Efforts to efficiently lower carbon emissions have resulted in many plans and proposals that ignore the distribution of the resulting costs and benefits. For example:

· "Renewable Energy Portfolio" requirements imposed on electricity generators may result in higher power costs if the traditional coal-fired power costs less than the new wind or solar power that companies have to buy, so advocates for the poor may oppose them.

· The off-site effects of renewable energy generating facilities - especially waste-to-steam and landfill methane recapture systems - may raise environmental justice concerns if the negative impacts are felt primarily by the poor or minority groups.

· Emissions controls on traditional manufacturing industries may eliminate factory jobs, so workers in those industries would tend to oppose them unless they were assisted to adjust.

· Building code energy efficiency standards may be opposed by those concerned about higher costs, including urban infill and brownfield redevelopment advocates, whether or not the fears are actually warranted.

An efficient program that minimizes any fall in state or local economic productivity - or even grows the economy in the process of adaptation - thus may run into political opposition that could be avoided.

A concern for the distributional impacts of programs thus needs to be central to the development of politically viable climate change policies. The resulting policies may be more efficient in terms of their aggregate economic costs than those that ignore the equity issue, and they will be more likely to avoid some political opposition and to gain new supporters.

The problem in legislative policy development is that distributional impacts are often overlooked by accident, not intent. In most instances, this oversight occurs when the issue of who can take advantage of an incentive is not addressed. Consider one example of a general principle:

State Tax Credits for energy efficiency improvements in buildings, in production processes, etc., are only available to those who can get the capital to make the investments. Low income homeowners, small and marginal businesses, and others with limited assets and borrowing capacity generally cannot benefit from tax credits, so richer taxpayers gain relative to poorer ones.

State-Subsidized Loans offer a preferable alternative. They can be financed through bond issues with the debt service covered by the resulting energy cost savings may actually cost to the state budget than the tax credits, but everyone could benefit from them, even people who do not have investment funds available to them. Even if state funds are needed for some debt service, those costs are shared in accordance with normal state tax policy, not modified to benefit only those with access to capital.

The same logic applies to state support for actions that local governments and school districts may take to lower emissions, whether reducing their own operating energy inefficiencies, revising land use policies to help residents use less power, investing in some forms of mass transportation, or even using local land and facilities for power generation. If the local units are tax stressed or have low bond ratings, they will be less able to make the investments needed to get a state match or subsidy. As a result, the state funds would tend to flow to more affluent localities and their residents unless the state program does not automatically require expenditure of locally controlled funds.

Income inequality thus can distort the equity of emissions reduction programs. But equity is not merely a matter of distribution across income levels. It also needs to be applied across space.

Programs that only benefit cities - or suburbs or rural areas - may be opposed by those that see only costs to them and gains to others. Two common types of state programs offer examples of often overlooked unequal geographic impacts:

· State support for school construction may be limited to new schools, excluding rehabilitation of existing buildings. Such a program is biased toward areas with population growth and a need for new schools. It also is costly since underutilized buildings - or extreme energy inefficiency in them - are not likely to be fiscally efficient either. But supporting only school rehabilitation would be equally geographically unequal - and could result in energy inefficient cost cutting in new school construction. A balanced approach would take local need - and financial capacity - into account as well as the energy saving or power generating potentials involved, especially since they, in turn, affect the financials.

· State road construction programs sometimes dedicate a pool of funds to the single activity of building new roads. (Maintenance of existing roads may be turned over to local governments or provided for by a separate account in the state department of transportation.) Again, such a program channels funds to the growing parts of a state. The specialized pool of money has the additional effect of potentially overbuilding new roads if growth slows and there is a lag in adjusting the funding stream. Rather than operate with specialized funding for different aspects of road provisions - or even with segregated funds for roads on the one hand and mass transit on the other - transportation departments should take more coordinated approaches to balance benefits across space. They would be more cost-effective in providing transportation support in the process, and also could contribute more directly to state emissions reduction efforts.

Both these examples address another aspect of equity and efficiency: the relationship between administrative cost and program efficiency. It costs more to manage a planning and resource allocation process that adjusts to changing conditions and takes a range of local trends and other factors into consideration than to create segregated pools of funds that then just need to be spent. As a result, for a fixed appropriation to, say, a roads program, less would be spent on the roads themselves and more on "the bureaucracy."

That does not look good: it appears at first glance that balancing needs and paying attention to equity is inefficient. But if the funds actually spent go where they are most needed and none gets spent that is unnecessary, total cost could fall.

Spending legislation can provide incentives to bureaucrats to save and reallocate. But it, too, requires more effort from a state legislature and more care in crafting bills that do not delegate too much administrative discretion when there is a specific legislative intent.

A concern for equity may be politically necessary in the pursuit of energy efficiency. It is also likely to contribute to budget and fiscal efficiency if it generates legislative demands for more careful and objective planning of expenditures and bureaucratic allocation of funds.

Peter B. Meyer
October, 2008