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CHAPTER EiGHT Policy Durability and Adaptability T he complexity of efforts to reduce greenhouse gas (GHG) emissions and the breadth of change necessary to achieve large reductions mean that the portfolio of U.S. climate change policies will need to be continually evaluated and revised as we gain new information and experience. Devising an optimal long-term policy portfolio from the outset is unlikely, because many of the policies that need to be en- acted have never been tested at the national level, and also because climate policies cut across virtually every sector of the economy and are likely to interact in unex- pected ways. It is therefore crucial that any major climate change policies enacted by Congress include flexible, adaptable mechanisms for responding to new information. At the same time, however, it is crucial to ensure that the policies enacted are durable—that is, properly enforced and resistant to subsequent distortion and un- dercutting. There are inherent tensions between these goals of adaptability and durability, and it will be an ongoing challenge to find an appropriate balance between them. To help meet this challenge, it is imperative that processes be established at the outset for generating and disseminating to policy makers a broad array of information about relevant scientific and technological developments and about the effectiveness and costs of existing policies. These concepts are discussed further in the following sections. POLICY STABILITY, DURABILITY, AND ENFORCEMENT Climate policy must be sufficiently durable to last for the decades that will be required to achieve a long-term transition to a low-carbon economy. Both the types of policy instruments chosen and the ways in which these policies are implemented will af- fect their durability. There has been a great deal of variation of the durability of policy reforms in U.S. experience. Understanding the sources of this variation is extremely important in order to increase the probability that legislation to limit the magnitude of climate change will be sustainable in the long run. Patashnik (2008) studied the question of reform sustainability in the context of the Tax Reform Act of 1986 and the “Freedom to Farm” Act of 1996. Both acts kept in place ex- 

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L I M I T I N G T H E M A G N I T U D E O F F U T U R E C L I M AT E C H A N G E isting institutional structures and well-organized interest groups ready to whittle away or even reverse the policy reforms. The Tax Reform Act, hailed as a landmark at the time, was virtually nullified over the next 20 years by legislation enacting exceptions and changes. The market-oriented reforms of the “Freedom to Farm” Act were largely reversed 6 years after enactment. In contrast, airline deregulation enhanced efficiency, destroyed the old institutional structure (centered on the Civil Aeronautics Board), and fostered a market-led reor- ganization of the industry. Old carriers entered bankruptcy; new low-cost carriers, empowered by a deregulated environment, were created. It soon became clear that it would be pointless to try to reverse deregulation, discouraging efforts to do so. Most directly relevant to climate change policy, Title IV of the 1990 Clean Air Act (CAA) Amendments, establishing a cap-and-trade system for SO2, has transformed this policy area and become self-sustaining, with no prospect of returning to command- and-control regulation. It has persisted for at least three reasons. First, it achieved its environmental objective and did so in a cost-effective fashion. Second, firms preferred to make their own decisions and face emissions prices rather than have command- and-control regulations imposed on them. Third, Title IV created what were in effect (if not strictly in law) property rights in emissions allowances, which gave their holders incentives to support continuation of the program. The banking provisions of Title IV were politically important, because firms that had banked allowances had particularly strong incentives to favor continuation of the system (Patashnik, 2008). Successful reforms create or rely on government structures that are designed to support the reforms. They change the agents (or coalitions of agents) that dominate policy implementation. Specifically, reforms are sustainable when the major players have interests in their continuation. A key lesson for ensuring policy durability is to create a constituency that benefits from the policies and therefore has a vested inter- est in maintaining them. As explained in Chapter 4, this rationale may, in some cases, provide a basis for preferring a cap-and-trade scheme, which creates property rights in holders of emissions allowances. Similarly, regulatory policies that spur technological innovation can create a constituency for ongoing federal regulation, something that has occurred previously, for instance, with hazardous waste regulation and reformu- lated gasoline requirements (Lazarus, 2004; Revesz, 2001). For example, if Congress provides ambitious incentives and funding to stimulate the development of carbon capture and storage, firms that have developed the needed technological advances are likely to advocate federal policies that require the use of such technology. Although policy instrument choice can enhance policy stability, even the best-crafted legislation can face significant impediments that undermine its support in the imple- 

