Earlier this year, the EPA under the Obama government released proposal to reduce carbon dioxide emissions by 30% from 2005 level. To achieve this goal, coal fired power plants will have to be toughly regulated since they are one of the biggest contributor to carbon dioxide emissions. At the mean time, there is expected to be huge expansion of natural gas as they emit half the carbon of coal. More solar panels and wind turbines are also expected to be installed.
Using the year of 2005 as baseline made sure that states that have been cutting down carbon emissions are awarded since the US’s carbon emission has dropped by 15% since 2005. States will have until June 30, 2016 to come up with a plan of their own for the goal or accept the plan forced by EPA.
Cost of enforcing the plan will be high: “The U.S. Chamber of Commerce figures the plan could scotch $50 billion a year in GDP and prevent the creation of more than 220,000 jobs per year. The hit to household disposable income would be more than $550 billion a year.”
However, it is still well worth doing. The EPA estimates that investments needed to meet the emission limits will cost about $8 billion a year, but would save 6,600 lives and more than $50 billion a year in health care costs tied to air pollution.” Moreover, the Natural Resources Defense Council figures that installing new energy source will create more than 250,000 jobs and will lead to lower energy bills over time.
Rational actor model
If this decision is the result of rational actor model, it would mean that the action is optimal, based on beliefs supported by evidences, which are achieved from optimal investment in information gathering. It is based on quite an ideal assumption.
Supposing we can trust EPA’s ability to gather information on climate change and to predict Global Warming's impact, it is not hard to convince one that something needs to be done to cut carbon dioxide emissions. Coal fired power plants are responsible for about 25% of all greenhouse gas emissions in the US, at about 1 metric ton per megawatt-hour. Therefore, it seems reasonable enough to do something about coal burning.
Rational decision making means to pursue one’s interest in the most cost-effective way. In this case, switching from coal to gas will be the most effective way to achieve EPA’s objectives. As Hugh Wynne, analyst at Bernstein Research, noted that: ‘The nation’s natural gas power plants are currently operating at an average of just 45% of capacity. Ramping this up to 90%, while reducing coal-fired generation by the same amount would have the effect of reducing carbon emissions by 550 million metric tons per year. That’s equal to about 25% of power generation emissions, or about 8% of total U.S. greenhouse gas emissions.” Therefore, Obama’s EPA’s objective of cutting carbon emissions greatly by switching from coal to gas is not only beneficial but also necessary if we assume all information has been gathered and considered.
Bounded rationality model
However, we may not want to be too quick to trust that EPA is omniscient. Environmental issues are extremely complex, it is very difficult to predict the impact of climate change. Also, it is never guaranteed that announced rules will be follow through by all states.
As Simon said, “rationality is bounded when it falls short of omniscience”. EPA doesn’t necessarily know that cutting the carbon emission by 30% is achievable or the most cost-efficient solution. Better or more reasonable alternatives might be out there, but EPA doesn’t have the ability to know them all and to calculate the consequences caused by each of them. Putting an emission cutting goal out there is the result of EPA’s limited information and resources.
Also, EPA is bounded by organizational routines and memory when trying to reach a decision. As Jones summarized in the theory of bounded rationality, “The organizational routines, rules, as rational decisions can for example limit the optimal rational decisions...organizations encode experiences into rules and standard operating procedures that specify actions to be taken in response to categories of stimuli” (Jones, 2003). EPA, as a governmental organization has to follow rules, previous experience and bureaucracy which can limit its ability to reach optimal decision. For example, is cutting carbon emission by 30% really sufficient? Or is this number a result of political agreement to balance different parties' interest (coal companies, environmental agencies and etc)? Why can't this number be higher than 30%? Is it really unattainable or is the decision making process hindered by coal corporates?
On the other hand, is 30% even realistic? It is very difficult for America to cut carbon emissions because they rely too much on coal. The nation gets nine times of energy from coal as from solar and wind. Rushing to replacing coal will possibly lead to blackouts during peak times. EPA might have chosen to trust the mechanism of competitive markets and innovators to come up with better solutions to fulfill the energy demand while cutting carbon emission. The uncertainty is huge. There is no way that EPA would know that it will work out, but at least there is hope so the decision is satisfying enough.
Jones, Bryan D (2003). Bounded rationality and political science: lessons from public administration. Journal of public administration research and theory. Oct 2003, page 395.
Helman, Christopher (2014). Obama EPA issues coal-killing rules to cut carbon emissions 30 percent. Forbes. Retrieved from http://www.forbes.com/sites/christopherhelman/2014/06/02/obama-epa-issues-coal-killing-rules-to-cut-carbon-emissions-30-percent/
Using the year of 2005 as baseline made sure that states that have been cutting down carbon emissions are awarded since the US’s carbon emission has dropped by 15% since 2005. States will have until June 30, 2016 to come up with a plan of their own for the goal or accept the plan forced by EPA.
