Standing up to Samuelson
This post is by Bracken Hendricks, senior fellow at the Center for American Progress.
In Monday’s Washington Post, and a parallel piece in Newsweek, Robert Samuelson gets it wildly wrong on cap-and-trade, parroting a litany of falsehoods and misrepresentations concerning the most probable federal policy for reducing greenhouse-gas emissions.
Like most detractors of action on global warming, Samuelson continues to push the unsubstantiated notion that reducing emissions will tank the economy, and thus is not worth the effort. The problem with this argument is that it ignores the last three decades of science, misunderstands basic economic theory, and overlooks the enormous opportunity presented by the clean energy economy.
Inaction is by far the most expensive policy option, as many recent studies make clear.
Global warming was correctly termed “the biggest market failure in human history” by Sir Nicholas Stern, a senior economic advisor to the government of Tony Blair. Stern estimated [PDF] that inaction in the face of a growing climate crisis could cost the world economy an ongoing price of 5-20 percent of global GDP, while the price of reducing carbon emissions was estimated at a modest cost of 1 percent of global GDP, but a cost that substitutes investments in new technology and infrastructure for the costs of inaction born out in environmental harms.
Recent studies by the Intergovernmental Panel on Climate Change [PDF] (the largest scientific body ever assembled), the renowned management consulting firm McKinsey and Company [PDF], and even the Bush administration itself [PDF] have all echoed these findings, declaring that the costs of action are greatly overstated by these pundits, and that a wide range of cost-effective actions can actually bring down our carbon emissions, even as they stimulate economic innovation and new job creation in emerging industries.
Moreover, the Union of Concerned Scientists recently released a letter signed by over 1,700 of the nation’s top economists and scientists [PDF] calling for immediate action to curb emissions: thus reducing the costs of future reductions, and helping avoid the most costly impacts of climate change, while jump-starting American clean-tech innovation.
Establishing a price on emissions through a cap-and-trade actually improves the efficiency of the economy by ensuring that market prices include the real social costs of pollution and inefficiency. This is a basic fact of economics, popularized in the early 1900s by economist Arthur Pigou and embodied by the contemporary “polluter pays” principal.
Moreover, conservative commentators should consider the fact that the biggest government interventions will occur in response to the increasing ravages of unchecked climate change. Think Katrina.
Further, Samuelson wrongly claims that cap-and-trade is a backdoor tax. In fact, one of the fundamental differences between a set tax and cap-and-trade is that while a carbon tax assumes the government knows the proper marginal cost of emissions, a cap-and-trade lets the market set the price. And, in an economy like the U.S. that has been functioning without any effective greenhouse gas constraints, the initial cost of emissions reductions is likely to be quite low as we capture the low-hanging fruit of efficiency gains.
Samuelson’s concern about influence peddling in the face of newly collected public funds can be addressed by a commitment to auction 100 percent of the emissions permits, such as advocated recently by the Center for American Progress. The opportunity for competition would be minimized by a full, transparent, permit auction instead of the free allowance giveaway advocated by most polluters. Further, only by collecting the real costs of global warming emissions will the incentive to pollute be eliminated, while the funds are secured to ensure a just and rapid transition to a clean energy economy that protects ratepayers and the public trust.
Samuelson has it wrong. We should look to solving global warming not as a burden, but as an opportunity to unleash new opportunity across the economy as we invest in more modern infrastructure, create good jobs in energy conservation, and stimulate new markets like the renewable energy industry or more efficient automobiles. This view of climate solutions as an energy opportunity is already creating large new export markets, and new investment for our Asian and European competitors, as they move to capture the rapidly growing demand for clean energy and advanced technology. The “Chicken Little" crowd who claim that the sky is falling with every effort to improve the efficiency of our economy and beat back a global climate crisis are the ones who have some explaining to do to the American people.
Samuelson suggests that revenue raised from pricing carbon is a money and power grab by government. In fact, he has it wrong. In the Boxer amendment to the Lieberman Warmer Climate Security Act — the current cap-and-trade legislation being negotiated by Congress — for example, the largest expenditure in the bill is $1 trillion to pay down the deficit. The second largest line item would be a tax cut for middle- and low-income families. The third largest spending would be dedicated to ratepayer relief to make sure that the electricity rates don’t go up for middle- and low-income families. In contrast, significant funds would help ensure that research into low-carbon energy moves quickly enough to ensure that cutting pollution does not slow our growth, but fuels it.
Clearly, fixing this major public policy problem can create a stronger economy and generate opportunities to invest in both equity and efficiency, even as we protect the global environment and the global economy that relies upon it. Pricing carbon is the first step in unleashing a vast new potential source of investment, innovation, and lasting prosperity. Given the choice between an innovation economy that uses clean fuels efficiently and an economically devastating climate crisis, the choice is obvious. It is time for naysayers like Samuelson to stop pitting the economy against the environment, and to recognize that a safe and sustainable environment is the bedrock of our prosperity. That is an idea worth investing in.