Some environmental leaders have said that I am naïve to think that there is an alternative to cap-and-trade, and they suggest that I should stick to climate modeling. Their contention is that it is better to pass any bill now and improve it later. Their belief that they, as opposed to the fossil interests, have more effect on the bill’s eventual shape seems to be the pinnacle of naïveté.
– James Hansen, “Strategies to Address Global Warming,” July 2009.
Welcome to the science of politics, Dr. Hansen–and welcome to a tradition in political economy that is more than a century old. “I see no force in modern society which can cope with the power of capital handled by talent,” stated William Graham Summer in 1905, “and I cannot doubt that the greatest force will control the other forces.”…
Continue ReadingIn this month’s article at EconLib, I provide an introduction to the economics of climate change, and discuss some of its major controversies. Follow the above link for the full story, but in a nutshell here are the main issues:
(1) The Discount Rate. Economists give wildly different estimates of the “social cost of carbon” and hence the “optimal” tax on an additional unit of emissions. These differences are not primarily due to the assumptions about climate systems or human vulnerabilities to warming. On the contrary, the main difference between, say, the policy recommendations of the Stern Review (very aggressive) and William Nordhaus’ DICE model (very moderate) is that Stern uses a very low discount rate, while Nordhaus plugs in an estimate of the market’s rate of return on capital.
Efforts to mitigate greenhouse gas emissions impose large, upfront costs on the economy (in terms of forfeited potential output of goods and services), while the benefits will not accrue until decades in the future (in the form of avoided climate change damage).…
Continue Reading“Waxman-Markey … seeks a first in economic history: rationing without scarcity or price inflation. [It] allows generous ‘offsets’ so that carbon-based energy does not, in fact, become scarce. The bill does, however, contain a multitude of new regulations, product-efficiency mandates, and spending programs that will require extensive managerial attention from both the public and private sectors, though to much less effect than promised.”
– Steven F. Hayward and Kenneth P. Green, July 2009
The Waxman-Markey energy bill passed by the House of Representatives is a great illustration of how the government can take an idea that sounds good in theory – emission trading – and turn it into a nightmarish piece of legislation that is larded with pork; perverted by special-interest horse-trading; and will most likely be not only ineffective, but will produce perverse and negative consequences for both the economy and the environment.…
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