Governance:4 Questions and Some Answers

David G. VictorUniversity of California, San Diego

India-California Air Pollution Mitigation Program (ICAMP)22 October 2013

Why do policies with huge benefit-cost ratios not get adopted?

1. What is the organization of political interest groups?

The public as an interest group

• Highly decentralized and thus difficult to organize

• Key roles for NGOs and the press

2. Who Owns the Enterprises that Must Change Behavior?

Industries that tend to be state-dominated

• High value extraction (mining, oil & gas)• Visible public benefits (electricity, water and

sewerage, trash collection, public transport)• Convenient locales for corruption (e.g.,

banking)• USA is highly unusual in extremely low level of

state ownership

7

Figure 1NOC Share of Booked Oil Reserves

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NOCs 87%

Other IOCs (9%)

Major IOCs (4%)

Source: 2008 Energy Intelligence Report. Note: 2006 liquid reserves.

Total: 1.38 trillion barrels oil equivalent, excluding oil sandsSource: Energy Intelligence Report (2008) and BP (2011)

Tensions in Ownership

• Privately held firms– Organized around private interest, but..– Responsive to credible regulation and efficient

• State-owned enterprises– Often organized for public interest, but…– Often managed incompetently.

3. When policy making fails, who acts?

Some backstops

• California:– Federal Clean Air legislation– State CARB– Public petition process– Elections?

• India:– Supreme Court– Elections?

4. Will Exogenous technological surprise “fix” governance failures?

U.S. CO2 emissions from Electricity

19731975

19771979

19811983

19851987

19891991

19931995

19971999

20012003

20052007

20092011

0

500

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Mill

ion

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ric

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of C

O2

Coal

Gas

Oil

Oil and Natural Gas Prices:Three Markets

Sources: Heren and BP via BP Statistical Review of World Energy 2012

1980 1985 1990 1995 2000 2005 2010 20150

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JapanEuropeanUSCrude oil

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$/m

mbt

u

May 2012 Issue of Foreign Affairs…