EPA is an expensive fallback
Q: Should EPA keep pressing ahead with new greenhouse gas rules, or should it accept Congress will shape the future of any mandatory limits on carbon dioxide?
It is important for the federal government of the U.S. to act to reduce greenhouse gas emissions. In a previous blog post, I said that the EPA route isn't going to be the best way to do it because it may well result in higher costs for the economy than is actually necessary to reduce emissions.
A comprehensive, economy-wide cap-and-trade system can deliver the required reductions at lowest overall cost to the economy. It does this by moving progressively through the abatement curve (of reduction opportunities) in an organized way, driven by the allowance trading aspect of the design. But an EPA driven approach will dive into the abatement curve at somewhat arbitrary points linked to certain technologies, leaving lower cost abatement opportunities on the table. This will ultimately cost the economy more than a cap-and-trade system.
There is also the issue of investment certainty. Even if a cap-and-trade system is slow in starting, its very existence immediately creates a carbon price driven by a known reduction target. Almost certain legal challenge to an EPA driven solution could result in significant delay in implementation, giving rise to investment uncertainty for business.
We know that a market based solution delivered through legislation is the best approach, but equally doing nothing is not a credible option. So the EPA approach is a viable but more expensive fallback. Therefore, the onus is on Congress to implement an economy-wide market based approach to addressing climate change and as part of that comprehensive package of actions ensure that the EPA stands down from its current direction and focuses instead on implementation of the energy and climate legislation.