Legislative Strategy for Durable Climate Policy

The “Viewpoint” section of Resources magazine gives economists and climate researchers the opportunity to provide a new perspective on an important topic. In this issue, three Resources for the Future (RFF) scholars sit down together to debate how to make policy last beyond a single political cycle.

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Should we set broad goals first and get specific about the implementation details later, or take an alternative strategy of leading with legislative details to avoid “regulatory whiplash” and make sure goals can be achieved? Should carbon pricing and other policies begin with sectors or aim gung ho at the economy at large? How should decisionmakers reckon with uncertainty when implementing environmental policy?

Three RFF scholars discuss the merits of delegating authority to an expert agency, the challenges of designing politically palatable carbon pricing policy, and more.

Dallas Burtraw: For climate and energy policy to be successful, legislation needs to be durable and adaptable. We’ve learned this from 50 years of implementing the Clean Air Act—and by that, I mean borrowing the formal process and apparatus of the Clean Air Act, but not specific regulations like technology standards. Flexible regulations such as tradable performance standards, a carbon tax, or cap and trade could be implemented under this type of apparatus.

The Clean Air Act has been an enormously successful piece of legislation because, by its very design, it established goals and delegated to an expert agency the responsibility of achieving those goals. The success of the Clean Air Act came from the understanding that the legislation needed to be adaptable in order to be durable: in the context of climate and energy policy, uncertainty related to the underlying science, economics, and technology is especially prevalent, making adaptability so necessary.

These considerations make me question any “one-and-done” approaches to addressing climate; related policy will need to be constantly evaluated. It's challenging to imagine any policymaker setting a course at the outset that’s going to chart a straight path through the issues that are sure to arise in the coming decades.

In addition, we need to consider the dilemma of the nondelegation doctrine and the major questions doctrine. The doctrine of nondelegation says that the legislative branch shouldn’t delegate to an agency the authority to execute too much discretion in achieving a directive set forth in legislation. The major questions doctrine reserves major decisions for the purview of the most relevant branch of government—in other words, the pertinent question is regarded as too important for that branch to delegate to an agency.

These doctrines are surfacing because of opinions expressed by recently appointed members of the Supreme Court, who may want to revisit the ability of Congress to delegate to an executive agency and avoid technical implementation measures that go far beyond what might have been specified in the original statute. This all relates to the idea that Congress doesn’t “hide elephants in mouseholes”—so the agency can’t say, "Here's a little phrase in a bill that expresses concern about climate change, and through it, we’re going to redesign the entire US economy.”

The Supreme Court justices’ perspectives on nondelegation and major questions doctrines, which have become evident in some of their recently expressed views, make delegation to an expert agency legally risky; some advocates view the court as an obstacle to meaningful climate policy. Various legislative strategies to anticipate the court’s objections include not only careful legislative design, but also a severable hammer provision that can be put into legislation to trigger specific and stringent outcomes if preferable agency-led provisions are struck down. Hammer provisions might provide cover to those who are unprepared to talk about the specifics of policy design and would rather establish firm goals and delegate to an expert agency to develop the policy.

The approach of delegating regulatory implementation to expert agencies—governed by a formal process of fact-finding and citizen involvement—is, in a rational world, a preferable pathway than that of specifying and locking in the methods and process of implementation in legislation. Where you have trust across different branches of government or within society, you can allow an agency to develop programs that align with the regulatory goals you’ve set. But constitutional concerns, along with political and legal challenges, get in the way of delegating to expert agencies.

Sometimes—in the 1980s, for example—inaction and recalcitrance by the expert agency led Congress to become increasingly specific, and that’s what happened with the 1990 amendments to the Clean Air Act. As the executive branch sweepingly changed the direction of the US Environmental Protection Agency, Congress said, “Wait a second—if the agency is potentially under political capture, then we need to get more specific with what we write into the legislation.”

Importantly, all of these issues constitute a huge coordination problem—not only between demand and supply in the market, but also of infrastructure, long-lived investment of private-sector capital, and changes in consumer and personal behavioral norms.

Kevin Rennert: Dallas, if I can try to summarize what you’re saying: Your view is that the regulatory approach of delegating to different agencies the authority to reach a policy goal has the benefit of potentially being more flexible, adaptable, and durable over time. In comparison, the legislative approach doesn’t work as well if it means Congress must continually revisit the legislation to keep pace with updated science or economics. And that on the political front, it may be easier to get sufficient agreement in Congress around a set of overarching goals for reducing emissions, empowering agencies to do the work to achieve those goals, rather than to try and get agreement on the specific policy approach.

