Many political observers -- those, at least, not wholly gutted by cynicism after eight years of criminally negligent Republican leadership -- wonder when public concern over global warming will prompt a serious, thoughtful conservative response. Those hoping for real solutions from the GOP political leadership may have a long time to wait, but some conservative thinkers are beginning to wrestle with warming in an intellectually honest, if mistaken, manner.
Over at The American Scene, one of the best sources for quality conservative writing around, Jim Manzi recently laid out a detailed argument against a carbon tax. It's worth noting that Manzi's piece is a rather courageous statement for someone on the right, recognizing as it does that greenhouse-gas emissions are contributing to warming. At the same time, his analysis is wholly disappointing. As a conservative response to warming, it leaves much to be desired environmentally, economically, and politically.
Manzi begins by noting the IPCC's assessment that warming could cost us some 1 to 5 percent of global GDP within the next hundred years or so, and he adds that William Nordhaus estimates that "the total present value of global-warming-related costs is about $22.6 trillion, which is roughly 1 percent of the present value of total global income over the next several centuries." These figures are cited to show that the ultimate costs of warming will not be all that great relative to future wealth, and so we should be reluctant to impoverish ourselves now to avoid those costs.
This is problematic for a number of reasons. First, these numbers paint a cleaner portrait of warming's costs than reality is likely to present to us. It is not the case that in 100 years we'll begin evenly taxing off 1 to 5 percent of GDP in a clean and sterile process. Rather, these losses will be messy, unpredictable, and heartbreaking. This is relevant to the analysis. If you ask the average consumer whether they're willing to accept a percentage point or so off growth over the next century, they'll probably be fairly indifferent. If you ask the average consumer whether they're willing to see New York destroyed in a disaster that shaves a percentage point or two off growth, the answer is likely to be considerably different.
Neither can we ignore distributional and moral issues. The U.S., wealthiest nation on earth and a massively larger per capita polluter than any other major developed nation, will not bear the brunt of the early warming pain, in all likelihood. We should ask ourselves whether we're willing to stand by while Bangladesh disappears. It may comfort conservatives to note that such a disappearance will not be that costly in terms of global output. It does not comfort me.
A last point on this line of argument. Manzi's analysis relies upon the idea that reduction of carbon emissions will be an extremely costly process to undertake right now. He notes:
Now, 1 to 5 percent of global GDP is a huge amount of money, and an ounce of prevention can be worth a pound of cure. But, in the case of global warming, the values may be exactly reversed: Getting most of the carbon out of the energy cycle today would be very expensive, and a century is a long time to wait for the payoff from this investment.
I think this conclusion misunderstands consumer behavior, particularly as it relates to choice and optimization. At the moment, consumers do not care about the level of emissions associated with a given consumption decision. They care only about cost and benefit. As such, a consumption choice that's slightly cheaper than an alternative will dominate, even if the cheaper choice is massively more harmful for the environment.
In this situation, introducing carbon pricing will lead to a significant drop in emissions without much harming the consumer. As customers become sensitive to a product's emissions footprint though the price mechanism, firms providing goods will rapidly optimize their production patterns around emissions reductions, building them into innovation in the same way other consumer product safety regulations are incorporated into optimal production methods.
In this way, and because we have a century or so before these serious growth costs kick in, small and incremental changes now can be effective. In 100 years, we will presumably be richer, but incremental reductions and a long process of optimization will no longer be helpful. It could very well be cheaper and easier to act now than to defer action to our richer descendants.
All of the above is somewhat beside the point. If you don't believe there's a problem to be solved, there's no need to offer a solution. Manzi does offer us a solution, however -- one which he says is preferable to a carbon tax. That silver bullet is the old technology fix; he wants the government to directly fund technological development to the tune of "single-digit billions per year." This, he says, would be much cheaper than a carbon tax, which would cost hundreds of billions of dollars in the U.S. alone. His justification for that number is that "most advocates want to push for as large a tax as possible, as soon as possible, in order to force industry to create new technologies quickly."
