Free market environmentalism

AlfedPalmersmokestacksI believe in the power of markets.

I believe in environmental protection.

I believe in limited government.

Can those beliefs be reconciled?

I believe they can, even though environmental problems are often seen, correctly, as a form of market failure. We can’t allow businesses or individuals to pollute public goods such as rivers, or the air, or the earth’s atmosphere. The question is, how do we best correct those failures?

My preference is for strong and simple regulation or taxation, designed to (1) recognize the power of competitive markets to generate wealth and aggregate information to devise the best solutions to problems and (2) minimize, as much as possible, the ability of powerful interests to game the system, i.e., crony capitalism.

These are, obviously, complicated questions, perhaps best left to environmental economists. But I took a crack at the issue of clean energy policy in a column just published by Ensia, a lively, online environmental magazine published by the by the Institute on the Environment at the University of Minnesota.

The column ran under the headline A Market-Friendly Approach to Energy. Here’s how it begins:

The world needs clean energy. Clean energy subsidies? Maybe not.

Consider the Fisker Karma, an electric car with a base price of $95,900.  A friend of mine bought one. He earned $7 million last year, and took advantage of a $7,500 U.S. federal tax credit available to buyers of electric cars.

Fisker itself got government help, too, in the form of $192 million from the U.S. Department of Energy. So did A123 Systems, which sold battery packs to Fisker; it got $129 million in energy department grants and another $125 million in tax credits and grants from the state of Michigan.

None of this helped Fisher, A123 or, more importantly, the planet.

The column goes on to argue against the vast array of subsidies to clean energy and fossil fuels favored today by the federal government and many states, and instead proposes a carbon tax. (Ideally, a revenue-neutral carbon tax.) A carbon tax would discourage dirty energy and promote  clean energy, without favoring solar or wind or biofuels or nuclear or electric cars.

The column concludes:

…Contrary to popular wisdom, we don’t need a comprehensive national energy policy any more than we need a comprehensive food strategy to stock supermarket shelves or a comprehensive laptop strategy to keep Apple or Dell in business. What markets do very well is separate winners from losers. As the economist Michael Giberson put it: “When values are diverse and knowledge is dispersed, letting a thousand energy strategies bloom really is the best approach.” To do that, we have to get the government out of the way.

You can read the rest here. While you’re at it, take a look at the excellent journalism being published by Ensia.


  1. Ed Reid says

    Even if our congresscritters could bring themselves to pass a “revenue neutral” carbon tax, it would hardly be revenue neutral for individual taxpayers. The opportunity to buy votes by redistributing the proceeds would be irresistible.

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