In the New York Times, David Leonhardt ponders,
The Problem With Putting a Price on the End of the World
Economists have workable policy ideas for addressing
climate change. But what if they’re politically impossible?
I wrote about this exact situation nearly ten years ago, when the Breakthrough Institute (and others) proposed energy R&D as an alternative to politically-infeasible carbon taxes. What has R&D accomplished since then? All kinds of wonderful things, but the implications for climate are … diddly squat.
Leonhardt observes that emissions pricing programs have already failed to win approval several times, which is true. However, I think the diagnosis is partly incorrect. Cap and trade programs like Waxman Markey failed not because they imposed prices, but because they were incredibly complex and involved big property rights giveaways. Anyone who even understands the details of the program is right to wonder if anyone other than traders will profit from it.
In other cases, like the Washington carbon tax initiatives, I think the problem may be that potential backers required that it solve not only climate, but also environmental justice and income inequality more broadly. That’s an impossible task for a single policy.
Leonhardt proposes performance standards and a variety of other economically “second best” measures as alternatives.
The better bet seems to be an “all of the above” approach: Organize a climate movement around meaningful policies with a reasonable chance of near-term success, but don’t abandon the hope of carbon pricing.
At first blush, this seems reasonable to me. Performance standards and information policies have accomplished a lot over the years. Energy R&D is a good investment.
On second thought, these alternatives have already failed. The sum total of all such policies over the last few decades has been to reduce CO2 emissions intensity by 2% per year.
That’s slower than GDP growth, so emissions have actually risen. That’s far short of what we need to accomplish, and it’s not all attributable to policy. Even with twice the political will, and twice the progress, it wouldn’t be nearly enough.
- Performance standards don’t permit enough tradeoffs. Like CAFE, they’re prone to tinkering that erodes their effectiveness.
- Banning things outright isn’t all that smart and gives conservatives something legitimate to complain about.
- Portfolio standards can have perverse and volatile outcomes and tend to develop strange internal convolutions.
- Subsidies and credits send the wrong price signal for conservation, have poor equity effects, and because they cost money, tend to self-extinguish when they simply get too successful.
- R&D subsidies won’t get the job done on their own.
- Rebates get discounted or wasted.
- Green labeling presents a weak and confusing signal.
All of the above have some role to play, but without prices as a keystone economic signal, they’re fighting the tide. Moreover, together they have a large cost in administrative complexity, which gives opponents a legitimate reason to whine about bureaucracy and promotes regulatory capture. This makes it hard to innovate and helps large incumbents contribute to worsening inequality.
Adapted from Tax Time
So, I think we need to do a lot more than not “abandon the hope” of carbon pricing. Every time we push a stopgap, second-best policy, we must also be building the basis for implementation of emissions prices. This means we have to get smarter about carbon pricing, and address the cognitive and educational gaps that explain failure so far. Leonhardt identifies one key point:
‘If we’re going to succeed on climate policy, it will be by giving people a vision of what’s in it for them.’
I think that vision has several parts.
- One is multisolving – recognizing that clever climate policy can improve welfare now as well as in the future through health and equity cobenefits. This is tricky, because a practical policy can’t do everything directly; it just has to be compatible with doing everything.
- Another is decentralization. The climate-economy system is too big to permit monolithic solution designs. We have to preserve diversity and put signals in place that allow it to evolve in beneficial directions.
Finally, emissions pricing has to be more than a vision – it has to be designed so that it’s actually good for the median voter:
As Nordhaus acknowledged in his speech, curbing dirty energy by raising its price “may be good for nature, but it’s not actually all that attractive to voters to reduce their income.”
Emissions pricing doesn’t have to be harmful to most voters, even neglecting cobenefits, as long as green taxes include equitable rebates, revenue finances good projects, and green sectors have high labor intensity. (The median voter has to understand this as well.)
Personally, I’m frustrated by decades of excuses for ineffective, complicated, inequitable policies. I don’t know how to put it in terms that don’t trigger cognitive dissonance, but I think there’s a question that needs to be asked over and over, until it sinks in:
Why should emitting greenhouse gases be free, when it contributes to the destruction of so much we care about?
Why should emitting greenhouse gases be free, when it contributes to the destruction of so much we care about?
Why should emitting greenhouse gases be free, when it contributes to the destruction of so much we care about?
Why should emitting greenhouse gases be free, when it contributes to the destruction of so much we care about?
Why should emitting greenhouse gases be free, when it contributes to the destruction of so much we care about?