Posted by Eric Posner:
Pay automakers to cut greenhouse-gas emissions?
http://volokh.com/archives/archive_2008_12_07-2008_12_13.shtml#1228919238
You probably did not notice that the auto bailout [1]bill has such a
provision. It does; it is the very provision to which [2]Eugene drew
our attention yesterday:
(g) WITHDRAWAL FROM CERTAIN ACTIONS. � The terms of any financial
assistance under this Act shall prohibit the eligible automobile
manufacturer from participating in, pursuing, funding, or
supporting in any way, any legal challenge (existing or
contemplated) to State laws concerning greenhouse gas emission
standards.
Section (g) sounds like a prohibition but recall that the bill does
not obligate automakers to do anything. Automakers have the option to
turn down financing offered by the �czar.� Suppose, then, that
automakers believe that the net present value of challenging some
current or future state greenhouse gas regulation is 100. Automakers
will give up this option only in return for an amount of money greater
than or equal to 100. This would take the form of favorable financing
terms�interest rates, or whatever. Thus, Congress�that is, the
taxpayer�pays automakers not to challenge state greenhouse gas laws
that presumably do or will cause automakers to reduce emissions.
You might think that automakers are in no position to demand an extra
100, but that would misconceive what is at stake here. The automakers
have quite a bit of bargaining power: if the czar does not give terms
that increase the value of equity, then the automakers can go out of
business, causing immense suffering to the two important
constituencies driving the bill�workers and creditors. Of course, the
automakers will be better off with financing than without it, but the
point is that they will be better off only if they are better
off�meaning taxpayers must give them that extra 100 to cause them to
drop positive net present value projects worth 100, on top of
everything else.
Well, so what? It is surely better for the automakers to comply with
state greenhouse gas laws than to challenge them, and if we have to
pay them to comply with these laws, then maybe that is the best we can
do. After all, the normal legal response to pollution is to tax or
restrict behavior�a federal law that curbs greenhouse gas emissions
(several are floating around), and not just of automakers but of
everyone. The normal response would impose enormous costs on
automakers at the same time that we are trying to reduce their costs!
With one hand, we give by reducing the cost of credit; with the other
hand, we take away by increasing the cost of production.
If you support the bailout bill as a kind of public works project,
then you might have second thoughts. Wouldn�t it be better to pay
people to engage in useless activity (digging and filling holes, say)
than destructive activity (working in factories that emit greenhouse
gases and cars that no one wants). If you support the bailout bill
because you believe the public relations reason�that it is temporary
financing necessary to save a healthy industry during a credit
crunch�then you should be uneasy about section (g). Here�s why:
1. It almost never makes sense to pay polluters to stop polluting.
That exacerbates tax distortions and encourages new entrants into the
industry, who will have to paid off as well. Ask yourself how you
would respond to this headline: �Congress announces that it will pay
industry to stop polluting.�
2. The state laws could well be idiotic, and, even if not,
inconsistent with the states� constitutions. Why should Congress pay
people not to challenge defects in state law? (At present, few,
perhaps no, state laws impose meaningful restrictions on automakers
but that could change in the future.)
3. Section (g) does not apply to any automaker who refuses a deal; it
also cannot apply to foreign automakers. That means foreign automakers
remain free to challenge the state laws (by the same token, it won�t
be necessary to pay domestic automakers much to refrain from doing
so).
4. State laws that restrict automakers probably will have virtually no
benefit for the climate. Any sensible climate regulation has to apply
to all or nearly all sources of greenhouse gases (to avoid
substitution) and has too apply to the entire nation, indeed to the
entire world.
For more on the bill, see [3]Randy Picker, [4]David Zaring ("tough
oversight"? where?), and [5]Steven Davidoff.
References
1. http://static1.firedoglake.com/28/files//2008/12/bailout-proposal.pdf
2. http://volokh.com/posts/1228844407.shtml
3.
http://uchicagolaw.typepad.com/faculty/2008/12/the-car-bill-bailout-dead-on-arrival.html
4. http://www.theconglomerate.org/2008/12/oversight-const.html
5. http://dealbook.blogs.nytimes.com/2008/12/09/the-new-auto-bailout-bill/
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