Sunday, September 30, 2007

Chicago: between a rock and a stinky place

In Chicago, the projected greenhouse gas threat in the future is through the roof.

Governor Rod Blagojevich has various policies at hand to consider but all seem to come with high cost. Chicago's chief source for power is there huge coal reserves. Un fortunately, coal is one of the most polluting forms of electricity production. One considered policy for fixing this was to have the factories conain the emissions, rather than send them into the atmosphere. While this is possible, it would raise the cost of power to prohibitively high levels.

What he seems to be wanting to do is build newer coal factories that can constrain emissions more efficiently and cheaply. Going hand in hand with this, of course would be the mandate to reduce output on, or completely shutdown older, dirtier, less efficient factories.

If we have learned anything from the great Depression, it is that paying productive capital not to produce does not work.

What should happen is that we are looking for clean air which can either be classified as public good or a positive externality, either way the policy is the same. The cost of controlling the waste should be subsidized. That way producing more cleanly won't raise the prices. Since newer factories can clean more efficiently, they can "pocket" more of the subsidy. The innefficent older factories will naturally produce less then, for this reason as opposed to producing less for command and control reasons.

The subsidy would be paid by tax payers as a "fee" for enjoying the public good or the positive externality of a cleaner Chicago.

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