The long-awaited climate accord was signed in Paris. President Obama is taking a victory lap. The NYT breathlessly announced the implications for business:
It will spur banks and investment funds to shift their loan and stock portfolios from coal and oil to the growing industries of renewable energy like wind and solar. Utilities themselves will have to reduce their reliance on coal and more aggressively adopt renewable sources of energy. Energy and technology companies will be pushed to make breakthroughs to make better and cheaper batteries that can store energy for use when it is needed. And automakers will have to develop electric cars that win broader acceptance in the marketplace.
Perhaps. As long as investors, utilities, technology firms and auto makers can make money doing these things. Unfortunately, the climate deal does not prescribe any plan or policies to assure this, nor does it repeal the laws of economics, or the still-desperate need for global economic development. The obvious way to spur these results would be to implement a stiff tax on carbon, but that wasn’t a part of the deal, either.
With a carbon tax, all the other results listed above would follow. And if such a tax replaced income and sales taxes, it would achieve the key objectives of carbon reduction without stalling the economy, aside from dislocations in the energy sector. Politicians on the right wouldn’t propose such a replacement carbon tax because they don’t want to risk their support from oil companies, and many of them believe the problem of global warming is overstated. People on the left wouldn’t propose it because they are generally against replacing income taxes with something as “regressive” as a carbon tax. They would much prefer to add another layer of taxation, and use that money for their parochial purposes, including picking winners and losers in the technology development game, and to impose numerous new regulations on producers to restrict their emissions. Many of these people believe that central planning can get you as good results as market forces.
Unfortunately, the right has surrendered the discussion of climate change to the left, which means that to the extent that we get even ineffectual interventions, they are all but certain to hurt economic growth. People living in beachfront mansions may notice a two degree increase in global temperatures more than a two percent slowdown in economic growth. But people living in low-lying economies will be much more sensitive to an economic slowdown. Seventy five years ago, the Philippines and South Korea were at about the same place economically. The difference, with South Korea today having ten times the per capita GDP, was just two percent per year faster growth over that period. Which of these countries today is better able to weather warmer temperatures, rising waters, and more frequent storms?
The world may be warming with serious consequences ahead. Those who disagree with that prognosis are called “deniers.” What do we call those who deny the economic impact of their proposals? The last time we were told, “The experts are in complete agreement; give me a trillion dollars and control of one sixth of the economy,” things did not work the way their models predicted.