Busted: Majority of emissions cuts can come from public spending
A common rap by environmental economists is “any means of cutting emissions raises prices.” Though it is used in defense of a valid point (in the long run we will have to institute either a carbon tax or a permit system), it is simply not true.
The vast majority of emissions cuts can come via public spending that won’t raise prices. We can subsidize efficiency improvements to buildings, fund a conversion of most long-haul trucking to rail, and in the long run electrify all transit and decarbonize electricity generation.
But doesn’t the money for these subsidies have to come from somewhere? Yup, but a lot these are areas where the private (as opposed to social) gains exceed the subsidy — meaning even if the people receiving the subsidy end up paying for most of it from taxes, they come out ahead. However, there is no reason the people receiving the subsidies have to pay for most of them. Most of our military budget is devoted to aggression rather than protecting us. We have had enormous tax cuts for the rich from Jimmy Carter forward. We have wasteful existing subsidies for fossil fuel and various unsustainable practices. There is an old liberal-mocking slogan I’d like to turn around and adapt: “Don’t tax you, don’t tax me, tax the fellow behind that tree.”
If you want more detail on what those means of reducing emissions are, what they would cost, and what the benefits are, look at the spreadsheet Jon Rynn and I have put together. If you question whether any emissions price is needed, briefly:
- The industrial sector is too complex to capture most efficiency opportunities except through response to price signals.
- Emissions pricing is needed to keep rebound effects to manageable levels.
- Emissions pricing will help “mop up” stuff that public investment and rule-based regulation won’t capture.
- Lastly, rule-based regulation is sometimes an emission price in itself. In many cases rule-based regulation actually saves money for those regulated. (I’ve documented examples in the past.) But in many others the cost/benefit ratios are positive only when considering social benefits or reductions of social costs. In that case they do increase the price of the particular goods or services affected by the regulation, even though they save money for society as a whole. But we can start public investments with the large number of regulations which would save money for those regulated. Save the hardest parts for last.