Nature does not do bailouts

A call for change -- no, not by Barack Obama, by Al Gore.

Gore co-authored a call for Sustainable Capitalism in today's Wall Street Journal:

At this moment, we are faced with the convergence of three interrelated crises: economic recession, energy insecurity and the overarching climate crisis. Solving any one of these challenges requires addressing all three.

The op-ed concludes that:

Today, the sustainability challenges the planet faces are extraordinary and completely unprecedented. Business and the capital markets are best positioned to address these issues.

...as long as the incentives are correct:

We...need to internalize externalities -- starting with a price on carbon. The longer we delay the internalization of this obviously material cost, the greater risk the economy faces from investing in high carbon content, "sub-prime" assets. Such investments ignore the reality of the climate crisis and its consequences for business.

Comments

[hydra]

Internalizing the cost of carbon seems to imply that the polluters should pay. That cost will, of course, be externalized. Someone is kidding themselves about what this will mean.

[Gernot Wagner]

Hydra, you are quite right. Some of the costs will be passed on to consumers -- i.e. you and me. Here's a response I just posted at another thread on this very question: How much does all of this actually cost?

The main, macro-level conclusion of an extensive review of a host of studies on this issue says:

"A business-as-usual approach, continuing with today's policies, puts the U.S. economy on a path to reach $26 trillion in January 2030. With a cap on the greenhouse gas emissions that cause global warming, the economy will reach the same level two to seven months later."

That translates into pennies a day of additional household expenditures. The full analysis and report contain lots more detail.

[Dano]

"Conserve, baby, conserve!"

Or is that EnvEcon-esque "Waste less!"

Best,

D

[Pradeep]

"We...need to internalize externalities -- starting with a price on carbon. The longer we delay the internalization of this obviously material cost, the greater risk the economy faces from investing in high carbon content, "sub-prime" assets. Such investments ignore the reality of the climate crisis and its consequences for business."
Interesting perspective, but without coal power plants (51% of US electricity), where is the baseload capacity going to come from? Carbon capture and storage still face many policy, technical and legal hurdles.

@Hydra and Gernot Wagner:
In this economy, do you think that the any climate legislation that increases gas/electricity prices will get passed, positive/neutral cost-benefit analyses not withstanding?

[Gernot Wagner]

Pradeep,

Passing appropriate climate legislation in this economic climate might look difficult at first glance, but a well-designed climate bill might actually stimulate the economy. Cap-and-trade legislation could generate funds to the tune of $150 billion per year. That's a lot of money to do a lot of good, both for the environment and the economy.

Some, for example, have suggested to give these funds back to consumers in form of tax cuts or direct payments. That would be $1500 for every household in the US per year. If we used these funds to decrease existing taxes, they could do even more good by decreasing distortions and disincentives for work partially caused by existing labor and payroll taxes.

Alternatively, the government could use the money and jumpstart the transition to a green economy. These investments could include anything from improving building efficiency to making transit investments or funding green infrastructure such as a smart electricity grid. Or this money could be used more directly to jumpstart the green economy through investments in wind or solar power plants or factories to build wind turbines or solar panels.

[Pradeep]

@Gernot Wagner,
I agree. I think the hard part is convincing the Congress and public that carbon legislation will indeed have net positive impacts.
Voters in Colorado voted against a ballot measure to increase taxes on the oil & gas industries to pay for clean energy technologies recently.

I think instead of the government investing, it might be a better idea to give the proceeds from carbon trading to people and let them drive innovation.

[Michael Gillis]

How about a Carbon Lottery as a green financial mechanism to help pay for climate change solutions?

See carbonlottery.info for more information.

[Carlos Ferreira]

I think some of the cost will land on the consumer, the only way it didn't was a situation where price elasticity of demand for energy was 1. But what this will do is encourage a more efficient usage of energy, even if it impacts on people's pockets a bit. There will be less disposable income for non-energy consumption, if all other conditions hold equal.

The positive part is that it will reduce the gap between the cost of fossil-based energy and renewable-sourced energy - thereby making the latter more appealing to investment than now.

The question of re-distributing such amount of generated cash is a different one. I favour creating one (or several) funds to invest in welfare-increasing activities: research-and-development, more renewable energy ventures, health, you name it. It's a long shot, but it's better than letting some bureaucrats decide on the distribution of it.