Via Gristmill:
James Galbraith gets to the heart of the dilemma facing climate change economics ...
He ponders the solution offered by mainstream economists, mainly carbon taxes and cap-and-trade systems, noting that they all rely on markets and competition. Then he directly questions whether that's the way to go ...
I'm not sure I'm ready to sign up, but I thought I'd pass it along since you so rarely see a noted economist directly questioning the assumption that markets can tackle this problem.
This represents one of those criticisms of economists that just isn't so, that we all think markets can solve everyting. We don't (see here). It is not the market that must provide the signal to reduce carbon but the government with public policy. Cap-and-trade and carbon taxes are government policies that harness economic incentives. Relying on the market and harnessing market forces within government policy are two very, very different things.
Galbraith's piece, not surprising in MJ, contains this line:
Because, as the Stern Review makes clear, if CO2 isn't stabilized soon, then catastrophe is certain.
Catastrophe is certain? I don't think so. Certain means that there is a 100% chance that it will happen. The IPCC puts the chance of something really bad (i.e., not catastrophe) happening at less than 100%.
Also, I thought the only certain things were death and taxes? So, here is a play on that old joke (and you can quote me):
The only certain things in life are death without carbon mitigation policy and taxes with it.
-- John Whitehead, 2007
And here is the meat of Galbraith's anti-market argument:
The market's real failure is that it allows for no signal from the future to the present, either from the conditions that will exist 30 years hence or from the people who will be alive and working then. The question becomes: Can we really create a market in which those far-off voices are effectively heard?
Mainstream climate change economics assumes so. "Establishing a carbon price, through tax, trading or regulation, is an essential foundation for climate-change policy," the Stern Review posits. This makes some sense. After all, markets and taxes encourage cheap solutions, and there is plenty of low-hanging fruit. For a start, why not replace state sales and federal payroll taxes with carbon taxes? A cap-and-trade system would lead industry to use low-emissions technologies more and high-emissions technologies less. Business leaders are rallying behind a "carbon price." Fine. Give it to them.
But is tinkering with the market enough? According to the Stern Review, stabilizing atmospheric carbon at 550 parts per million requires cutting total emissions by a quarter by 2050, in the face of population and economic growth. Many experts, including nasa's top earth scientist, James Hansen, favor even more drastic reductions. Goodstein simplifies bluntly: We have 30 years to get the gasoline out of cars and the coal out of power plants, a goal beyond the power of markets.
Market policies rely on competition, and are responsive only to prices. But corporations such as ExxonMobil and txu like to run the world as they see fit. ...
My view is that consumers run the world, er, markets. Buying gasoline and power are voluntary decisions that can be altered with higher prices. We might ban CFCs and other products that have obviosly negative impacts, but all of gasoline and coal?
Also, didn't we used to think that railroad barons ran the world? Technology took care of that problem. I'm no techno-fix-all dork, but if you think that ExxonMobil runs the world, just consider what Tim always says in response to Peak Oil -- the stuff that ExxonMobil sells won't so abundant much longer, this will drive the price of oil and gasoline to a point where people decide to switch to some other energy source on their own.
