19 September 2010

More on the "Iron Law" of Climate Policy

In The Climate Fix, I discuss an empirical reality that I summarize as the "iron law" of climate policy.  The "iron law" simply states that while people are often willing to pay some price for achieving environmental objectives, that willingness has its limits.  Such limits may fall at different thresholds for different places at at different times.  The iron law seems so common sense that I am always surprised when I hear objections to it.

It shows up on the front page of today's NYT, in a comment by Elke Weber at Columbia University:
“Most Americans want to do things that are good for the environment, but not everyone wants to pay the price”
Here is a thought experiment that you can conduct to see if you too follow the "iron law":  Imagine some environmental objective, such as reducing greenhouse gas emissions.  Would you agree to pay $1 to achieve that objective?  Most everyone would say, "sure, why not, it is just a dollar."  OK then, would you agree to pay $1 million dollars to achieve that same objective?  Most people would say, "I don't even have a million dollars, and if I did, I could probably find other uses."  

If you are like most people as I've characterized them above, then you have a preference function that runs between $1 and $1,000,000 which shows a decreasing willingness to pay as the price goes higher.  Certainly in the aggregate such a function accurately characterizes public opinion.  A decreased willingness to pay might be because of competing values (you'd rather send your kids to college than pay for environmental objectives) or because of means (your ability to pay is financially limited). 

Such a preference function using actual public opinion data is illustrated in Figure 2.4 of The Climate Fix, which draws from the bottom panel of the figure at the head of this post, for the US in 2009.  The Figure show support for a "climate bill" decay rapidly as a function of annual household cost.  The implications of the "iron law" for both climate policy and politics will be the subject of later posts.