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Policy Durability and Adaptability mentation stage. For instance, although many of the major federal environmental statutes enacted in the 1970s have achieved significant environmental success, the record of implementation and enforcement of the statutes is frequently marred by delays and failures to enforce. Even today, for example, numerous areas of the country remain in violation of key provisions of the CAA. Similarly, widespread violations of the Clean Water Act have been reported to occur regularly across the country, and yet the Environmental Protection Agency (EPA) and state authorities have failed to take enforcement action against even egregious violators (Duhigg, 2009). Given the need to move quickly to cut GHG emissions, special attention should be paid to ensuring that emissions-reduction policies are well implemented and properly enforced. Many programs have been significantly hampered in their implementation because the implementing agency lacks the appropriate level of staff necessary to carry out its responsibilities. This was likely the case in the early 1970s, when the EPA was tasked with simultaneously implementing a number of new and highly complex statutes. Similarly, the Department of Energy (DOE) appears to have been understaffed for years in the appliance efficiency standards program, leading to long delays in the issuance of updated standards (GAO, 2007). At a minimum, Congress should ensure that agencies have appropriate levels of staffing necessary to implement complex policies. Staffing concerns also relate to the question of policy durability discussed above. In order to reduce the likelihood that policies are undermined by special interests or waning public attention, Congress could help buffer the policies from the annual ap- propriations process and ensure adequate funding levels by providing agencies with self-financing for staffing purposes (Lazarus, 2004). The agency administering cap-and- trade offsets, for instance, could be authorized to charge a fee to offset users in order to fund the staff needed for effectively overseeing offset administration. It is worth noting that Congress has sometimes taken an even stronger approach when concerned that interest group opposition to regulatory activity might delay or obstruct action. For example, when Congress amended the Resource Conservation and Recovery Act in 1984, it set statutory deadlines for the EPA to issue pretreatment standards for various categories of hazardous waste before the waste could be dis- posed of on land. The EPA had previously violated deadlines in issuing regulations, in part because of industry lawsuits. Congress was therefore wary of further delay and included this regulatory “hammer” provision to encourage industry to cooperate with the EPA in its development of standards in order to meet the statutory deadline. These 

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L I M I T I N G T H E M A G N I T U D E O F F U T U R E C L I M AT E C H A N G E sorts of hammer provisions are not always successful,1 but this example illustrates that Congress has numerous tools at its disposal in implementing complex statutes. Different policies will have different requirements for ensuring effective implemen- tation and enforcement. Below are two examples associated with complementary policies, which illustrate how effective implementation is needed to ensure that GHG emissions targets are actually achieved. Example 1: Effective Implementation of Renewable Portfolio Standards A Renewable Portfolio Standard (RPS) requires electricity retailers to purchase a cer- tain percentage of electricity supplies from renewable sources such as solar and wind. A central issue in ensuring the integrity of an RPS program is preventing the double- counting of renewable resources by more than one electricity retailer, which would significantly undermine the effectiveness of a program. One strategy to avoid double- counting is to prohibit retailers from using voluntary consumer purchases of renew- able energy to count toward the RPS. There will also be a need to ensure that the federal program works in concert with existing state programs. For example, if federal credits are tradable with state credits, this would raise complicated questions if the federal and state programs differed re- garding what constitutes an eligible resource. It seems wise, in this case, for the agency designated to administer an RPS to be given regulatory authority to promote flexibil- ity in the administration of state programs while ensuring that efforts to harmonize state and federal programs do not lead to undermining the effectiveness of the RPS. Another important implementation question is how to track renewable energy credits (which provide a record of renewable energy produced and allow for credit trading) in order to verify them and trace their ownership (Cory and Swezey, 2007). The admin- istering federal agency must be given sufficient resources to design and develop an effective tracking mechanism. It will be useful to draw upon the experience gained by states that have already developed such programs. For the administering agency to enforce the RPS standard in a meaningful fashion, it also will need authority to investigate and penalize entities that violate the rules of the RPS program, including electricity retailers and renewable generators. Moreover, electricity retailers that fail to meet their RPS obligations should face fines or alterna- 1 In one example, a drop-dead provision in the Clean Air Act aimed at preventing a failure to meet auto emissions standards subsequently had to be amended when no domestic auto manufacturers were prepared to meet the deadline. 