The U.S., according to recent estimates, releases about 6 billion metric tons of CO2 annually. A commonly suggested carbon levy, cited often by Pigou Club founder Greg Mankiw, is $15 per metric ton of carbon dioxide, for a total cost of about $90 billion per year (in the first year -- we can expect this number to decline in subsequent years). That's not "single-digit billions," but it's also not hundreds of billions of dollars. Moreover, practically every economist proposing a Pigou tax suggests that the proceeds could be partially offset by reductions in the payroll tax -- a more inefficient and distortionary levy. In other words, we could adopt a revenue-neutral carbon tax that improves the efficiency of the tax code, or we could take revenue from less efficient taxes and use them to fund government technology programs. Which of these sounds more conservative?
It's obviously the case, though, that a carbon tax needn't be more expensive than technology funding; both amounts can be arbitrarily chosen depending upon the extent to which policy makers view warming as a threat. The question is, for a given societal cost, which policy proposal is likely to be more effective?
Manzi doesn't suggest where he'll get the revenue for his funding proposal. Given that carbon taxes are fairly innocuous as taxes go, certainly more so than income or payroll taxes, even a carbon tax that has no effect on emissions or technology still produces revenue for Manzi's funding plan in a more efficient manner than current tax sources. It's good tax policy independent of its effects on warming.
As it happens, practically any carbon levy will be more effective than direct technology funding, because carbon pricing uses the market to allocate resources efficiently. With carbon pricing, consumers reduce their emissions output where it's easiest to do so, and companies invest in technological fixes where those fixes are likely to generate the biggest bang for an invested buck. Government directed technology funding is top-down industrial policy. It would put the government in the position of throwing darts -- politically influenced darts -- hoping to hit on a solution that's cost effective and socially beneficial.
Our current record on this score is not encouraging. Government is busily funding biofuel measures that may not reduce emissions and may not be cost-effective. At the same time, consumers are responding to higher gas prices by curtailing their gas expenses in myriad ways (purchasing smaller cars, driving less, using transit more), and they're reducing transportation emissions in the process.
A "conservative" approach to emissions reduction that favors the wisdom of central planning over market allocations? The mind boggles.
Manzi throws in a few more objections for good measure. First on the list is geopolitics. How can we expect to negotiate and enforce a global emissions reduction regime?
For one thing, we don't necessarily need to right away. The U.S. is responsible for nearly one-fourth of global CO2 emissions; simply cutting our own carbon output would meaningfully affect global emissions. Next, a number of those difficult-to-convince other nations have signaled a willingness to engage in a global agreement on carbon. The holdup is us, not them.
Manzi cites enforcement failures like the Kyoto Protocol as reasons to doubt the efficacy of a global agreement, but Kyoto is an example of a program that underperformed precisely because the U.S. failed to provide leadership. On other international agreements, enforcement has proven far easier. When the U.S. and Europe unite behind a global standard, it is difficult for other nations to refuse to participate.
Manzi also frets that a carbon tax will be difficult to undo. This is an odd concern. We have plenty of examples of Congress reducing or eliminating taxes, but no examples of them enacting a carbon tax. Perhaps a bit reductionist, but the facts on the ground suggest that generating the tax will be more difficult than getting rid of it should our forecasts change for the better. It's not especially easy to get rid of government-funding programs either. At any rate, this seems a lot like arguing against closing a gash because removing the stitches may hurt.
In short, Manzi's argument against a carbon tax is that there isn't much of a problem, that the carbon tax -- by its nature -- must be a massively expensive solution to that problem, and that despite the fact that a massively expensive carbon tax program will be necessary to obtain necessary reductions in emissions and improvements in technology, the government is smart enough to accomplish the same reductions and innovations with only a few billion dollars in targeted research funding a year.
It's safe to say that these conclusions fly in the face of economic insight on the subject, and they aren't particularly conservative to boot. It's nice to see some writers on the right acknowledging that we may be contributing to warming. Unfortunately, they have work to do before delivering real policy options on the issue.
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justlou Posted 10:36 pm
04 Dec 2007
I have read similar posts and comments on this site many times and wish to voice my disagreement. First we already seeing potential signs of early warming pain in the US -- Katrina, water shortages, droughts, extreme flooding events, etc. Second, to think that there will not be major blowback here from warming events in other parts of the world is just ignoring the reality of global trade, political instability, resource shortages, etc. We WILL suffer the consequences here. And despite our moral leanings, we may not be in any kind of postition to offer much offshore assistance.
In 100 years, we will presumably be richer, but incremental reductions and a long process of optimization will no longer be helpful. It could very well be cheaper and easier to act now than to defer action to our richer descendants.
