The Law of Unexpected Consequences for Governments

Any law, rule or regulation will always, by virtue of its universal application, have consequences that are unexpected.

This might be the most ignored law in the political universe.  Governments think that the consequences of their laws will be limited to the goals that they target.  For example, our Alberta government is moving to a carbon tax to reduce greenhouse gas emissions.  Put a price on pollution.  Then the market forces will drive everyone to the right result, with no collateral or unexpected consequences.

But look at a simple example of a law and rule passed to reduce automobile fuel consumption in the USA, the Fleet Mileage Rules set by the US government for automobile manufacturers.  Manufacturers had to build their cars and trucks (turns out they are under different fleets according to the rules, which is key to the story here) to achieve a ‘fleet-wide’ mileage target.  This was to encourage energy efficiencies such as smaller cars, more efficient engines, and body design.  And of course, nothing but good would come of this.suv-873052_1280

But watch what happened, counterintuitively, unexpectedly, and completely contradicting the goal.

  1. Station wagons are the desired car type for payload capacity and family driving.  A lot are sold every year.
  2. Station wagons are tougher to design for fuel economy.  It turns out they burn a lot of fuel compared to a sedan.
  3. Engineers find that a truck chassis does not count in the Car Fleet Mileage Rules, anything that is a truck is not a car, which stands to reason.  If they could figure out how to get rid of station wagons from the car fleet, they would meet the guidelines for Car Fleet Fuel Economies.
  4. Engineers and designers slap a car shape on a truck chassis and voila, you have an SUV.
  5. Consumers buy SUVs the way they used to buy station wagons.  Conclusion – SUVs replace station wagons:  Fleet Mileage Rules for cars are met but SUV’s consume more gas than station wagons:  more gas is consumed on American highways, and more CO2 is produced.

Success in decreasing fuel consumed by cars, but increased fuel consumption for moving stuff and people around the country on roads and highways.

The unexpected consequences always seem to be negative to the goals that are contemplated.  All the positives are expected.  The downside is where the surprises lurk.  The consequences are contra-intended.

So when we consider a province-wide carbon tax, should we not also consider the unexpected contra-intended consequences and factor in a risk premium, then apply the measuring sticks of whether or not this is a good law.  There are many predictable consequences like reduced economic activity, an obvious and, therefore, expected consequence perhaps.  Alternatively, increasing the use of corn-based fuels is expensive and a long way from carbon neutral.  Or increasing the use or electric cars, which, on a full life cycle analysis including battery production, etc., are carbon generators, compared to the carbon footprint of production of standard cars.  And on and on.

The analysis should include a value for unexpected consequences.   Moreover, that value should be at least one-half the value of all the expected consequences.  Then the analysis has a risk factor for unexpected that is proportional to the estimated impact of the law, rule or regulation, and also proportionate to the complexities of the law, rule or regulation.

Just a thought.

I want to hear what you think!

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