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Policy Durability and Adaptability tive compliance payments. Finally, the administering agency must be given adequate budgetary resources in order to staff the program effectively. Example 2: Implementation of Appliance Efficiency Standards Appliance efficiency standards will likely be part of the national policy portfolio for reducing GHG emissions. The DOE has long had authority to issue appliance standards and is required by statute to periodically reevaluate and reissue new standards for a large number of residential and commercial products. States are generally preempted from issuing their own standards if federal standards are in place, unless the DOE grants a state waiver based on stringent statutory requirements. To date, DOE has missed every congressional deadline set for establishing energy-efficiency standards (GAO, 2007). The Government Accountability Office (GAO) concluded that a principal reason for this failure to comply with statutory deadlines has been the lack of suffi- cient funding to adequately staff the program. This implies that, at a minimum, Con- gress needs to provide adequate funding for DOE to meet its statutory obligations in a timely fashion. Congress may want to take additional measures to strengthen the likelihood that appliance standards will be issued as early as possible, in order to maximize energy savings and consequent GHG emissions reductions. In particular, Congress could make it easier for states to set their own appliance standards. The current waiver language requires a state to demonstrate that more stringent state regulation is necessary to meet “unusual and compelling State or local energy or water interests” that “are sub- stantially different in nature or magnitude than those prevailing in the United States generally” (42 U.S.C. 6297(d)(1)(A) (2007)). To date only one waiver request has been filed (by California), and it was denied. Congress could alter this preemption language by instead allowing for waivers if the proposed new appliance standards are more stringent than federal law. Other possible options include allowing a “California ex- emption” (as with autos) or allowing for alternative state standards if DOE has missed its statutory deadline for setting new standards. GENERATING TIMELY INFORMATION FOR ADAPTIVE MANAGEMENT Congress and the executive branch must remain informed about a wide array of scien- tific, technical, and economic information related to climate change and to our nation’s response strategies. In some contexts, policy makers face a paucity of relevant infor- mation (for instance, subnational-level policy makers may lack needed information 

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L I M I T I N G T H E M A G N I T U D E O F F U T U R E C L I M AT E C H A N G E about location-specific climate change impacts). At the national level, the problem is not necessarily a lack of information, but rather the fact that available information can be scattered and unwieldy to manage and can get lost among the huge array of issues competing for the attention of policy makers. There are a variety of strategies that could be used to help address such concerns, as discussed in ACC: Informing Effective Responses to Climate Change (NRC, 2010b). We suggest, as one example, a process in which the President periodically (e.g., every 2 years) reports to Congress on key developments affecting our nation’s response to climate change. This “Climate Report of the President” can be seen as analogous to the Economic Report of the President (prepared annually by the Chair of the Council of Economic Advisers), which sets forth the President’s national and international eco- nomic policies and reports on the state of the nation’s economy. Another example is the reporting requirement imposed on the EPA in Title VI of the CAA, which requires the agency to report to Congress every 3 years on the concentra- tion and impacts of gases that deplete the stratospheric ozone layer. Placing these sorts of reporting mechanisms at the presidential level (rather than the federal agency level) may pose some risk of politicizing the issues involved, but in the case of climate change policy, this may be essential for ensuring sufficient attention to the issue. In ad- dition, the wide array of national and subnational entities involved in addressing this issue may render an agency-level reporting mechanism impractical. Regardless of the exact mechanism used, this sort of reporting requirement would serve the purpose of creating a focal point for decisions on climate change and an opportunity for advocates on all sides to attract attention to their criticisms and ideas for policy change. Politicians can use the opportunity to float alternative proposals or call attention to weaknesses in the implementation of current policies. Nothing can force recalcitrant bureaucracies to act, but public scrutiny can motivate them to make decisions or be more energetic about enforcing their own rules. In addition, regula- tory mechanisms can be established that force agencies to act upon significant new information that becomes available through the report. This sort of assessment and reporting process is of course a significant undertaking, which would require staffing and resources from (and coordination among) numerous government agencies. But the process could build upon several existing government mechanisms for periodic reporting on key climate change information—including, for instance, the annual GHG emissions inventory carried out by the EPA, and the U.S. Cli- mate Action report organized by the State Department as input to the United Nations Framework Convention on Climate Change and the annual “Our Changing Planet” 0