Again, I have read similar posts about our being richer in the future. I suppose if you read the future by our past economic performance you might believe this. But what is wealth if not the health of planet earth? Our financial wealth can disappear overnight from all the blowback of financial rackets stealing the resources of the production economy and blowing it all in bubble schemes. We had better approach the energy and global climate problems from the standpoint that we will never be richer than we are right now. The transition is now or never. Our descendants will only be richer if we can redefine wealth in a radically different way than accumulation.
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Jon Rynn Posted 4:00 am
05 Dec 2007
You say that the market mechanism is better for picking technologies than governments. Let's leave aside the general case, and concentrate on a very specific technology -- public transit. This is picked by governments. Ideally, it's picked in ballot measures in municipalities, as has been occurring with increasing frequency, so it may be said that there is popular participation going on here, at least. But also ideally, the Federal government would go back to funding mass transit at 80% instead of the 50% the Bush Administration imposed, or even better, 90% that the Feds did for the Interstate Highway system. That is all also a form of picking.
To be a bit more general, constructing a transportation infrastructure is "picking" a system, and it is one,again ideally, that is done in a democratic way. But it seems to me that it is exactly because public transit involves government funding, and not the market, that environmentalists seem to ignore it, or give it little notice besides ritualistic praise.
But you, Ryan, have done some wonderful posts on public transit (and the DC Metro is funded directly by the Feds, no?), so the contradiction should be very apparent to you. It's not even that public transit is completely nonmarket -- au contraire, the vendors are all private. But it does involve "picking".
So can we agree, that at least in the sphere of public transit, it's ok if we aren't using a market mechanism? Personally, I won't use it to bludgeon anyone with government funding, I promise (although I can't promise for others).
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Ryan Avent Posted 4:44 am
05 Dec 2007
I am a big supporter of funding for public transit, which goes hand-in-hand with support for carbon pricing. A carbon tax would encourage more people to use transit, and expanded transit service would reduce the burden of a carbon tax on consumers.
It isn't difficult to imagine a world where private companies developed mass transit solutions. In fact, in the age before massive highway construction, private entities did build and operate transit systems in many of America's large cities. Unfortunately, a half-century of government-funded road construction has destroyed any chance for a private transit company to survive.
Of course, even in a world where private entities did run transit services, those operations should still be subsidized by the government. Transit displays what economists call positive externalities, which suggests that without subsidies, private markets will under-provide transit. And even without highway construction, it's probable that transit would have evolved much as other infrastructure or utility oriented businesses have, becoming either publicly owned or semi-public or heavily regulated.
My main point in the above article, however, doesn't concern infrastructure per se. Reducing emissions is going to involve millions of micro decisions on the part of consumers and businesses, and the market is the most efficient way to deliver cheap and effective conservation and technological solutions within this framework. It's just very difficult for government to replicate this dynamic--to be able to say, look, it will be easiest for consumers to cut back here, and we really ought to invest more in biodiesel as opposed to hydrogen, or whatever.
This isn't to say that government can't have success in technology research. It has, and it will continue to. It's just to say that in looking for the cheapest and easiest solutions to the problem, it would be foolhardy to rule out the market mechanism in favor of a government-funding only approach.
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Jon Rynn Posted 5:09 am
05 Dec 2007
In a previous post, I tried to differentiate among market solutions, public investment (which seems to mean tech r&d) and public construction. Nordhaus and Shellenberger seem pro the first two; Romm seems mostly the first one; I'm more into the third; and you seem to be for market and, to some extent, public construction. I don't know if those are useful categories, but it might serve to sharpen the debates.
If the transportation system was mostly rail, with very little automobile use, then there would be no need to pick between biodiesel, hydrogen, or anything else; most transportation would be in the public domain (the NYC subways were originally private, and if private companies wanted to go that route, that would be great!). So the architecture of the system becomes a critical part of the solution or problem.
Maybe part of the problem for me is that so much of the global warming solutions involve the design of infrastructure systems, so I would just like to see a balance between market and infrastructure. And again, maybe by talking about specific systems - transportation in this case -- we can sharpen the discussion.
