We now seem to have an economist food fight on our hands, regarding The Cost of Climate Change Inaction:
Robert J. Samuelson’s April 27 op-ed, “Selling the Green Economy,” was way off the mark on the economics of tackling climate change. It was a call to bury our collective heads in the sand simply because the future involves uncertainty — exactly the opposite of what we need to do.
Samuelson argued that the cost of moving to a clean-energy economy is higher than advocates expect and that transition can’t happen nearly fast enough to meet the ambitious goals proposed in the climate and energy bill sponsored by Reps. Henry Waxman (D-Calif.) and Edward Markey (D-Mass.).
But this assumes that all costs involved in mitigating climate change — and there will be costs — represent new costs, without acknowledging the massive error in our market system that equates the price of carbon emissions to zero. This fundamental error skews everything that follows, because if emitting carbon costs nothing on a balance sheet, all steps to reduce pollution count as “new costs.”
The real cost of carbon emissions is far from zero. Each new scientific report brings proof of a changing climate that promises to disrupt agricultural patterns, set off a scramble for dwindling resources, raise sea levels, propel population shifts and require massive emergency spending as we try to react to the growing crises. These are the costs of inaction.
A smart climate policy can create a mechanism to put the right price on carbon, and rapid economic change will follow that firm price signal, along with reduced climate risks. Our work with more than 100 economists nationwide and at RealClimateEconomics.org demonstrates the weight of economic analysis supporting this point.
Please go read the original Samuelson piece, linked in the first graf above, and the response by Sheeran and Lubber that I pull-quoted.
A couple of observations:
First, not accounting for the cost of inaction and letting climate chaos just happen is tantamount to saying that either (1) you don’t think climate chaos is real, or (2) you don’t care or actually want Very Bad Things to happen. I don’t know what the story is with Samuelson, but in this case he’s wrong and the people like Sheeran and Lubber who are pointing to the precipice we’re approaching and sounding the alarm are right.
Second, I have a real problem with this notion that carbon emissions being unpriced is a “market failure”. You can find this meme repeated endlessly online, and I don’t think it’s accurate. This is a philosophical point, but I think it relates to the fact that “the market” and everything that term encompasses is a human invention; it’s not a fundamental characteristic of reality, like the atomic weight of boron or the strength of the gravitational constant. The only reason that the millions of other goods and services we trade with each other have prices is that we’ve inserted them into the market system. You invent a machine that makes widgets, and right away you think, “Hey! I bet I could sell some of these widgets to other people! I bet I could even sell the widget-making machines!” So you start advertising and selling both, which is to say you make an explicit decision to insert these two products into the marketplace.
You charge a positive price for your widgets, of course, but some items have a negative market price–you pay someone to take away your trash or accept your recyclable electronics. But what about that relatively small category of things you can’t sell (no one wants them) but you don’t have to pay to get rid of, the things you can just freely dump into a river or the atmosphere? They never get inserted into the market, so they never have a price associated with them unless we collectively decide to force them into the market through legislation that taxes, trades, or prohibits them.
In other words, the fact that we’ve never had a price on CO2 and other greenhouse gas emissions is not a failure of the market, but a failure of society in general to recognize that it was in our best interest for them to have a price that incentivized people to act the way we’d prefer. And our failure is a perversely complex situation; we were emitting large amounts of CO2 for a long time before we really figured out this whole climate change thing. Even in the decades since the light bulb came on over our heads, our response has been slowed by inertia, well financed special interests (cough fossil fuel industries cough), and, most notably in the US, plain old pig-headed stubbornness.
In all thing related to energy and the environment, I think it’s useful to imagine the market as a gigantic, tireless, and remarkably efficient machine for allocating resources according to how we value them. And never forget for an instant that it’s also utterly indifferent to our well being unless we take action and force the issue by putting a price on that, too.
