide available to use, the industries have two options: either they can create products that stay within their restricted allowances or they can buy the commodity on the market from another source, said Keohane.

Kolstad discussed whether the United States was in the proper position to begin making movements toward an energy policy. He said that the United States and Europe were the only major powers involved concerning the establishment of energy policy.

“We’re not talking about a lot of players. Europe’s already moved on climate change, and we haven’t moved on climate change,” Kolstad said. “Because of our size and our insularity, we can protect our selves better economically. We’re in an ideal situation to take an action.”

He discussed the Waxman-Markey bill, a bill waiting for approval in the Senate that would attempt to reduce carbon emissions.

Kolstad said the bill is designed so that it splits into two phases. During the early phase of the bill’s enactment, small regulations would be enacted, maybe 10 to 15 cents on the pump, Kolstad said. The idea here is to get people thinking about ways to produce less carbon dioxide. Later, the bill imposes much stricter regulations on carbon dioxide usage.

“Cap and trade is somewhat regressive but perhaps not as dramatically as anticipated,” Kolstad said. “Coupling with reductions in other regressive taxes could neutralize negative effects. Waxman-Markey includes enough offsetting provisions to virtually neutralize the impact of cap and trade.”

The third panelists, Fullerton, spoke to give the audience an idea of the three policy options available in attempting to reduce carbon emissions. These, he said, are traditional regulations, direct subsidies for certain technologies and economic incentives.

Traditional regulations include things like residential building standards, low-carbon fuel standards and forest management programs, he said. In the category of direct subsidies for certain technologies, he mentioned things like wind and solar power. For economic incentives, he included the cap-and-trade policy model and a carbon tax.

“Every one of these regulations or technologies can reduce carbon emissions, but which one do we choose?” he said. “I don’t have any faith that our policy makers have any idea which would be the least-cost way to reduce greenhouse gases.”

He said because there are so many different methods of reducing carbon emissions, instead of choosing a single method for everyone to use, a better approach would be to put a price on carbon and let consumers chose how they want to limit their use of carbon.

“Across all of these industries there’s a bunch of different plans, but they all have different costs, some are expensive some are cheap,” Fullerton said. “If anyone got to choose for themselves, they would choose the cheapest method. This is what we mean by cost efficiency. Business and individuals would do whatever possible to reduce emissions in the cheapest way.”

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