Donâ€™t believe the scary things people are saying about global warming. No, Iâ€™m not talking about the melting ice caps, rising seas and flooding forecast by climate scientistsâ€”those should be taken seriously. Iâ€™m talking about business groups and conservatives who increasingly argue that climate-change legislation will do severe damage to the U.S. economy.
The truth of the matter? No one, but no one can predict with any certainty what climate change legislation will cost. There are just too many unknowns. So, rather than get into a pointless war of predictions, we should try to figure out the smartest ways to manage costs. That, as it happens, was the focus of a thoughtful, wonkish and refreshingly apolitical discussion of cap-and-trade legislation convened last week by Resources for the Future, a well-respected research group.
Unfortunately, dispassion is a scarce resource in the climate-change debate. Scare tactics are more common. In a flawed report, the National Association of Manufacturers issued a report saying the Lieberman-Warner climate-change bill would cause the loss of millions of jobs. Look at this ridiculous TV commercial from the U.S. Chamber of Commerce. On its website, the chamber says the Lieberman-Warner bill will cost 3.4 million Americans their jobs and reduce GDP by $1 trillion. Similarly worrisome projections are cited in a letter from political and religious conservativesâ€”Grover Norquist, Paul Weyrich, Richard Landâ€”who oppose Lieberman-Warner. (A quick aside: Iâ€™m not surprised to see conservative think thanks, who oppose virtually all forms of government intervention in the economy, fighting Lieberman Warner but I wonder about the chamber, whose members include big U.S. companies like GE, Wal-Mart, GM and Ford, all of whom support regulation of greenhouse gases.)
Anyway, the reason not to take these projections seriously is that even over the medium term (5-10 years), itâ€™s all but impossible to know what will happen once we put a price on carbon emissions. Will the costs of solar power come down dramatically? Many in Silicon Valley are betting that they will. How many nuclear power plants, if any, can be built in the U.S. in the next dozen years? Your guess is as good as mine. What if one of dozens of biofuels startups discovers a breakthrough clean fuel? Or electric cars proliferate? Or the grid gets smarter, driving efficiency? Or packaging shrinks? Or we all recycle a lot more?
New technologies canâ€™t be predicted. Imagine, 20 years ago, trying to predict the number of cell phones in the world today. Who could have forecast the number of Internet searches before Google was invented? Economists are no better equipped to imagine a new future than are science fiction writers. Arguably, they are worse.
By contrast, economists are good at building models that can adapt to an inherently unknowable future. This is what the RFF event was aboutâ€”figuring out ways to achieve reductions in GHGs without needlessly disrupting the economy. It turns out there are number of policy ideas designed to smooth out the economic impact of putting a price on carbon. Getting this policy right is important, if only because rapid spikes in the costs of gasoline or electricity could undermine political support for carbon regulation.
Michael Shellenberger, Ted Nordhaus, Jeff Navin, Teryn Norris and Aden Van Noppen put it this way in an essay called â€œFast Clean Cheap: Cutting Global Warmingâ€™s Gordian Knotâ€ on the website of the Breakthrough Institute:
Today, there is a dilemmaâ€”a â€œGordian Knotâ€â€”at the heart of any effort to deal with global warming. If policymakers limit greenhouse gases too quickly, the price of electricity and natural gas will rise abruptly, triggering a political backlash from both consumers and industry. But if policymakers limit greenhouse gases too slowly, clean energy alternatives will not become cost-competitive with fossil fuels in time to prevent catastrophic global warming.
The challenge, in essence, is to come up with a regulatory scheme that will deliver the emissions reductions that scientists say we need with as much price certainty as possibleâ€”so that businesses and individuals can make intelligent decisions about how to reduce their own emissions. Can we, in other words, develop an effective and transparent mechanism for moderating prices while still meeting emissions goals?
Brian Murray of the Nicholas Institute for Environmental Policy Solutions at Duke called for setting aside a â€œfixed quantity reserveâ€ of emissions allowancesâ€”that is, a bank of allowances that companies could borrow from, if they decide costs are too high to reduce their own emissions. They’d have to pay back the allowances in the future, however. This would provide flexibility, without sacrificing the integrity of the system, which is designed to meet long-term emissions goals.
Nat Keohane of Environmental Defense proposed what he called a â€œstarter kitâ€ of ideas, designed to minimize economy-wide impacts in the short term without loosening the long-term emissions cap. He suggested that companies could get extra credit for early action (when reducing emissions has a bigger impact) and that reductions from domestic and international forestry projects should be allowed into the system during the early years. â€œThese are really good ways of lowering the overall costs,â€ he said.
Others discussed the role of an independent board, a so-called Carbon Fed, which could allow more emissions into the systems when prices get too high, and pull them back when prices are too lowâ€”just as the Federal Reserve now adjusts the money supply.
Thereâ€™s lots, lots more on all this at the RFF website. But my purpose here isnâ€™t to argue for one model or another.
Itâ€™s to say that business should be promoting this kind of conversation about how climate change legislationâ€”and not scaring people with doomsday scenarios.