I’m very much pro regulation and we rank it very highly in my comparison of climate policies :)
>> If regulators don’t think about the unintended consequences, then yes, I agree we risk unintended consequences. But surely the solution is to do regulation well?
>>With proper consultation with industry, regulation could induce innovation as Khorton suggested. With proper thought, it could set the right incentives and not encourage outcomes that are only marginally help. Indeed part of the point of lobbying should be to help governments see where they might go wrong and help them to get it right.
Yes, absolutely, this is an excellent point. However, I feel sometimes governments do not do regulation very well. Regulation is sometimes not set into in the future (and then sometimes when the time comes around there is industry push-back and the regulation is diluted), phasing in regulation to minimize switching costs is not done, making regulation ‘revenue neutral’ by reducing other non-Pigovian taxes does not often happen, making regulation technology neutral (see comment above).
>>A large company cannot move to a different jurisdiction at the drop of a hat. If the regulation is done well, with proper consultation, firms would rather work towards a regulation with a proper lead time than move countries.
Yes, you’re absolutely right—companies can’t move very easily and this point is frequently overstated. However, supply chains often can sometimes be switched more effortlessly and carbon leakage has been demonstrated empirically (I cite some studies on this). More crucially though, if you look at the carbon intensity of different economies:
you see that advanced economies have already moved energy intensive industries abroad. Thus, regulation in our advanced economies will not create the right incentives that are optimal from a global perspective.
Your point about advanced economies having already moved energy intensive industries abroad was really interesting. I hadn’t thought about that. I wonder whether regulation that covers imports in advanced economies could be way to tackle that?
Carbon tariffs (or border carbon adjustments) might prevent some, but not all,[156] carbon leakage and reduce emissions. But they are quite difficult to calculate (calculating the carbon intensity of every imported good) and might lower trade flows and welfare, especially in emerging economies.[157]
Generally, I thought there was surprisingly little research on carbon tariffs, even though, as your intuition shows, they should go hand in hand with carbon taxes.
Crucially, even if we were to have perfect carbon taxes and tariffs, UK emissions only make up 3% and shrinking of the global total.
I’m very much pro regulation and we rank it very highly in my comparison of climate policies :)
>> If regulators don’t think about the unintended consequences, then yes, I agree we risk unintended consequences. But surely the solution is to do regulation well?
>>With proper consultation with industry, regulation could induce innovation as Khorton suggested. With proper thought, it could set the right incentives and not encourage outcomes that are only marginally help. Indeed part of the point of lobbying should be to help governments see where they might go wrong and help them to get it right.
Yes, absolutely, this is an excellent point. However, I feel sometimes governments do not do regulation very well. Regulation is sometimes not set into in the future (and then sometimes when the time comes around there is industry push-back and the regulation is diluted), phasing in regulation to minimize switching costs is not done, making regulation ‘revenue neutral’ by reducing other non-Pigovian taxes does not often happen, making regulation technology neutral (see comment above).
>>A large company cannot move to a different jurisdiction at the drop of a hat. If the regulation is done well, with proper consultation, firms would rather work towards a regulation with a proper lead time than move countries.
Yes, you’re absolutely right—companies can’t move very easily and this point is frequently overstated. However, supply chains often can sometimes be switched more effortlessly and carbon leakage has been demonstrated empirically (I cite some studies on this). More crucially though, if you look at the carbon intensity of different economies:
https://en.wikipedia.org/wiki/List_of_countries_by_carbon_intensity
you see that advanced economies have already moved energy intensive industries abroad. Thus, regulation in our advanced economies will not create the right incentives that are optimal from a global perspective.
Your point about advanced economies having already moved energy intensive industries abroad was really interesting. I hadn’t thought about that. I wonder whether regulation that covers imports in advanced economies could be way to tackle that?
Yes, this is an intuition I had as well.
Carbon tariffs (or border carbon adjustments) might prevent some, but not all,[156] carbon leakage and reduce emissions. But they are quite difficult to calculate (calculating the carbon intensity of every imported good) and might lower trade flows and welfare, especially in emerging economies.[157]
Generally, I thought there was surprisingly little research on carbon tariffs, even though, as your intuition shows, they should go hand in hand with carbon taxes.
Crucially, even if we were to have perfect carbon taxes and tariffs, UK emissions only make up 3% and shrinking of the global total.