Painting the White House Green: Rationalizing Environmental Policy Inside the Executive Office of the President
Randall Lutter and Jason F. Shogren, Editors, Resources for the Future, 2004; 105 pages; hardback $55.00; paperback $25.95.
This book comprises an introduction by the editors and eight chapters on environmental issues, each by a former senior economist who focused on environmental issues at the Council of Economic Advisors (CEA) during the 1990s and early 2000s. A common thread that runs throughout the book is that both benefits and costs need to be considered in formulating environmental policies, and that while CEA economists try to provide fair and open-minded advice about such policies, the federal government has often fallen short in its analysis of environmental issues. In Chapter 1, William Pizer (who served at the CEA during 2001-2002) examines two policy initiatives announced by President Bush in February 2002—the Clear Skies Initiative (a legislated program of cap and trade to reduce emissions of sulfur dioxide, nitrogen oxide and mercury from power plants) and the Global Climate Change Initiative (a program consisting of tax incentives, voluntary challenges and transferable credits to reduce economy-wide emission of greenhouse gases). According to Pizer, the market-based incentives under the Clear Skies Initiative provided a simplified, lower-cost and more efficient way of reaching limits already mandated under the Clean Air Act. Although he believes that the U.S. should adopt a mandatory mitigation policy, Pizer argues that the Bush administration deserves credit for setting a reasonable target in the Global Climate Change Initiative (4 percent reductions from forecast emissions in 10 years), introducing the notion of an intensity target, and providing a system of transferable credits.
In Chapter 2, Randolph Lutter (1997-98) critiques the Environmental Protection Agency (EPA) 1997 ruling on ozone standards, arguing that the proposed rules emphasized the damages associated with low-level ozone while ignoring evidence of benefits (which involve protection from ultra-violet radiation), and assumed arbitrarily low costs of compliance. The EPA rules were blocked by the DC Court of Appeals in 1999, with a remand to EPA to address the benefit of ozone issue. While the rest of the Court of Appeals decision was appealed successfully to the U.S. Supreme Court, EPA continued with its position that the health benefits of ozone were too uncertain to quantify. Lutter argues that the EPA failed to consult the Clean Air Scientific Advisory Committee on this issue, and ignored analysis supporting the methodology for measuring the effect of UV-B levels on skin cancer. Those differences on the benefits of ozone have yet to be resolved, at least to this reviewer’s satisfaction.
Chapter 3, by Michael Toman (1994-96), argues that while economic ideas have become more important, economic analysis has largely been ignored in the context of setting emissions targets for greenhouse gases (GHGs). The approach to GHG regulation should balance between irreversible consequences and misplaced investment in mitigation. Control targets should be implemented gradually to allow for lower-cost mitigation, should be incentive based, should not rely entirely on technical solutions, and should provide offsetting relief to those adversely affected. Toman argues that green politics overwhelmed the advice provided by economists under the Clinton administration, and that brown politics (“the desire to oppose any controls so as to avoid a debate about what level of stringency is desired”) have prevented the Bush administration from adopting any mandatory measures.
In Chapter 4, Joseph Aldy (1997-2000) examines the economic analyses of climate change undertaken during the Clinton administrations and their effect on decision making. In 1996, a draft report by an Interagency Analytical Team (IAT) was prepared to assess the economic affects of various climate change policies. Aldy argues that the IAT, although commendable for evaluating tradable permit systems in a “significant departure” from earlier debates, neglected to consider academic optimal global climate analyses and focused instead on evaluating the costs of specific 2010 emissions targets. The IAT was heavily criticized both by economists who considered the analysis suspect and by environmental officials who believed that the analysts had overestimated mitigation costs; the work was ultimately abandoned.
Subsequently, in 1998, the Clinton administration prepared the Kyoto Protocol and the President’s Policies to Address Climate Change: Administration Economic Analysis. Aldy argues that the assumptions made by this analysis of efficient trading and “meaningful participation by key developing countries” were flawed. “Meaningful participation” assumed that China, India, Korea and Mexico would adopt emissions targets equal to their 2010 business-as-usual levels, which the author argues “contrasted with the reality of the Kyoto negotiations.” However, Aldy credits the report for providing more information on Kyoto than was provided by other governments. Aldy concludes with a critique of the Bush administration’s climate change proposal in February 2002, which he states largely reflected repackaged Clinton administration policies without a proposal for a domestic tradable permit system, and with no “public analysis to inform the debate.”
Chapter 5, by Jonathan Wiener (1992-93), focuses on the dilemmas in controlling deforestation. While at CEA, Wiener was part of a team that was successful in negotiating with the State Department and OMB to create the Forests for the Future Initiative (FFI), which was based on the idea that the US would pay countries for implementing conservation projects to be chosen through a competitive bidding process. In January 1993, under the first Bush administration, eight initial FFI partnerships were announced with Belize, Brazil, Ghana, Guatemala, Indonesia, Papua New Guinea and Russia. However, in spite of support by the Clinton Administration, the funding for FFI was dropped as part of the deficit reduction effort.
In Chapter 6, Stephen Polasky (1998-99) examines the effect of electricity generation on the environment and a proposal by the Clinton administration requiring companies to generate a certain amount of their electricity from renewable sources. After some negotiation among different departments the Clinton administration decided that companies would be required to meet a renewable portfolio standard (RPS) of 7.5 percent after a phase-in period. Polasky argues that even if the proposal had been able to garner Congressional support, it “was written in such a way that increases in the RPS would have little or no impact.” This was because the proposal included safety valves to allow companies to purchase credits from the Department of Energy when they could not generate enough power to meet the RPS. Money earned from these credits counted against a surcharge levied on electricity generation for a Public Benefits Fund.
In Chapter 7, Jason Shogren (1997) discusses what he perceives as the schizophrenic relationship of the American West with the Federal government: “clamoring for more control for setting standard for regulation, but still wanting to preserve hard-won resource subsidies that keep traditional livelihoods, such as ranching and timber, intact.” Shogren’s tenure at the CEA led him to conclude that policy makers in Washington have limited use for economic analyses that do not suit their agendas. He provides rebuttals to what he believes are common allegations against economists but concludes that economists must accept their responsibility to inform and not expect their analyses to be automatically understood. The final chapter by Ray Squitieri (1991-1993) is “about the good news and the bad news,” and closely parallels many of the ideas expressed by Shogren in Chapter 7. While economists are increasingly occupying “positions of influence,” they are “not in charge” and many of the decisions that made in Washington do not reflect sound economic analysis. He notes as examples EPA’s retrospective analysis of the Clean Air Act from 1970-90, ethanol subsidies, the Superfund, and the decision to put elevators at all of Washington Metro stations. He concludes, however, by naming a number of federal agencies that he claims “enjoy protection from the vagaries of the political winds.”
The book offers an interesting read, and this reviewer is certainly much better informed on environmental issues than when she began. The book, however, is not an easy starting point for those with a limited knowledge of environmental issues. At times this reviewer found the book tough going, particularly the earlier chapters, and wished that an annotated list of the laws, initiatives, and proposals discussed by the book and their current status had been provided. Those more knowledgeable on environmental issues will no doubt find the book an easier read and be better able to judge the authors’ perspectives.
Nancy Ody is an Economist for the US Department of Transportation. The opinions expressed in this review are her own