Economics, Energy and the Environment, Pethokoukis

On climate research and innovation vs. carbon pricing and rationing

Following up my earlier post on the new EPA carbon emission rules, I wanted to highlight a reality check on carbon pricing from Ryan Avent:

The typical baseline economist response to the problem of global warming is a very simple and straightforward one. Climate change is a negative externality, and the carbon emissions that generate it are easily targetable. The clear thing to do, then, is to place a tax on carbon emissions which will lead economic actors to internalise the cost of the warming they create with their decisions. This will discourage carbon-intensive activities and contribute to the development of clean alternative, reducing emissions and climate change.

Easy enough. Unfortunately, this strategy quickly runs into difficulty. One big problem is political. It’s very difficult to convince people to accept higher energy costs, and it’s very difficult to coordinate policy across countries, which is necessary to ensure that the policy works correctly. But there are also economic challenges. Society wants to avert a disaster scenario, which becomes more likely the greater atmospheric carbon concentrations rise. There is some uncertain but real threshold level of carbon that humanity needs to avoid. The closer the world is to that level, the faster the carbon tax needs to ramp up in order to prevent disaster, but the faster the carbon tax ramps up, the more painful it will be. Economies are good at finding substitutes for key technologies, but it does take some time. And so because the world has waited so long to act, it now seems that the disaster-avoiding carbon tax path may itself be too economically damaging.

As I mentioned earlier, what we know of both cap-and-trade plans and of the willingness of the American public (well, pretty much voters anywhere) to accept severe economic discomfort from higher energy prices suggests that carbon pricing will be only a smart part of the solution vs. a pro-research and innovation agenda. And that is where the economic research is leading as well. “The Environment and Directed Technical Change” by Daron Acemoglu, Philippe Aghion, Leonardo Bursztyn, and David Hemous: “Interestingly, in most cases, optimal environmental regulation involves small carbon taxes because research subsidies are able to redirect innovation to clean technologies before there is more extensive environmental damage.”

Michael Shellenberger and Ted Nordhaus sum up the argument thusly back in 2012:

But US emissions are today declining not because of cap and trade — it died in the Senate two years ago — but because we are awash in natural gas. And we are awash in gas neither because of caps nor taxes nor regs but because of a government technology push started by Presidents Ford and Carter. … Over the next century, global energy demand will double, and perhaps triple. But even were energy consumption to stay flat, significantly reducing emissions from today’s levels will require the creation of disruptive new technologies. It’s a task for which a doctrine focused on the efficient allocation of scarce resources could hardly be more ill-suited.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

4 thoughts on “On climate research and innovation vs. carbon pricing and rationing

  1. Hypocrisy, out right lying e.g. “the hockey stick” and the profit that the promoters seek are reason to proceed cautiously with their 97% claim. Throw in the politicians who want action on global warming/climate change and one could make a good case for more research before any scheme is adopted. If science means anything it is to contravene. Too many red flags have been lofted. The brazen attempts to silence opposition should be enough for any thinking person to have doubts. Do not heed Henny Penny.

    • You’re out of touch on your science. I will assure you (as a scientist), that climate change is happening. Doing the things we are doing –pumping CO2 into the atmosphere along with other gases– is prima facie not good, and has proven to lead to climate changes (historically).

      I’m not sure how ANYONE could think otherwise with the evidence we have. I’m sorry, you’re entitled to your opinions, but not to facts. The fact is climates have moved, the theory showing why they’ve moved has been heavily associated to CO2 and other emissions in the atmosphere.

      • Sorry nick but when the evidence is contrived e.g.” the hockey stick” it does not qualify as a fact. C02 has been increasing for the last 17 years.This same period has seen no increase in temps.
        Geological evidence proves that increases in temps lead to increases in C02. Not the other way around.
        When you look up Henny Penny also look up “The Little Red Hen” as I suspect that you are somehow benefiting from all of this hype?
        Would one of the “other emissions” be huge amounts of S from volcanic activity?
        Don’t plants need C02? You are right to say “Theory”
        “Thinking otherwise” is something that I picked up as a response to prevaricators . Lie to me once and shame on you. Lie to me twice and shame on me if I believe anything more that you have to say.
        People tend to worship politicians. Deep down do we need a baron or a king to look up to? Maybe it is in our genes? What say you.
        Has climate change become a religion to you? To make the kind of commitments that you favor shouldn’t all of the pieces fit? Lots out there from eminent “scientists” just like you who say that you are not there yet. Consensus doesn’t cow as many as it once did. Try digesting the contrary information and proving it wrong. Are thee a victim of sophistry or a practitioner?

  2. Um, wasn’t that “government technology push started by Presidents Ford and Carter” funded by general taxes and thus itself an example of an “efficient allocation of scarce resources”?

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