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Thursday, February 11, 2010

Green incentives: incentives vs regulation

While football is my favorite sport, this was one of those years where I watched the Super Bowl more for the ads than the game. (It turned out to be a surprisingly fun game.)

As in previous years, many of the ads turned out to be more entertaining than effective. Our family’s favorite ad — got us all to laugh — was the Budweiser ad that satirized the TV series “Lost” (now in its final season). But no amount of advertising would get me to drink Bud, or my wife or tween to drink beer under any conditions whatsoever.

But an ad that closely linked the message to product — and one that’s stirred a controversy for several days afterwards — is the “Green Police” ad for the Audi A3 TDI turbodiesel. (I originally thought it was for VW, but since they have the same corporate parent and similar powerplants, the confusion was understandable.)

If you happen to have been on Mars, the ad shows teh Green Police busting citizens for various far-fetched environmental transgressions. It was accompanied by a redub of Cheap Trick’s hit “Dream Police” to sing the words “Green Police” to the original music.

USA Today’s green blogger Wendy Koch endorses the ad:
The ad is not just another pot shot at greens. It's an appeal to a new and growing demographic that isn't hard-core environmentalist -- and doesn't particularly like hard-core environmentalists -- but that basically wants to do the right thing. Audi's effort to reach them, however clumsy, is actually a bit ahead of the curve.
While it’s just an ad — and a funny one at that — there’s still something about the satire that hits a little too close to home. As one blogger put it, “it feels eerily like a near-future dystopia.”

The ad was made in San Francisco, which has an actual composting mandate as in the ad. Koch notes that Israel, UK, New York state, Vermont have special police authorities to sanction CO2 emissions or other anti-green crimes.

Whether the green police are real or not, I think there is a broader question of using regulation rather than prices to encourage socially desirable behaviors in a market economy.

In a great triumph of hope over realism, we hoped that centralized command-and-control bureaucracries (ala 1984 and Des Lebens des andres) died with the Berlin Wall in 1989. Alas, the once-free liberal democracies seem to be approaching central planning quicker than the former Soviet republics are approaching free markets.

It’s not that market approaches are unavailable. Most of the problems of the US EE and RE industry — long payoff periods, unpredictable substitute costs, uncertain investment climates — could be solved quickly and simply by tripling or quadrupling the price of fossil fuels via a fixed carbon or extraction tax — and returning the money via individual and corporate income tax cuts. More complex systems (like cap and trade) have proven they are amenable to fraud and political payoffs .

The one minor problem is that any politician voting for such an increase in the cost of gasoline, natural gas, heating oil and electricity would be unemployed at the next election. So those who advocate European-style or Japanese-style oil prices will never see their theories tested.

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