What are we arguing about when we argue about how to regulate the electricity industry? (though this thread applies to most types of regulation) Two things, both of which matter:
1) What strategy gets us the physical outcomes that we want?
2) How are costs/benefits distributed?
1) What strategy gets us the physical outcomes that we want?
2) How are costs/benefits distributed?
Often times, discussion about regulation strategy focuses on one or the other of these arguments. Academic types, especially economists, focus on the first one. Practitioners and activists focus on the second one. But both are important.
Academic types (like me) usually prefer to think about what regulatory strategy best achieves some goal (decarbonization, for example). From this view, you can tell that something is wrong if the correct stuff isn't being built, where "correct" means "optimal low-cost rollout".
From this view, for example, the argument for deregulation is that the regulated industry had the wrong incentives and was making bad buildout decisions: gold plating, excess capacity, etc. The market, presumably, will do a better job of producing the "optimal" buildout.
Underlying this view is the idea that we should do whatever is best overall (cheapest way to meet some set of goals) & neglect the distribution of costs and benefits. There is a lot to unpack there - check this Lester Lave reading for more detail: books.google.com/books?id=rJC9w…
One reasonable defense of this view is that we should choose options that produce the greatest net benefits across society (ie, cheaper overall) and if the resulting distribution is bad (all benefits to the rich), we should fix it through redistribution (tax policy).
However, our redistribution (tax) policy seems to be pretty bad these days and generally getting worse. Growing inequality, basically. If you can't trust redistribution, then it *does* make sense to worry about distribution of costs/benefits in each decision.
But imagine that the same stuff would get built in a regulated vs deregulated system. In that case, are the two strategies equivalent? Not necessarily, because it matters who pays, who gains, and who takes on the downside risk and upside benefit.
The second view that I described (cost/benefit distribution) was active as well in the deregulation debate, and argued that deregulation was good because it pushed risk back onto the industry - ratepayers were less "on the hook" for bad decisions about new generation.
A lot of these arguments come from a perspective that utilities are bad and we should harm them (I'm not a big fan), but an ideal regulatory environment would have good justification for why group X pays, group Y benefits, and group Z takes on the risk. It should be fair.
.@joeleisen had a recent article about this topic that I thought was great: Clean Energy Justice
law.unc.edu/documents/ce3/…
law.unc.edu/documents/ce3/…
I'm bringing this up because some of the policy debate on energy twitter is between people of differing perspectives on what constitutes "good" policy: one person implicitly thinking about which system gets efficient outcomes, and the other thinking about distributional issues.
In the end, both of these perspectives are right but incomplete. Real-life policy is messy and balances between a bunch of different goals - efficient outcomes and fair distribution are only two of them.
Clarification: When I said "A lot of these arguments come from a perspective that utilities are bad and we should harm them (I'm not a big fan)" I meant that I'm not a big fan of the argument.
Clarification: When I said "A lot of these arguments come from a perspective that utilities are bad and we should harm them (I'm not a big fan)" I meant that I'm not a big fan of the argument.
