Nordhaus on Subsidies

I’m not really a member of the neoclassical economics fan club, but I think this is on point:

“Subsidies pose a more general problem in this context. They attempt to discourage carbon-intensive activities by making other activities more attractive. One difficulty with subsidies is identifying the eligible low-carbon activities. Why subsidize hybrid cars (which we do) and not biking (which we do not)? Is the answer to subsidize all low carbon activities? Of course, that is impossible because there are just too many low-carbon activities, and it would prove astronomically expensive. Another problem is that subsidies are so uneven in their impact. A recent study by the National Academy of Sciences looked at the impact of several subsidies on GHG emissions. It found a vast difference in their effectiveness in terms of CO2removed per dollar of subsidy. None of the subsidies were efficient; some were horribly inefficient; and others such as the ethanol subsidy were perverse and actually increased GHG emissions. The net effect of all the subsidies taken together was effectively zero!” So in the end, it is much more effective to penalize carbon emissions than to subsidize everything else.” (Nordhaus, 2013, p. 266)

(Via a W. Hogan paper, https://scholar.harvard.edu/whogan/files/hogan_hepg_100418r.pdf)

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