Another huge part of the global warming puzzle is the electrical infrastructure, and there is certainly a large discussion here concerning that. It seems like carbon pricing would work well in the electricity sector, subject to various regulations. Building use and agriculture are maybe the two other large sectors (assuming deforestation goes under category of agriculture), which have their own interesting market/government dividing lines. So hopefully we can discuss preferable policy regimes in the context of particular sectors.
The point at which all of this market mechanism would have to be thrown over, I think, is if there was a society-wide consensus that this is a WWII-type emergency. However, that is exactly what Manzi and other conservatives are attempting to argue is not the case, as you point out.
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Ryan Avent Posted 5:41 am
05 Dec 2007
The nice thing about using markets and carbon pricing is that it maximizes results while minimizing consumer pain. Say we introduce a carbon tax. One consumer might be fairly indifferent to one type of cheese relative to another, while production of the two kinds of cheese may involve vastly different emission levels. With a carbon tax, the cleaner cheese is the cheaper one. The customer will choose that cheese, and since he's indifferent between cheeses, he's reduced emissions without harming himself.
Now another customer may care quite a bit about cheese types, and he'll choose his favored cheese with or without a carbon tax. That guy, however, may be totally indifferent to one kind of light bulb relative to another. For him, carbon pricing will incentivize the purchase of the cleaner bulb, and he's no worse off. Since we all have some things that we don't care much about, carbon pricing allows us to cut back on emissions where its cheapest for us to do so. But what can the government do in this case? Well, it could say, "everyone must buy the cheese with the lowest emissions level available." That ends up reducing emissions less and hurting consumers more.
There will be some activities, however, for which all consumers find it difficult to cut back. Maybe it's really difficult to make clean water (I'm making this up for example's sake) without emitting a ton of carbon, but everyone needs water, and so everyone ends up paying lot of carbon tax. In this case, private investors know that any technology they come up with to reduce carbon output in the making of clean water will allow them to corner much of the water market, making them millions. As such, lots of firms with good ideas about water will invest in clean water technology. One of them will hit on something, and we'll get cleaner clean water. And investors will do the same thing for thousands of different products: light bulbs, televisions, iPods, mobile phones, sweaters, and so on. Government can't duplicate this activity--millions of entrepreneurs following the profit motive to make incremental but important improvements in thousands of different goods. Government is far more likely to say: "let's pour millions into ethanol, and maybe into solar panel research, and maybe a few other things."
We absolutely have to harness this dynamic. Now there are going to be cases where the economics make private investment unattractive. There are public goods and other similar products--much of which is infrastructure or network oriented--where government support is absolutely necessary. And you're right, in the event that warming began to proceed on a very short and catastrophic timescale, then there's no substitute for the military-backed authority of the federal government in shaping consumer decisions.
But we're not looking for any old solution. We're looking for the best package of solutions--those that achieve good results without unnecessarily harming consumers or the economy. The market economy has come up with magnificent ways to deliver huge varieties of all kinds of new and improved and cheap and random stuff with great efficiency. Carbon pricing puts that mechanism to work on behalf of the global climate.
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Jon Rynn Posted 5:59 am
05 Dec 2007
And I certainly agree that government attempts to interfere with specific product categories, of items that people buy, like electronics, outside of general regulatory framework, are doomed to failure, as the Soviets found out. My thoughts tend to go more toward the infrastructure, large-design side, not to most of the GDP dealing with consumer goods.
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odograph Posted 6:16 am
05 Dec 2007
You don't need anything more complicated that $W/gal for gasoline, $X/gal for diesel, $Y/cuft for natural gas, and $/ton for coal.
No need to worry about product categories, etc.
Or put another way, it becomes a "fuel added" tax rather than a "value added" ... fuel being what we want to discourage, not value.
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Jon Rynn Posted 7:07 am
05 Dec 2007
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odograph Posted 8:36 am
05 Dec 2007
I'd hardly say that was "before it gets into the economy."
It is very much in the economy, and encourages everyone in the chain to deliver "value" to the consumer at the lowest fossil fuel (and tax) cost.
I'm not following that a VAT-like tax would be "easier." Fuels become more expensive, firms adjust, as they have been doing for the last 3-5 years.
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odograph Posted 8:38 am
05 Dec 2007
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mnestheus Posted 9:25 am
09 Dec 2007
Try starting two decades ago
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calvinjones Posted 9:58 pm
11 Dec 2007
here
Interested in climate change?
http://climatechangeaction.blogspot.com
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