Climate Treaty and Carbon Tax

The climate crisis is real and it requires an immediate and continuous response, but it is very unlikely that the response will be a treaty or a tax. For a long time I have been observing colleagues arguing that we must limit greenhouse gas emissions via a binding international treaty. Often the same colleagues will say that we need to limit emissions by pricing carbon to discourage its use. As economists are prone to say: all things held equal; that solution should work. Sadly, few things are held equal and so these two policy "solutions" are actually distractions, since they are both politically infeasible.

Let's start with the treaty idea. Kyoto in December 1997 was the high point of the treaty strategy, as nations agreed to reduce emissions. When the U.S. refused to go along, the international agreement began to unravel. Even though the treaty "went into effect in 2005," it's never been a meaningful policy. If the U.S. had ratified the agreement, it still wouldn't have mattered, since the treaty would never have been implemented anyway. Developing nations need energy to develop and developed nations continue to find more uses for energy than ever before. The resulting political pressure to develop and use energy is so strong that limits on greenhouse gasses are routinely ignored. In developed nations, improved energy efficiency and increased use of renewable energy are reducing greenhouse gas emissions, but in the developing world, emissions are growing at a furious rate.

Energy is simply too central to economic life, and economic life too central to the political elite's power, to allow anyone to limit a nation's use of energy. That is why the likelihood of a climate treaty is so low. Climate change has low political salience because its causes are everywhere and its main impact is either in the future or difficult to predict.

This brings me to the carbon tax. What a simple and elegant solution. Simply price fossil fuels at their true cost, including their impact on the environment and the costs of damage from climate-induced extreme weather. The problem, again, is the importance of energy. Increased energy costs would have an impact on the price of everything. One could argue that it would force efficiency and push renewables into the marketplace and that the cost impact would be temporary; but economic life involves psychology and confidence, and the temporary negative could set in motion other negatives as well. Now couple the short-term negative economic impact of a carbon tax with America's political allergy to most forms of taxation. Which politician is going to campaign on that platform? It is true that you could design a tax that provides rebates to poor people and addresses other negative impacts, but don't waste your time--the probability of an American carbon tax is very, very low.

Well-respected scholars continue to make the case for carbon taxes, international treaties and nuclear power, oblivious to the political obstacles of each of those policy paths. A treaty cannot overcome the distinct and conflicting political perspectives caused by different rates of economic development. A tax cannot overcome America's antipathy to new taxes. Nuclear power cannot overcome "not in my backyard" objections to siting generation or waste facilities.

The late, great speaker of the U.S. House of Representatives Tip O'Neill famously argued that "all politics is local." In political science 101 we teach Harold Lasswell's eighty-year-old definition of politics as the process that determines "who gets what, when and how". Politics is about distributing and receiving benefits and costs. Robert Dahl added to Lasswell's definition by speaking of politics involving the "authoritative allocation" of benefits and costs. Combining Lasswell and Dahl, what do we get? We learn that economic power, tangible local impacts, physical force and legitimate legal authority matter. Policy is not a puzzle to be solved objectively, but a direction that must be adjusted to the currents of substantive and even symbolic notions of self-interest. There are too many interests aligned against the treaty and the tax for those policies to make it safely through the white water rapids of climate politics. We need to look for policies that do not have as many entrenched natural enemies. We need to find and cultivate friends instead of making and fighting enemies.

There are countless examples of policy adjustments to political interest. Here's a new and old example of what I mean:

  1. Obamacare: The reason why the Affordable Care Act looks the way it does was because the economic power of health insurance companies had to be accommodated. As single payer system might have been simpler and easier to administer, but it would have been killed by the insurance companies.
  2. Water Pollution Control: In 1972, when the Federal Water Pollution Control Act was passed over President Richard Nixon's veto, he used his executive authority to impound funding for water management planning. However, due to the pressure of the construction unions, engineering companies and state and local elected leaders, he allocated billions of dollars to construct sewage treatment plants. Nixon was against regulating water pollution and against planning that would guide the siting of sewage treatment plants, but he still ended up supporting the funding of those plants. Sewage treatment plants were sometimes sited in the wrong place, but they still resulted in dramatic improvements in America's water quality. Nixon may not have cared about water quality, but he understood the political benefits of pouring concrete.

Logic, rationality and elegant policy design typically take a back seat to bare knuckle, self-interested, and often local, politics. If we want to mitigate climate change, why not look at a policy design that offers hope instead of futility? Aren't there any policy perspectives that can avoid the difficulties of these standard approaches? I think there are.

Let's face the fact that our lifestyles and the aspirations of billions of people in the developing world will require more, not less, energy in the future. I think our policy goal should be to lower the price of energy and reduce the proportion of the GDP devoted to energy. We can do that by replacing fossil fuels, which will only get more expensive over time, with renewable energy, which has been getting less expensive over time. Most people who fill up their gas tank know that what used to cost $25 now costs $50. While there may be plenty of fossil fuel supplies left in the crust of the earth, it is increasingly complicated to get it out of the ground, transport it and burn it. Why don't we focus our brainpower on developing cheaper, more reliable and more convenient forms of renewable energy? Let's direct policy toward developing and implementing new renewable energy and energy storage technologies. Let's build smart grids, decentralized energy generation capacity and new forms of energy storage capacity. Let's turn our focus from reducing the use of dirty energy to increasing the use of clean energy. It's not hard to imagine a political leader running on that platform. Is it?

Our goal should be to have the new technology of renewable energy drive out the old technology of fossil fuels. It's been done before: tapes replaced records, CDs replaced tapes, and MP3s replaced CDs. Cars replaced horses and cellphones replaced landlines--and someday, the electric car will replace the internal combustion engine. Our policy focus should be on inventing new technologies through government-funded research and development and then commercializing those technologies through private enterprise. Government can help direct capital toward the commercialization of new technologies and can use its vast purchasing power to help speed the implementation of these new technologies. While some old line fossil fuel companies and energy utilities might resist, the new companies that will build these new technologies will provide a powerful counter weight to the political power of these declining businesses. It is also possible that the better run fossil fuel companies will become modern energy companies and move into the renewable energy business for real, not just in their green-washing commercials.

While a climate treaty or carbon tax is unlikely, addressing the climate crisis is inevitable. To do that, we need to avoid the distraction of unattainable policies and focus on policies that are politically feasible.

Photo Credit: Treaties and Taxes and Likelihood/shutterstock