From Top-Down to Bottom-Up Climate Policy: New Challenges in Carbon Market Design

This Article explores the shift from top-down to bottom-up approaches to carbon market design, focusing on three strategies that have emerged since 2009: the California Cap-and-Trade Program, the Clean Power Plan, and the UNFCCC process. The Article then examines the prospects for broad multilateral markets to emerge under a bottom-up approach and identifies three pathways to streamline market design choices: a coordinated approach; a dominant actor approach; and a common elements approach

The Ends and Means of Decarbonization: The Green New Deal in Context

Disputes about climate policy involve much more than whether or not to reduce greenhouse gas emissions. There is general agreement among proponents of climate policy that strategies should be cost effective, address distributional impacts, and incentivize investments in low-carbon technologies. Yet disagreements abound regarding additional goals of climate policy design. Decarbonizing the economy means changing the sources of energy we use, how we transport people and products, how we produce food, and which resources we consume. Yet even among proponents of federal climate legislation there is strong disagreement regarding policy instruments. Recent proposals for a revenue-neutral carbon tax and a Green New Deal (GND) frame the opposite ends of the debate. On one end, the GND framework treats climate policy as an opportunity to steer the trajectory of the U.S. economy while also correcting social and environmental injustices. Proponents of the most expansive iterations of a GND argue that it is not possible to separate justice and economic considerations from environmental policy. At the other end of the spectrum, revenue-neutral carbon tax proposals reject the creation of new government programs and focus on controlling greenhouse gas emissions rather than the economic and social impacts of the policy. This Essay identifies core disputes about the non-emission goals in state and federal climate policy debates that create barriers to legislative consensus. The Essay begins with a comparison of recent proposals to mitigate climate change, including pricing carbon via a carbon market or carbon tax, regulatory measures such as the Obama-era Clean Power Plan, state-based policies, and the GND. It then identifies three conflicts, the resolution of which will shape future climate policy developments: the role of decarbonization as technology policy, social justice policy, and fiscal policy. Deploying low carbon technologies is a critical piece of the climate mitigation puzzle, but stakeholders disagree whether decarbonization strategies should prioritize renewable energy or include technologies such as nuclear or carbon capture. Each policy discussed in this Essay considers some range of social impacts (at minimum, cost increases), but differ significantly about which social impacts to address and the how to address them. The policies also adopt different approaches to the link between fiscal policy and climate policy, with some generating revenue to fund new government programs, some returning revenue to U.S. citizens, and some not addressing the issue. The Essay concludes with comments about the early impacts of the GND on the domestic policy debate and opportunities to resolve it

Ratemaking as Climate Adaptation Governance

Electric utilities are directly affected by, and in some cases are a source of, many pressing climate adaptation challenges: wildfires, vulnerable infrastructure, extreme storms, and drought. The state Public Utilities Commission (PUC) is one of the most consequential government agencies guiding the electricity sector’s response to climate change. Rate-regulated utilities may not charge ratepayers for new capital investments without PUC approval. When PUCs decide which costs are eligible for rate recovery, they also define which risks utilities seek to manage and which hedging strategies they use to do so. This Article argues that the foundational principles of ratemaking allow the state PUC tomanagemany aspects of electricity sector adaptation planning, coordination, and implementation. The Article begins with an overview of ratemaking for electric utilities and identifies how the process is an exercise in risk management. The Article then explains how a risk governance perspective can position the PUC to explicitly incorporate climate adaptation into ratemaking procedures as well as help coordinate adaptation policy across multiple agencies

Maximizing Utility in Electric Utility Regulation

The electric power sector is undergoing a period of profound change, reacting to economic, technological, and regulatory variables that have emerged quickly and largely without warning. In many states, the public utility commission (PUC) will play a key role in deter-mining how electric utilities respond to these rapidly changing circumstances, the outcome of which will affect electricity rates, investor returns, public health, and local and state economies for decades to come. The general mandate underlying many utility commission proceedings—seeking the least cost option for maintaining a reliable electricity sector—provides the PUC with considerable discretion to choose among sources of information, potential outcomes, and risk assessments. The least cost framework is generally treated as an objective standard, but a close examination of PUC decisions demonstrates the inherent subjectivity and the value choices com-missioners face when determining which electric utility decisions are in the public’s best interest. From a descriptive perspective, the effort to maximize societal benefits and minimize societal costs associated with electricity generation and delivery is, at its core, a utilitarian exercise. Like the concept of welfare maximization that lies at the heart of the classic utilitarian framework, the cost minimization goal seeks to produce the greatest good for the greatest number through an affordable and reliable electricity sector. From the normative perspective, accepting that PUC decision-making is a utilitarian exercise invites a critical assessment of whether PUCs are succeeding in implementing the least cost mandate. This Article provides an overview of PUC decision-making and the least cost framework, then examines the inherent discretion in the least cost mandate by analyzing four recent PUC decisions where commissioners reach opposing decisions based on the same set of facts. The Article concludes by proposing mechanisms for capturing broader societal benefits through an expanded application of the PUCs’ existing discretion

