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The Complicated Politics of Climate Change

Christopher R. KnittelChristopher R. Knittel, William Barton Rogers Professor of Energy and a Professor of Applied Economics at the MIT Sloan School of Management

The White House Climate Assessment released in May brought new scientific evidence that climate change is, indeed, a real and present problem. However, there are no good economic arguments against cap and trade being the most efficient and effective policies to reduce greenhouse gas emissions. And, there are no good environmental arguments against them either.

Yet Congress continues to rely on expensive policies that both subsidize low carbon fuels— namely ethanol, and make little dent in the greenhouse gas emissions that contribute to climate change. Why do lawmakers persist in passing these laws? The answer is simple: It’s not politically advantageous for them to do anything else.

The political economy of climate change policy—driven by the diverse financial, regional, and ideological interests of Congress and coupled with a determined industry—is exceedingly complex. Alternatives to cap and trade are costly.
According to my research* they are 2.5 to 4 times more expensive, but they exhibit a feature that makes them attractive to some lawmakers: a skewed distribution of gains and losses where many counties have small losses, but a smaller share of counties gain considerably—as much as $6,600 per capita annually. For certain legislators, this translates into big campaign contributions from stakeholders who stand to benefit. The result is an environmental policy held hostage by political interest groups.

This is business as usual. But in light of the uncertainty about the greenhouse gas emissions of biofuels, there are environmental reasons to be concerned about. While some studies find ethanol from corn has lower greenhouse gas emissions than gasoline, others are more cautious. One study argues that once we take into account land-use changes—soil erosion, groundwater contamination, and habitat destruction—emissions from ethanol may exceed the greenhouse gas emissions of gasoline.

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