Implicit Subsidies for High Carbon Development
The Los Angeles DWP has a big ad in the LA Times today announcing its electricity pricing tiers for Summer 2009. It says that the DWP Service Area covers several different climate zones. Households who live in hotter climate zones will face the low price Tier I for longer than households who live in cooler parts of the service area. Intuitively, there is some cut point such as 600 KWH such that a household in a cool area will be bumped up to the higher Tier II price while a household in the hot area will only be bumped up to the same higher Tier II price if its consumption exceeds perhaps 1000 KWH.
The Sierra Club should oppose this. To the atmosphere and climate change, a kilowatt hour of power is a KWH. It generates the same carbon regardless of where it is consumed. This is an implicit spatial subsidy encouraging development in East LA rather than near the coast.
When economists see inefficient policy, we ask why? In this case, the political economy is easy. On average, people are poorer the further east you go. Conversely, people are richer the closer you get to the Pacific Ocean. Think of Santa Monica, Malibu and the Palisades. So LADWP has introduced a progressive tax that implicitly redistributes from coastal people to inland people.
Now why don't the coastal people yell? As a % of total Los Angeles, they are a small share and these rich folks may not want poorer people demanding to live closer to them.
But, the atmosphere should care! If we are serious about fighting climate change then these types of implicit hidden subsidies must be fought . There needs to be a leveled development playing field to encourage higher density development in the low carbon areas of the state. This is how California can meet the AB32 goals.
Here are the facts on the cutoff points for the tiers and the rates at each tier:
http://www.ladwp.com/ladwp/cms/ladwp001710.jsp
I forgot to add one other point. If people who live in hot areas face a higher marginal electricity price, they will have a greater incentive to buy more energy efficient appliances. Household total electricity demand is a function of locational choice, housing structure style and form,durables choice and utilization. Ideally, price signals will affect all four of these margins.
The Sierra Club should oppose this. To the atmosphere and climate change, a kilowatt hour of power is a KWH. It generates the same carbon regardless of where it is consumed. This is an implicit spatial subsidy encouraging development in East LA rather than near the coast.
When economists see inefficient policy, we ask why? In this case, the political economy is easy. On average, people are poorer the further east you go. Conversely, people are richer the closer you get to the Pacific Ocean. Think of Santa Monica, Malibu and the Palisades. So LADWP has introduced a progressive tax that implicitly redistributes from coastal people to inland people.
Now why don't the coastal people yell? As a % of total Los Angeles, they are a small share and these rich folks may not want poorer people demanding to live closer to them.
But, the atmosphere should care! If we are serious about fighting climate change then these types of implicit hidden subsidies must be fought . There needs to be a leveled development playing field to encourage higher density development in the low carbon areas of the state. This is how California can meet the AB32 goals.
Here are the facts on the cutoff points for the tiers and the rates at each tier:
http://www.ladwp.com/ladwp/cms/ladwp001710.jsp
I forgot to add one other point. If people who live in hot areas face a higher marginal electricity price, they will have a greater incentive to buy more energy efficient appliances. Household total electricity demand is a function of locational choice, housing structure style and form,durables choice and utilization. Ideally, price signals will affect all four of these margins.
posted by Matthew E. Kahn at 9:16 AM
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