Electricity Competition and the Public Good: Rethinking Markets and Monopolies

The United States electricity sector is engaged in a long-term experiment regarding the proper role of market competition. Many states that transitioned to competitive electricity markets in the early 2000s are again reconsidering the relationship between market competition and public policy goals. Low natural gas prices, falling costs of renewable energy and energy storage, and improvements in efficiency are causing early retirements of coal and nuclear power plants and thus affecting environmental policy goals and economic interests. States that continue to rely on monopoly utilities for electricity are also reconsidering the role of competition, but from a different angle. Rather than focusing on mitigating the downsides of competition, some traditionally regulated states are creating new opportunities for third parties to compete with monopoly utilities. The implications for electricity sectors in restructured and traditionally regulated states extend far beyond the particular facilities that stand to gain from new subsidies or the monopoly utilities subject to new forms of competition. Post hoc changes to market rules risk wasting resources that will be necessary to aggressively reduce greenhouse gas emissions, ensure long-term affordability, and mitigate the employment impacts of a transitioning sector. This Article explores the factors causing policymakers to reconsider the role of competition in the pursuit of energy goals. It identifies lessons for realizing the benefits of electricity sector competition while managing the downsides that occur during periods of unanticipated change. In restructured markets, the lessons center on strategies to address job losses and achieve state environmental goals. In traditionally regulated states, the lessons focus on opportunities to harness competition to deliver additional societal benefits without undermining the traditional rate-setting model for monopoly utilities

Precautionary Ratemaking

For more than one hundred years, states have relied on ratemaking to ensure that electric utilities deliver affordable and reliable power to their customers. This process helped keep costs down, but it also produced an electricity system that is a cause of, and vulnerable to, some of the most pressing challenges now facing society: climate change, catastrophic wildfires, extreme storms, and air and water pollution. This Article argues that risk regulation is an alternate legal foundation for interpreting bedrock principles of ratemaking, such as prudency, reasonableness, least cost, and the public interest. The traditional economic regulator view of ratemaking evaluates these principles in financial terms, generally focusing on near-term rate impacts and the utility’s financial viability. This often excludes consideration of options with far lower risk of health and environmental harms if those options would result in higher costs for ratepayers. Ratemaking does not require public utilities commissions (PUCs) to wait for catastrophic events to occur, or regulations to change, before addressing risk. A state PUC’s authority is often quite broad, and courts recognize that each rate case is unique. The discretion granted by statutes and the courts allows PUCs to proactively manage risk without requiring new legislation. PUCs could improve social and environmental outcomes by focusing on a wider range of a ratemaking decision’s potential impacts and a longer time frame during which the impacts may occur. A more robust approach to risk management could also help the PUC achieve its traditional mandates of affordability and reliability. This Article proposes a novel framework—precautionary ratemaking—to unlock the risk governance potential of the PUC. The Article begins with an overview of the ratemaking process and focuses on two guiding principles for a PUC’s approach to risk: least cost planning and the public interest. The Article points to the U.S. Supreme Court’s 1944 decision in Federal Power Commission v. Hope Natural Gas as a turning point that limited PUCs’ public interest considerations. The Article then reframes ratemaking as risk governance, demonstrating how the process mitigates, allocates, and creates risk among utilities, ratepayers, and the general public. The discussion explains how these categories relate to electricity rates and therefore fall within the general jurisdiction of a PUC. The Article concludes with a framework for shifting ratemaking from a least cost to a least cost-least risk approach that is rooted in the precautionary principle

Pricing Plastics Pollution: Lessons from Three Decades of Climate Policy

Plastic is now the most widely used human-made substance on the planet, and plastics pollution impacts marine and coastal ecosystems, local economies, and human health. Local and national governments are increasingly responding by banning plastic bags and other specific plastic products, taxing the use of certain plastics, and improving waste management and recycling. These are important steps, but alone they will not result in a meaningful reduction in cumulative plastics pollution or encourage development of sufficient alternatives to plastic. Additional policy measures are necessary. This Article argues that climate change and plastic pollution share numerous similarities, and these similarities allow policymakers to benefit from the three decades of climate policy experimentation when choosing plastics pollution policy instruments. Both are collective action problems with local, national, and global impacts. Unilateral policies will do little to address total accumulation of the pollutant. There are countless sources of plastics pollution and the plastics have different uses and characteristics. Technological breakthroughs are necessary to recycle and reuse large amounts of plastics or reduce carbon pollution. There are influential, established interests in value chains that produce and use plastics or fuels that emit greenhouse gases. The Article focuses on one key policy instrument in climate policies—pollution pricing—and identifies lessons from carbon pricing that can inform the design of plastics pollution policies. The Article begins by summarizing the global impacts of plastics pollution and the current international, national, and subnational plastics pollution policies. It then argues that broader market-based approaches can help address the global challenge of plastics pollution, identifies policy design choices for market-based pollution policies, elaborates on the similarities between plastics pollution and climate change, and then describes lessons from climate policy that can inform the design of plastics policies. The Article concludes by describing the applicability of these lessons from climate change to the emerging policy response to plastic pollution