IGPA: How do energy policies affect the environment?
Recent environmental policy debate has focused on whether to enact new policies — such as a cap-and-trade system — to control greenhouse gas emissions that contribute to global climate change. The fact is, however, that we already have policies that affect such emissions, whether we think of them this way or not. Any policy designed to improve national energy security will likely affect oil prices — and therefore emissions — just as any policy to encourage alternative fuels also will affect energy security, electricity prices, consumer welfare and the environment.
The real question is not whether to enact climate policy, but whether our current piecemeal policies are coordinated and rational. Consider how existing policies are interrelated, using three major examples.
First, several existing policies affect the amount you drive and, therefore, vehicle emissions. The federal gasoline tax is only 18 cents per gallon, but we pay an additional 19 cents to Illinois, 5 cents to the city of Chicago, 6 cents to Cook County and another 1-cent environmental levy. A tax of 50 cents per gallon in Chicago is higher than most other cities but is considerably lower than in Canada, Australia and other comparable areas. In fact, the gasoline tax exceeds $2 per gallon in Japan and most of Europe. As those countries have learned, a higher tax discourages driving and encourages fuel-efficiency, which helps reduce urban smog and global warming.
Instead, the U.S. has tended to avoid taxes in favor of mandates and standards. Cars sold in the U.S. must meet emission-per-mile standards for local pollutants that contribute to ozone. Those rules also indirectly reduce greenhouse gas emissions. For example, the Corporate Average Fuel Economy (CAFE) standards require each automaker to meet a minimum miles-per-gallon average for all the cars they sell. Those rules, in turn, affect climate gases.
For another example in a completely different realm, consider the pricing of electricity to consumers and businesses — a policy choice made by many state and local public utility commissions. They are primarily worried about balancing the need for fair pricing and their bottom line. Although the environment is not their biggest concern, the way commissions set the price of electricity inevitably affects electricity use and generation. This affects a host of environmental issues, from coal use to urban smog to greenhouse gas emissions.
A final example: the Environmental Protection Agency places monitors across the U.S. to measure National Ambient Air Quality Standards for various local pollutants such as sulfur dioxide and carbon monoxide. The EPA requires Illinois and every other state to implement a plan for any county that exceeds maximum allowed levels. At certain times, Cook County has been deemed out of compliance, and the state has required restricted operations at certain polluting plants or devise a plan to reduce vehicle emissions. Implementing a plan to reduce local pollutants will often also affect greenhouse gas emissions.
These interconnections between energy and environmental policies are unavoidable. You are a consumer who wants lower gas taxes and lower electricity prices, but you also may worry about national energy security, the use of our natural resources and the quality of our environment. Highway congestion affects your commute, and urban smog affects your health. And we will all feel the effects of climate change over time. In the end, we need to think holistically about energy and environmental policy and act for the public good.
Any opinions expressed are those of the author. Don Fullerton is an economist at the University of Illinois at Urbana-Champaign and IGPA. He is an expert on energy and environmental policy issues. He once served as deputy assistant secretary in the U.S. Department of the Treasury.
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