Last week, New Republic Staff Writer Kate Aronoff penned a commentary arguing against approaches to climate action like carbon taxes and cap-and-trade programs. Her core argument in the commentary is that proper climate action is a question of trust and that public sector actors are more trustworthy than private actors when it comes to addressing climate change.
Aronoff makes some good points throughout her commentary. She hits on a core problem with climate change: left to their own devices, households have a strong incentive to emit carbon because their private benefits are much higher than their private costs. This is classic “tragedy of the commons” problem–a stable climate is a common resource. If no one is managing that resource, individuals will deplete it until it no longer exists.
This is a problem that was pioneered by Nobel Prize-Winning Economist Elinor Ostrom. Ostrom did groundbreaking work describing how common property can be successfully managed by groups that use it.
In an analysis Scioto Analysis conducted a few years ago, we looked at options for the state of Ohio to reduce carbon emissions. The tools we analyzed were a renewable portfolio standard (a mandate for utilities to generate a certain percentage of energy from carbon emissions), a cap-and-trade system (a limit to carbon emissions managed by the state), and a tax on carbon. Ultimately, when estimating the impact of each of these interventions, we found that any of these interventions would be highly preferable to the status quo, each with the ability to abate hundreds of billions of dollars worth of carbon emissions compared to the status quo.
So you have some policy analysts like us who have found compelling evidence that a cap-and-trade or carbon tax program would have a significant impact on carbon emissions in the state of Ohio. Why, then, does Aronoff say “[c]arbon pricing has thankfully fallen out of favor among wonks and lawmakers?”
There are two elements of Aronoff’s claim that are worth exploring. First, is the empirical claim that wonks and lawmakers do not favor carbon pricing.
It has been a few years since the IGM Forum has polled its national panel of economists on carbon pricing, but last time it did, the opinions were overwhelmingly positive. In a March 2021 survey, 91% of economists agreed increasing the price of carbon was sound policy, with 79% “strongly agreeing” and only 2% uncertain. No economists disagreed with the statement. In a November 2021 survey, 75% of economists agreed a global price floor on carbon emissions would be an effective tool for achieving sharp reductions in global carbon emissions. I am not aware of any evidence that this overwhelming economic consensus has deteriorated.
Meanwhile, 53 countries and 40 subnational jurisdictions have implemented some sort of carbon price. These range from 12 US states in the Northeast and West Coast to high-income countries like Canada, France, Germany, and the United Kingdom all the way to middle-income countries like China, Kazakhstan, Mexico, and South Africa.
What Aronoff may be referring to is some high-profile conflicts that have emerged over carbon pricing. Hedge Fund Executive Brian Heywood has been leading an effort in Washington State to repeal their cap-and-trade program through a ballot initiative. Canada’s Conservative Party has made their country’s carbon tax a rallying cry in their current effort to take back their government for the first time in a decade.
So yes, carbon pricing has its critics among lawmakers, though I don’t think Heywood and Canadian conservatives were ever particularly fans of carbon pricing mechanisms. But if we were in this universe where experts were fleeing from the consensus that carbon pricing is an effective tool to reduce emissions and lawmakers across the world were repealing these laws, why would we be thankful for this?
Aronoff’s argument against carbon pricing is that economics is wrong. The core argument she lands on at the end of her commentary is that “Only governments are equipped to make the kinds of plans that will keep people safe as temperatures rise.”
There is a bit of a conflation of two ideas here. Aronoff spills a lot of digital ink arguing against the idea of carbon pricing, which is a climate mitigation strategy, not adaptation strategy. In layman’s terms, this means carbon pricing is put in place to reduce the rise in temperatures. Adaptation strategies, like deciding where to live as climate changes, are strategies we deploy in light of temperatures rising.
What Aronoff claims throughout her commentary is that people are not capable of making decisions that are in line with the common good. She argues that key decisions are best left up to government because if people consume energy as they like or more to where they would like, it will lead to depletion of these common resources that we are talking about.
What she misses in this analysis is that government always relies on individuals to carry out its mandates. Tackling climate change is not something government can do on its own: it is going to take action by individuals to make sure that our stable climate resource is not depleted and that we take the necessary steps to manage infrastructure and our economy in the face of what climate change does occur.
On the other hand, individuals, left to their own devices, have little reason to act altruistically. Given the chance to help their family by purchasing electricity or have a marginal reduction in carbon emissions, by and large they will put their family first.
That is why carbon pricing matters. If people don’t see the cost of carbon on price tags, they will not change their consumption habits. The strange irony of arguing government needs to throw the kitchen sink at carbon emissions is that carbon pricing is the kitchen sink. It’s an impediment to actors throughout the economy contributing to a carbon-intensive economic system that will spur a host of economic adaptations that will reduce emissions.
So no, government can’t fight the climate on its own. And neither can markets. Only a market regulated by the public sector will be able to do that.