Cross-posted from Earth Policy Institute.
Moving the global economy off its current decline-and-collapse path depends on reaching four goals: stabilizing climate, stabilizing population, eradicating poverty, and restoring the economy’s natural support systems. These goals—comprising what the Earth Policy Institute calls “Plan B” to save civilization—are mutually dependent. All are essential to feeding the world’s people. It is unlikely that we can reach any one goal without reaching the others.
The key to restructuring the economy is to get the market to tell the truth through full-cost pricing. If the world is to move onto a sustainable path, we need economists who will calculate indirect costs and work with political leaders to incorporate them into market prices by restructuring taxes. This will require help from other disciplines, including ecology, meteorology, agronomy, hydrology, and demography. Full-cost pricing that will create an honest market is essential to building an economy that can sustain civilization and progress.
For energy specifically, full-cost pricing means putting a tax on carbon to reflect the full cost of burning fossil fuels and offsetting it with a reduction in the tax on income. Some 2,500 economists, including nine Nobel Prize winners in economics, have endorsed the concept of tax shifts. Harvard economics professor and former chairman of George W. Bush’s Council of Economic Advisors N. Gregory Mankiw wrote in Fortune magazine: “Cutting income taxes while increasing gasoline taxes would lead to more rapid economic growth, less traffic congestion, safer roads, and reduced risk of global warming—all without jeopardizing long-term fiscal solvency. This may be the closest thing to a free lunch that economics has to offer.”
The failure of the market to reflect total costs can readily be seen with gasoline. The most detailed analysis available of gasoline’s indirect costs is by the International Center for Technology Assessment. When added together, the many indirect costs to society—including climate change, oil industry tax breaks, military protection of the oil supply, oil industry subsidies, oil spills, and treatment of auto exhaust-related respiratory illnesses—total roughly $12 per gallon. That is on top of the price paid at the pump. These are real costs. Someone bears them. If not us, our children.