Principles Of Economic Targeting

Revised commentary on “Energy Policy, Climate Change and Targets”, by Jonathon Boston. To the Institute of Policy Studies Roundtable on Energy Policy and Climate Change: Tuesday 20 March 2007.  

Keywords: Environment & Resources; Regulation & Taxation; 

Targeting is a form of indicative planning. What have we learned from past exercises? 

First we need a taxonomy, a hierarchy which begins with goals and objectives, and sets targets consistent with those goals, and has policy instruments with have significant influences on the targets. There may be higher, intermediate and lower targets. David Smol [Deputy Secretary for Energy and Communications in the Ministry of Economic Development which sponsored the seminar] was implicitly using such a hierarchy in his opening remarks. 

We need to distinguish between targets which are directly implementable, like the government setting a biofuel sales obligation by 2012, and the indirect ones which depend upon policy settings and events and processes out of the direct control of the government. Understandably, politicians are reluctant to set indirect targets or to be bound by them. When they do, the resulting targets are soft, distant and frequently not attained. 

Second, we need to be clear how the targets inter-relate with the objectives, the policy instruments – with the whole damned system. Ideally we need a systematic and appropriately elaborated model. That means we can explore issues which frequently get ignored when a single target is posted, including the following: 

Previous indicative plans have been undermined by external shocks to which they were not robust. What are those shocks in this case? 

Previous indicative plans have been over-dependent upon parameters which are poorly specified and measured. Which, in this case? 

Sectors are interdependent. What will be the impact of targets for one sector on others?* 

For any indicative plan in material quantities – which typically targets are – there is a dual plan in prices. What are the prices associated with particular targets? This is not just a matter of intrinsic interest. One of the things we should have learned from past failures is that if actual prices dont align with the dual prices, the plan falls apart. 

Third, and finally, I regret that there has never been a thorough review of previous indicative plans and targets. Hegel remarked that the only thing we learn from history is we dont learn from history. Marx footnoted that when history repeats itself, the first time is tragedy, second as farce. 

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* In the later discussion I recalled that when oil prices rose after 1973, New Zealand’s energy intensity (say calories per unit of material output) went up. This ‘perverseness’ arose, in part, because economies which had had high cost energy activities (e.g. oil fired smelters) closed some down and imported the product from low cost producers (e.g. New Zealand with hydro-power and coal).This is an example of the interdependence of sectors, and illustrates that the implication of any target for the external sector needs to be carefully thought about.