Cost of enforcing the plan will be high: “The U.S. Chamber of Commerce figures the plan could scotch $50 billion a year in GDP and prevent the creation of more than 220,000 jobs per year. The hit to household disposable income would be more than $550 billion a year.”
However, it is still well worth doing. The EPA estimates that investments needed to meet the emission limits will cost about $8 billion a year, but would save 6,600 lives and more than $50 billion a year in health care costs tied to air pollution.” Moreover, the Natural Resources Defense Council figures that installing new energy source will create more than 250,000 jobs and will lead to lower energy bills over time.
Rational actor model
If this decision is the result of rational actor model, it would mean that the action is optimal, based on beliefs supported by evidences, which are achieved from optimal investment in information gathering. It is based on quite an ideal assumption.
Supposing we can trust EPA’s ability to gather information on climate change and to predict Global Warming's impact, it is not hard to convince one that something needs to be done to cut carbon dioxide emissions. Coal fired power plants are responsible for about 25% of all greenhouse gas emissions in the US, at about 1 metric ton per megawatt-hour. Therefore, it seems reasonable enough to do something about coal burning.
Rational decision making means to pursue one’s interest in the most cost-effective way. In this case, switching from coal to gas will be the most effective way to achieve EPA’s objectives. As Hugh Wynne, analyst at Bernstein Research, noted that: ‘The nation’s natural gas power plants are currently operating at an average of just 45% of capacity. Ramping this up to 90%, while reducing coal-fired generation by the same amount would have the effect of reducing carbon emissions by 550 million metric tons per year. That’s equal to about 25% of power generation emissions, or about 8% of total U.S. greenhouse gas emissions.” Therefore, Obama’s EPA’s objective of cutting carbon emissions greatly by switching from coal to gas is not only beneficial but also necessary if we assume all information has been gathered and considered.
Bounded rationality model
However, we may not want to be too quick to trust that EPA is omniscient. Environmental issues are extremely complex, it is very difficult to predict the impact of climate change. Also, it is never guaranteed that announced rules will be follow through by all states.
As Simon said, “rationality is bounded when it falls short of omniscience”. EPA doesn’t necessarily know that cutting the carbon emission by 30% is achievable or the most cost-efficient solution. Better or more reasonable alternatives might be out there, but EPA doesn’t have the ability to know them all and to calculate the consequences caused by each of them. Putting an emission cutting goal out there is the result of EPA’s limited information and resources.
Also, EPA is bounded by organizational routines and memory when trying to reach a decision. As Jones summarized in the theory of bounded rationality, “The organizational routines, rules, as rational decisions can for example limit the optimal rational decisions...organizations encode experiences into rules and standard operating procedures that specify actions to be taken in response to categories of stimuli” (Jones, 2003). EPA, as a governmental organization has to follow rules, previous experience and bureaucracy which can limit its ability to reach optimal decision. For example, is cutting carbon emission by 30% really sufficient? Or is this number a result of political agreement to balance different parties' interest (coal companies, environmental agencies and etc)? Why can't this number be higher than 30%? Is it really unattainable or is the decision making process hindered by coal corporates?
On the other hand, is 30% even realistic? It is very difficult for America to cut carbon emissions because they rely too much on coal. The nation gets nine times of energy from coal as from solar and wind. Rushing to replacing coal will possibly lead to blackouts during peak times. EPA might have chosen to trust the mechanism of competitive markets and innovators to come up with better solutions to fulfill the energy demand while cutting carbon emission. The uncertainty is huge. There is no way that EPA would know that it will work out, but at least there is hope so the decision is satisfying enough.
Jones, Bryan D (2003). Bounded rationality and political science: lessons from public administration. Journal of public administration research and theory. Oct 2003, page 395.
Helman, Christopher (2014). Obama EPA issues coal-killing rules to cut carbon emissions 30 percent. Forbes. Retrieved from http://www.forbes.com/sites/christopherhelman/2014/06/02/obama-epa-issues-coal-killing-rules-to-cut-carbon-emissions-30-percent/
I think that the newsitem you used is a really good topic to talk nowadays, especially for IE students. It does not only help us to debate through our Social Systems class but also in Renewable energies. I have to admit that I went to the source of the newsitem because I didn’t understand what EPA meant. I think it would have been really helpful if you explained it at the beginning. I already know it means Environmental Protection Agency. Through your analysis I could differentiate really well the concept between RAM and Bounded rationality model. Especially in the bounded rationality model, when EPA takes a decision out of limited information and resources, and also when the goal of cutting the carbon emission is debatable. Although I understood your point about EPA being bounded by organizational routines when cutting carbon emissions by 30%, I did not understand quite well if this is a number of governmental conservation? I think you explain pretty well the decision of EPA using it experiences as an organization with routines, rules and standards. Nevertheless, it could have been useful also, to use the one about parallel processing, because EPA is delegating and decentralizing the methods to reduce carbon emission to each government of every state.
ReplyDeleteOverall, I think this newsitem and the way you analyze it, is pretty well attached to the concepts about rationality that we are studying.