Why aren’t more economists backing win-win climate solutions?
I’ve been reflecting a bit on this post I wrote yesterday on Paul Krugman’s primer on climate economics. Long story short, I wish I hadn’t written it. Not because I’m not interested in (and obviously somewhat exercised by) the role of rational choice theory in mainstream economics, but because it wasn’t the main point I was trying to make and the cause I am trying to advance isn’t well served by a tribal war with economists. I have this tendency, when a blog post occurs to me, to think, well, before I explain that I need to explain that, and before that I have to lay that out, and so on, until I end up writing what amounts to a very long introduction … to a blog post I never end up writing. Grist is littered with such introductions.
In this case, though, I actually want to write the post itself. So I’m going to start at the end rather than the beginning.
My frustration is as follows: There are many policies that could reduce greenhouse gas emissions while improving economic productivity — so-called win-win solutions. Since it is widely agreed that we need to reduce GHG emissions, you’d think this would be big news. You’d think such policies would top every think-tank wish list and thrill the pundit class. You’d think economists, in particular, would be discussing and studying them at every opportunity.
But alas it is not so. In fact win-win policies are among the least discussed topics in mainstream climate politics. The economic research and case studies that vouchsafe them find little representation in the modeling that EPA, EIA, CBO, and others use to assess climate legislation. Most legislators talk like they’ve never heard of win-win policies or even considered the possibility. Activists beat the drums for them but often lack the vocabulary to make good economic arguments; regardless, DFHs aren’t taken seriously by Village arbiters of intellectual credibility.
Lack of attention can doom such policies. They face a highly asymmetrical situation. In energy markets, incumbents have incredible advantages. They are the beneficiaries of a century’s worth of public infrastructure investments, to say nothing of decades worth of tax breaks, subsidies, lax regulatory enforcement, and political largesse. Incumbents are insulated from competition by a thick web of regulations, accounting practices, and simple habit. They have an enormous interest in maintaining their advantages, whereas the benefits of changing the status quo are often widely distributed, so there is rarely a powerful lobby to push for it. For these reasons and more, it’s very difficult to build support for policies that benefit the public interest at the expense of a particular industry. Losers cry louder than winners cheer.
It is the job of progressives to build support for such policies — support sufficient to dislodge energy incumbents in the name of the public interest. That’s what progressive politics is, to me anyway. But it would be nice to get more help from economists, who for better are worse are often viewed (and view themselves) as neutral judges of the prudence and quality of public policy.
Put aside, for a moment, economics as it manifests to a student of economics, or a professional inside the field. In any field of inquiry there is diversity, and sure enough there are economists doing great and innovative work on environmental problems. Instead, let’s talk about economics as it manifests in public discussions and political processes. In the U.S., the spectrum of economically reputable opinion (or sphere of legitimate controversy) runs roughly as follows.
On one side there are conservatives, who argue against any regulatory, legal, or legislative reform that might threaten energy incumbents. They do so under the banner of “small government,” with recourse to Chicago school economics. (In reality today’s conservatives are, in Sen. Lindsey Graham’s words, “business friendly,” which means something close to the opposite of “market friendly.”)
In the “middle” are “centrists” who argue against any regulatory, legal, or legislative reform that might threaten energy incumbents because “Americans are suffering” and “it’s not a good time to raise energy prices” and, you know, the deficit. (The climate bills that passed the House and the Senate Environment Committee would reduce the deficit and lower energy bills. But whatever.)
And on the “left” end of the Very Serious opinion spectrum are environmental economists. As far as I can tell, they are working squarely within the neoliberal tradition — markets filled with self-interest maximizers finding optimal equilibria — with the addendum that some transactions produce negative externalities that should be re-integrated into the market via prices. In the context of climate politics, that means they advocate for carbon pricing, lending it an imprimatur of economic legitimacy. Their general equilibrium models show that carbon pricing, like any tax-and-transfer policy, will slightly reduce GDP growth. Their rallying cry to the American public is, quoting Krugman: “Restricting emissions would slow economic growth — but not by much.”
Who, then, advocates for the win-win climate policies outside of carbon pricing? Not Krugman. Not the economists quoted in the newspaper or on cable news. Environmental economists, like most economists in the neoliberal tradition, tend toward skepticism of policies outside pricing. Like Krugman in his NYT piece, they tend to frame prescriptive “command and control” regulation as the only alternative to pricing, and a distasteful alternative at that. (Note the contortions Krugman goes through just to talk himself into accepting performance standards for coal plants.)
But command-and-control regulation is a) usually effective, and more to the point, b) only one of myriad non-price-based climate policies. For example, the only time the words “public investment” appear in Krugman’s piece is when … he uses it as an analogy for carbon pricing. He never mentions reducing fossil-fuel subsidies, reforming utilities, implementing efficiency standards, boosting R&D, updating antiquated zoning codes, pricing congestion and parking … on and on. There are more things in heaven and earth, Horatio, than are dreamt of in your economics!
There are dozens and dozens of economically credible policies that could serve as part of a full-court press against climate change. They desperately need the backing of political and media elites. Economists could do a great deal to advance that cause if they would descend from the theoretical clouds and into the real world, where energy markets are always and already compromised, inefficient, and ripe for both economic and environmental improvement.
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