I think those are really interesting points. I agree that it’s probably easier to get policymakers to agree on the general scale of ambition for emission reductions if that conversation is separate from the conversation about the policy specifics of getting to those goals. Some supporting evidence for this strategy is the much greater number of cosponsors that you see for target-setting proposals like the 100% Clean Economy Act of 2019 introduced in the House, or the Clean Economy Act of 2020 introduced in the Senate, compared with the cosponsors for any of the other more policy-specific approaches.

But we’ve seen an important tension between these two approaches play out over time as Congress has considered climate legislation. If you look at the evolution of climate proposals across multiple Congresses, you see that past proposals generally started out relatively streamlined, tight, and concise—maybe on the order of 100 or 200 pages of bill text. But then, as the sponsors continued working toward passing the bills, more and more issues came up, and more and more tweaks were required to address additional policy details. If you look at page length as an indicator of how complex a bill has become (which, to be clear, is far from a perfect indicator), you see that the big cap-and-trade bills ballooned to well over a thousand pages of legislative text, because Congress was trying to account for all these additional details. Over time, Congress demonstrated that it was less comfortable with delegating to an agency to figure out the policy details, and wanted instead to own the specific solutions and build something flexible enough to account for future circumstances.

If the Congressional debate on climate policy gets serious, and a bill has a chance of moving, I suspect you’ll see that the same tension still exists in Congress. You might get agreement on an emissions goal, but many members of Congress still would feel significant discomfort at giving up control over how to achieve that goal. Part of that discomfort comes from potentially relinquishing control, but also from the reasonable view that Congress, by virtue of its ability to write laws, has the ultimate flexibility to work toward an emissions goal, because it can work across the full economy with a truly expansive set of tools—whereas an individual agency will have limitations in accordance with jurisdiction and statutory authority.

In addition to this question of “goals versus policy prescription,” another issue looming before the Congress is whether climate policy should take an economy-wide approach using a single policy instrument, or an approach that varies by economic sector.

Economists and many others favor using a single instrument uniformly across the entire economy, such as a carbon price, because it is the most economically efficient solution. It allows you to get the cheapest reductions throughout the economy, and it has the added benefit of raising revenue that can be used in a number of ways to support policy goals. So, it’s no surprise that quite a few carbon pricing bills have been proposed this Congress.

At the same time, policymakers have some valid, real-world reasons to explore more tailored approaches through sector-by-sector policy solutions. That exploration has been on display in legislation put forward by the Energy and Commerce Committee, reports put out by the House Select Committee on the Climate Crisis and the Senate Democrats’ Special Committee on the Climate Crisis, and elsewhere.

I’d suggest that part of the reason for this interest in the sectoral approach is that—based on what we know from economic modeling—the power sector can decarbonize at a relatively low carbon price, while other sectors, such as transportation and industry, would require relatively higher carbon prices to significantly reduce their emissions. An important question to consider is this: Even if enough momentum exists to put an economy-wide carbon price in place, are the momentum and political will sufficient to allow for a high enough carbon price to decarbonize the more difficult sectors, as well? It’s an additional lens on this question—not just, “Can you get it passed?” But also, “Can you get it passed at a level that will really get you to your broader goals?”

Working on sector-specific policies doesn’t necessarily reduce the challenge of decarbonizing these sectors overall, but does allow for tailoring the approach to the different challenges specific to those sectors.

DB: In deciding how low or high a carbon price should be, we should also consider impacts beyond the sectors being regulated. We celebrate prices in the economy because they’re a fantastic coordination mechanism for allocating resources. But if you set price signals that are high enough to achieve that coordination purpose, they can have some very disruptive effects—especially on some vulnerable communities, or on the competitiveness of some industries. The transition may be eased with directed policies, such as sector-specific performance standards to drive innovation, as opposed to relying on a price signal alone.

KR: Right. And all these concerns have led many people to think, “Maybe we should take a more tailored approach. Maybe we should try to work on sectors that are more tractable in the short term, such as the power sector, while laying a foundation for building the transition in other sectors, such as the transportation or industrial sectors.” You’ve seen these deliberations woven throughout what's come out of this Congress.