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Policy Durability and Adaptability report compiled by the U.S. Global Change Research Program. In comparison to these existing efforts, this process would examine a wider base of information pertinent to the effectiveness of U.S. efforts to limit the magnitude of future climate change. For instance, it may include updates on • national and global emissions trends and their relationship to developments in our understanding of climate change science (including reporting on whether the United States is making sufficient progress toward meeting its GHG budget); • energy market developments and trajectories; • the implementation status, costs, and effectiveness of GHG emissions-reduc- tion policies; • the status of the development and deployment of key technologies for reduc- ing GHG emissions; • the distributional consequences of emissions-reduction policies across in- come groups and regions of the country; and • developments in understanding of climate change impacts and vulnerability to those impacts; updates of adaptation plans and actions under way at fed- eral, state, and local levels. As discussed above, climate change response policies must have stability, to ensure that investment incentives are maintained, but they will also need to evolve as new information becomes available and as we gain more experience with various policy choices. Lessons can be drawn from other policy areas about how to strike this bal- ance between stable but adaptive regulatory mechanisms. For example, CAA Section 108 requires the EPA to establish National Ambient Air Qual- ity Standards (NAAQS) for pollutants that “may reasonably be anticipated to endanger public health or welfare.” By including within the statute a broad definition of “pol- lutants” (and setting a scientific threshold for adding new pollutants that is neither negligible nor unreasonably high), Congress has allowed the EPA to add standards for new pollutants as more scientific information becomes available. The EPA used this authority to add a new NAAQS for fine particulate matter (PM2.5) in 1997, almost three decades after the process was established. Likewise, Section 108 specifies a process for revising existing ambient standards as the underlying scientific evidence changes. Again using PM2.5 as an example, the EPA revised the 24-hour NAAQS in 2006 and has periodically revised others, including standards for ozone. Congress may wish to consider applying similar evolutionary mechanisms to climate legislation. The definition of GHG pollutants, for example, should be broad enough to include any gases subsequently discovered to contribute substantially to climate 

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L I M I T I N G T H E M A G N I T U D E O F F U T U R E C L I M AT E C H A N G E change. And in any statutes setting performance standards, language should be included that requires the implementing agency to update the standards based on new scientific and technical information. These sorts of regulatory mechanisms can themselves serve as focal points for agency action and for advocates on all sides of the climate debate to encourage agency responsiveness. Adaptive policy mechanisms can also be applied to market-based policies. For in- stance, harvesting caps in fisheries around the world are often set annually, rather than having a fixed cap. The annual cap is based on the best available science on fish stocks for that year. Rights to harvest a specific amount of fish each year (akin to emissions allowances in a cap-and-trade program) are then allocated to rights holders as a per- centage of the cap (NRC, 1999). Similarly, Congress could consider providing authority to the administrator of a cap-and-trade program to alter the cap on a periodic basis in response to new information about progress in meeting long-term emissions goals, the cost of pricing mechanisms, and changes in available technologies. An example of another policy evolution mechanism is Japan’s Top Runner Program, which uses progress in the commercial development of efficiency technology for vehicles and appliances to set efficiency standards. The program works by using the energy performance of the best available technology on the market to set standards. The standards typically take effect 4 to 8 years after the technology is available com- mercially. For passenger automobiles, for example, Japan set Top Runner standards in 1999 to improve fuel economy by 22.8 percent by 2010; the targets were met by 2005. Preliminary analysis suggests that the program has been quite effective in moving Japan toward its targets for cutting GHG emissions (METI, 2008; Nordqvist, 2006). Similarly, statutory deadlines that require the adoption of updated efficiency stan- dards for appliances and automobiles can produce policy evolution. As noted above, however, federal agencies have frequently missed statutory deadlines, so care needs to be taken that the responsible agency has sufficient resources and staffing in place to meet deadlines. KEY CONCLUSIONS AND RECOMMENDATIONS The strategies and policies discussed in this report are complex efforts with extensive implications for other domestic issues and for international relations. It is therefore crucial that policies be properly implemented and enforced, and that they be de- signed in ways that are durable and resistant to distortion or undercutting by subse- quent pressures. At the same time, policies will need to be sufficiently flexible to allow for adaptation as we gain experience and understanding. There are inherent tensions 

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Policy Durability and Adaptability between these goals of durability and adaptability, and it will be an ongoing challenge to find a balance between them. Such efforts require transparent, predictable mechanisms for policy adaptation and processes for ensuring that policy makers receive timely information about scientific, economic, technological, and other relevant developments. A process for periodic col- lection and analysis of key information related to our nation’s climate change response efforts (for instance, in the form of a “Climate Report of the President”) would provide a focal point for analysis, discussion, and public attention. The process would be particu- larly useful if it includes requirements for the responsible implementing agencies to act upon pertinent new information gained through this reporting mechanism. 

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