What Does An Updated Cost of Carbon Mean?
The White House is updating how regulatory analyses are conducted; as a result, the cost of carbon will go to $200/ton (up from $50 under Obama and $5 under Trump). How much will this matter?
This week I read a long New York Times profile on Richard Revesz, a former Dean of NYU Law School and current head of the White House Office of Information and Regulatory Affairs (OIRA). OIRA is a wonk’s dream; obscure, built on economic analysis, and seemingly all powerful. The question I wrestle with here is: just how powerful is OIRA?
New Analytics —> New Cost of Carbon
OIRA works to ensure that federal regulations are legally and economically sound. These analyses are currently based on the benefits to society and cost to industry today. Revesz wants to update the analytical framework to include the impact to future generations and how the regulation would impact marginalized communities within society (here’s the 92 page proposal).
Under the new framework, the cost of one ton of carbon dioxide would go to $200/ton, up from $5/ton under Trump and $50/ton under Obama. According to the Times, this “new method of calculating the cost of potential regulation that would bolster the legal and economic justifications for those rules to protect them against an expected onslaught of court fights.”
This seems like a big deal. Increasing the cost of carbon 40x should make the benefits of emissions reducing regulations far exceed their costs. In theory, this should help facilitate the transition from an economy that runs on fossil fuels to one powered by clean, renewable energy sources.
But Will it Have a 40x Impact?
While reading the article, I kept thinking about one of my favorite books, Thinking in Systems by Donella Meadows. All of her work is amazing—especially the conclusion of Thinking in Systems, which ranks the top 12 leverage points to intervene in a system (it’s been excerpted as an article).
Coming in last (#12) were parameters like the one Revesz is pushing at OIRA. To explain why this is so, you’ll need a brief primer on system dynamics.
In system dynamics, people think of the world as a series of connected bathtubs; the faucet changes the rate at which water flows into the tub, the drain dictates how fast water flows out, and the amount of water in the tub at any time has a large impact on how quickly hot or cold water flowing into the tub alters the water temperature. For example, think of the national debt as a bathtub; the annual deficit is the flow into the bathtub and any budget surplus (ha ha) drains the debt tub.
In the United States, the top of the system are voters. Voters control the faucet that determines who goes to Congress. The people in Congress, in turn, control the faucet that determines what becomes a law. As we all know, this isn’t the most effective or functional group of faucet controllers (environmental regulation heavily rely on the burst of legislation in the 1970s like the Clean Air Act because we struggle to get new big environmental laws through that faucet).
That bathtub of US laws is where Federal Agencies need to swim when designing new regulations. Revesz hopes that updating the math that dictates if a regulation is a benefit to society will the flow of regulatory ideas into finalized, approved, and implemented regulations.
Here’s Meadows:
Putting different hands on the faucets may change the rate at which the faucets turn, but if they’re the same old faucets, plumbed into the same old system, turned according to the same old information and goals and rules, the system isn’t going to change much. Electing Bill Clinton was definitely different from electing George Bush, but not all that different, given that every president is plugged into the same political system. (Changing the way money flows in that system would make much more of a difference — but I’m getting ahead of myself on this list.)
Parameters are dead last on my list of powerful interventions. Diddling with the details, arranging the deck chairs on the Titanic. Probably 90, no 95, no 99 percent of our attention goes to parameters, but there’s not a lot of leverage in them.
Not that parameters aren’t important — they can be, especially in the short term and to the individual who’s standing directly in the flow. People care deeply about parameters and fight fierce battles over them. But they RARELY CHANGE BEHAVIOR. If the system is chronically stagnant, parameter changes rarely kick-start it. If it’s wildly variable, they don’t usually stabilize it. If it’s growing out of control, they don’t brake it.
Meadows offers the caveat that parameters “become leverage points when they go into ranges that kick off one of the items higher on this list” such as the power of positive feedback loops or changing how the system self-organizers.
The hope is that Revesz’ work at OIRA will tilt the math so much that clean energy is able to outcompete and replace fossil fuel energy. That may be true, but there’s a delay between when a regulation is finalized and its impact being felt across the country (assuming it isn’t mired in years of litigation—a very painful and American way of slowing the flow of new regulations).
Even if regulations are passed, our energy system is plagued by a maddeningly slow approval process (drip…drip…). The debt ceiling deal is supposed to speed up the process for renewable and fossil energy, but we’ll have to wait and see. This slowness provides companies with a vested interest in fossil fuels a pretext for shouting about why renewable energy will never meet the needs of Americans and “compel” them to fund candidates who will rollback environmental regulations.
This interplay is why Meadows acknowledges that changes to critical parameters can make a large difference, but she concludes that “most systems have evolved or are designed to stay far out of critical parameter ranges. Mostly, the numbers are not worth the sweat put into them.”
So Where Does This Leave Us?
Updating how the federal government calculates and benefits and costs of regulations to account for future generations and impacts across segments of society would be a great thing with lots of unforeseen positive effects. That’s because parameters matter.
However, parameters aren’t everything. Each parameter is a small part of a broad, complex system. There is no single solution to complex problems; instead, we need to recognize that it will take people pushing on all of the leverage points to change the current trajectory of the climate.
One leverage point higher than parameters is the goal of the system. Goals are exceptionally powerful. This is why I touched on how meaningful it would be to update the goal of the economic system from more GDP to everyone living inside the donut in Bird is the Word last week.
This post is a peek into a concept I’m noodling on for future posts: taking Meadow’s 12 leverage points and using them to explain where, how, and when we can become bright spots. (Does this sound interesting? Please let me know.) While this piece may be a downer, don’t despair. The top leverage point is Transcending Paradigms.
The paradigm that I want to help us transcend is this newsletter (and maybe a book) is that we as individuals are helpless and cannot change the trajectory of the climate and our society. I know that we can—but only if we believe we can.