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The Case for Carbon Pricing Remains Incredibly Strong

By Matthew Yglesias on October 14, 2010 at 9:30 am

"The Case for Carbon Pricing Remains Incredibly Strong"

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A day late I, too, enjoyed David Leonhardt’s column on the next steps for climate change but I just can’t get too enthusiastic about the “research first” paradigm. The main point I would make is that the need for technological breakthroughs in the short-term can be easily overstated. This is primarily because the current system gives people in general and Americans in particular almost no incentive to deploy existing technologies in the realm of efficiency. But the Honda Civic Hybrid is both wildly more fuel efficient than the average car in the American garage, and 100% possible within the existing technological paradigm.

All up and down from appliances to home weatherization to industrial heating there are a billion technologies we could be deploying if the negative externalities from carbon emissions were priced properly. Compare CO2 emissions in the US to emissions in Denmark and you’ll see we’re not dirtier because they have some secret knowledge we lack.

Second, as Leonhardt writes there’s a gaping flaw in research first logic, namely that “the weakest link in the pro-research argument is that no one knows exactly where the money will come from.” One way to raise a lot of money would be through a tax or cap-and-trade system that would price the negative externalities of greenhouse gas emissions. Of course that would be politically difficult, but you don’t eliminate the political difficulty by proposing that we raise some other tax or cut some other program instead.

Third, I think the political viability of this is a mirage. If you go forward on a research first bill that conservatives don’t like, then conservatives will complain that this is socialism and planning and “picking winners” and it would be more sensible and economically efficient to just price CO2 emissions. And of course if you try to just price CO2 emissions, then conservatives will complain that it’s a job-killing nationwide energy tax. As Ross Douthat explained in an excellent post earlier this week the political problem facing environmentalists is that conservative elites in America genuinely don’t want to tackle climate change whereas conservative elites in Europe genuinely do want to tackle climate change. There isn’t some palatable cost-free way of doing this and if leading figures in the political and business community want to insist on not doing anything, they’re going to win every time.

Fourth, the political economy of the research first concept strikes me as dubious. Suppose congress creates some large pot of gold for clean energy research and I’m an incumbent firm with some relevant knowledge of the energy industry. What’s easier to do—actual R&D to create breakthrough technologies, or lobbying to get congress to classify something I can already do as worthy of subsidy. Think about the glorious history of ethanol.

To make a long story short, even if there weren’t a problem of climate change shifting the US government revenue base toward taxing energy consumption would be sound economic policy. And given that there in fact is a problem of climate change the case for specifically taxing energy consumption that contributes to the problem is even stronger. Many many other things are important around the margin, but nothing else is nearly as good from either an ecological or an economic perspective.

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