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The social cost of lobbying over climate policy

Abstract

Domestic political processes shape climate policy. In particular, there is increasing concern about the role of political lobbying over climate policy. This paper examines how lobbying spending on the Waxman–Markey bill, the most prominent and promising United States climate regulation so far, altered its likelihood of being implemented. We combine data from comprehensive United States lobbying records with an empirical method for forecasting the policy’s effect on the value of publicly listed firms. Our statistical analysis suggests that lobbying by firms expecting losses from the policy was more effective than lobbying by firms expecting gains. Interpreting this finding through a game-theoretic model, we calculate that lobbying lowered the probability of enacting the Waxman–Markey bill by 13 percentage points, representing an expected social cost of US$60 billion (in 2018 US dollars). Our findings also suggest how future climate policy proposals can be designed to be more robust to political opposition.

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Data availability

The authors declare that all data and code for replicating the findings of this study are available at Dryad Digital Repository: https://doi.org/10.5061/dryad.gg4pk7d

Additional information

Peer review information: Nature Climate Change thanks Robert Brulle, Andrew Cheon, Fabien Prieur and Jason Shogren for their contribution to the peer review of this work.

Publisher’s note: Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

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Acknowledgements

We thank S. Anderson, C. Costello, B. Deacon, R. Gerlagh, M. Greenstone, S. Hsiang, M. Mildenberger, P. Oliva, M. Vespa, S. Yuksel, and participants in numerous workshops and seminars, for their helpful comments.

Author information

K.C.M. and A.R. designed the study, collected the data, performed the analysis and wrote the paper.

Competing interests

The authors declare no competing interests.

Correspondence to Kyle C. Meng or Ashwin Rode.

Supplementary information

  1. Supplementary Information

    Supplementary Notes, Supplementary Figures 1–2 and Supplementary Tables 1–7.

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Fig. 1: Waxman–Markey lobbying spending and change in firm value.
Fig. 2: Lobbying spending for firms that lose and gain from policy.
Fig. 3: Differential statistical relationships for gaining and losing firms.
Fig. 4: Differential marginal effect of lobbying for gaining and losing firms.
Fig. 5: Policy enactment under alternative free permit allocation schemes.