Thinking Like an Economist within the Complex Climate Policy Regime

Mar 21, 2013

Thinking Like an Economist within the Complex Climate Policy Regime
RFF Feature
March 21, 2013

Capitol Building
Price-based policies are often prescribed by economists over more traditional regulatory approaches because they tend to be more cost-effective tools for achieving specific economic and political goals. While this principle seems simple in theory, market-based approaches have not often been incorporated in environmental or climate policy decisions.

Following earlier research highlighting the importance of considering institutional complexity when crafting environmental policy, Darius Gaskins Senior Fellow Dallas Burtraw and Matthew Woerman examine how failure to anticipate institutional context is impacting the implementation of climate policy in particular.

In a new RFF discussion paper, “Economic Ideas for a Complex Climate Policy Regime,” they address three specific issues related to US state and national policies, including actions under the Clean Air Act, as well as global efforts: the challenges of coordinating multilayered authority across jurisdictions, the differing influences on decisionmaking of market-based prices and shadow prices or other regulatory reforms, and the idea that prices and regulation in this context should be considered as complements rather than substitutes.

Burtraw and Woerman write “that market prices are necessary for an efficient outcome, indeed imperative, but they are not sufficient. The bigger idea is to recognize the economic importance of shaping the incentives of decisionmakers in all forms of social institutions. This recognition constitutes thinking like an economist within the complex climate policy regime.”