Abstract from Professor Larry Goulder's Guest Lecture presented at the Treasury on 19 February 2007.
Professor Larry Goulder
Larry Goulder is the Shuzo Nishihara Professor in Environmental and Resource Economics at Stanford University. He is also associated with Stanford’s Freeman-Spogli Institute for International Studies; the Stanford Institute for Economic Policy Research; the National Bureau of Economic Research; and Resources for the Future. Prof. Goulder’s research examines the environmental and economic impacts of U.S. and international environmental policies, including policies to deal with climate change and pollution from power plants and automobiles. His work also explores the “sustainability” of consumption patterns in various countries. Goulder has conducted analyses for several government agencies, business groups, and environmental organizations.
The growing concerns about climate change have spawned a range of actual and proposed policies to reduce greenhouse gas emissions. This paper explores how emissions-oriented climate policies can be designed so as to avoid losses of profit to highly mobilized industrial stakeholders. Preventing such losses can critically affect political feasibility. The paper shows how partly or fully insulating key industries usually involves a sacrifice of cost-effectiveness, and identifies the factors determining whether this sacrifice is large or small. It indicates that under plausible supply and demand conditions, for some policies the sacrifice is fairly small. The paper examines the trade-off between cost-effectiveness and political feasibility in connection with the design of carbon taxes, tradable emissions allowances, and technology mandates.