Inside Climate Politics

The politics of climate change are often depicted as a simple battle, between environmentalists and particular industries, over government policy.  That’s not wrong, but it’s only a rough sketch of the matter.  Now a paper co-authored by MIT economist Christopher Knittel fills in some important details of the picture, revealing an essential mechanism that underlies the politics of the climate battle.

Specifically, as Knittel and his colleagues demonstrate, at least one climate policy enacted by Congress — on transportation fuels — contains a crucial asymmetry:  It imposes modest costs on most people, but yields significant benefits for a smaller group.  Thus, most people are politically indifferent to the legislation, even though it hurts them marginally, but a few fight hard to maintain it.  The same principle may also apply to other types of climate legislation.

In 2005, Congress introduced the Renewable Fuel Standard (RFS), which mandates a minimum level of ethanol that must be used in gasoline every year, as a way of reducing greenhouse gas emissions.  Ethanol can indeed reduce emissions, but as Knittel and other economists have argued, it is not the most efficient way of doing so:  He estimates that mandating ethanol use is at least 2.5 times as costly, per ton of greenhouse gas reduction, as a cap-and-trade (CAT) policy, which would price the carbon emitted by all transportation fuels.

But corn-based ethanol production has strong political support in the Midwest, where much of the corn industry is based.  In the new paper, Knittel and his colleagues quantify that effect in unique detail.  They model what U.S. fuel consumption would likely look like through 2022 under both RFS and CAT scenarios, among others.  Compared with a cap-and-trade system, the average American would lose $34 annually due to the RFS policy. But 5 percent of U.S. counties would gain more than $1,250 per capita, and one county gains $6,000 per capita.

Thus, most people are indifferent to the shortcomings of the RFS policy, but those who care tend to support it vigorously.

“Because of the skew in the distribution, you have the typical voter who doesn’t find it in their interest to fight against the inefficient policy, but the big winners are really going to fight for the inefficient policy,” says Knittel, adding:  “If the typical voter is losing $30 a year, that’s not enough for me to write to my congressman.  Whereas if you have someone on the upper end who is going to gain $6,000 — that’s enough for me to write my congressman.”

The political economy of energy
As the study shows, some folks do more than write to their representatives.  Knittel and his colleagues found that members of the House of Representatives in districts that gain greatly from the RFS policy received an average of $33,000 more from organizations that opposed one particular piece of legislation — the 2009 Waxman-Markey bill, which would have created a CAT system, and likely would have reduced ethanol use.  That bill passed in the House in July 2009, but was never taken up by the U.S. Senate.

Read more at Inside Climate Politics