I think there’s a lot to recommend the sector-by-sector approach, because it allows policymakers to leverage lots of different tools. You might want to leverage the benefits of a clean electricity standard for the power sector. You might want to give the US Environmental Protection Agency additional authority over fuel economy regulations or other tools to address challenges in the transportation sector. You might want to assist industry in transitioning to lower-emissions processes in ways that a carbon price on its own wouldn’t do, or might do more slowly. Both the sectoral and carbon-price approaches have their proponents, but I think the current balance of political momentum is a bit on the side of that sector-focused approach.

Marc Hafstead: Climate change is a long-term problem; it’s something that we need to work on over decades. I certainly don't think we can establish a single policy, walk away, and say, “Our hands are clean; we solved it.” That would be naïveté of the highest order. It’s going to take revisiting. As Dallas says, it's going to take a flexible, adaptable policy.

There’s value to setting goals first and then delegating the specifics to agencies, because setting the goals first gives an idea of where we want to go. And I think that, especially for a long-term problem, it’s good to know where we want to go.

But I’m also skeptical of delegating authority to agencies, for a couple of reasons.

First, when you have a new administration, that administration is in charge of the agencies, and you can get regulatory whiplash pretty quickly. I don’t think that seesawing of regulations is going to get us to where we need to go. Second, policymakers can design policies to put in place today and make sure they’re flexible, without specifically relying on executive agencies.

I'm thinking of the example of the Regional Greenhouse Gas Initiative. A cap-and-trade program, the initiative has regular reviews every few years, when it’s allowed to change the cap and evaluate how the program is doing. For carbon tax proposals, flexibility could look like an automatic tax adjustment mechanism, which I’ve worked on, or the proposal by Joseph E. Aldy for a set of regulatory agencies to get together and make a recommendation to the president for what a new carbon price should be.

So, I don’t think we’re going to solve this problem without flexibility and adaptability in our policy approach.

If we look at examples up to this point from US states, clearly the states come at it with the approach of setting goals and delegating authority. I think that’s where we can look to learn lessons and draw from their success.

California is an example where delegation was successful. What California did was set its goals and allow the state agencies to figure out how they wanted to reach those goals. I think the reason it was successful was because they included language that allowed the state to consider a policy that many (including us) think is a pretty good one, which is the economy-wide cap-and-trade program. It’s not clear that other states following similar patterns are going to be as successful if they don’t give a similar flexibility to the state agencies.

New York, as a counterexample, passed its climate law—a goals-based approach that delegates authority to a committee. But at the same time, they’re tying the hands of the committee by requiring X amount of solar and Y amount of wind power. So, they’re delegating the authority, but at the same time, they’re putting clear preferences on what they want that authority to do.

The state of Colorado is taking an approach that creates goals first and sets policy specifics later. In 2019, Colorado passed sweeping, quite ambitious goals, and they delegated authority to the Air Quality Control Commission, whose job this summer was to come up with the rules that will help the state achieve those goals. We will see where their process will go.

California was a success; I think the jury’s out on New York and Colorado.

DB: Marc, I appreciate what you’ve said, but California also has coupled carbon pricing with policies to force innovation. California led the nation in vehicle fuel efficiency standards, and had renewable portfolio standards that have now morphed into a clean energy standard that's quite ambitious, to keep their finger on the scales with respect to directed technological change, even while they have an economy-wide carbon price.

While I think all decisionmakers would share the view that a carbon price has great potential to be effective, they also realize that a high enough carbon price is not politically sustainable. So, many decisionmakers would consider a policy mix to be the best way to move forward.

MH: Maybe a better question for this discussion is, Could California have passed an economy-wide cap-and-trade bill that would have achieved the same types of reductions that they’ve been achieving through the policy approach they actually took, which is allowing the state agencies to figure out how to do it? Dallas, you know California better than I do, but my guess is the answer is probably no.

DB: I love that question, and I’ve never heard it asked quite that way. I don’t think anybody would say yes. I don’t think that California could have taken an alternative economy-wide approach only and achieved the same result.

MH: If states want to go and address climate change on their own, in the absence of federal policy, I think a goals-first approach would be preferable and probably would be more politically feasible. The goals-first approach also allows for flexibility when and if there’s ever federal policy. But I think language needs to be included that can set the boundaries of what agencies can do, at the expense of a little flexibility.

At the federal level, I would think that, to succeed, we’re going to need a hybrid approach that provides some language about our stated goals, but also sets up a framework that doesn't allow regulatory backlash when administrations inevitably change.

DB: I’m totally on board with what Marc just said.

KR: I completely agree, as well. I think having a hybrid approach that includes stated goals along with some sort of policy structure to get you to those goals is probably what would carry the day here.