Why has there been so little progress?
We know what we need to do to tackle the problem of climate change: act to replace the world’s enormous investment in fossil-fuel energy, transport, food, industrial, and residential climate control systems with renewable facilities that do not emit carbon dioxide and other greenhouse gases. We have known this for decades but have made only a tiny dent in the proportion of world energy released from fossil fuel sources. This political logjam contrasts sharply with the effective steps the world has taken to deal with other similar environmental threats, such as acid rain and the destruction of the ozone layer by chloro-fluorocarbon emissions. What explains the difference, and what can we do to get on track with decarbonization?
We have convincing analyses of the political processes that can obstruct and delay public policies, even when they confer huge net social benefits as decarbonization would. Private decision-makers regularly make two errors in evaluating public policies. On the one hand each firm or household assumes that it will bear the full costs of a policy while facing an unchanged economic environment. It does not take account of the policy’s effects in changing other firms’ and households’ behavior, thereby changing the economic environment. For example, firms and households with large legacy investments in fossil-fuel energy systems see measures like a carbon tax as increasing their costs and putting them at a competitive disadvantage. They ignore the fact that other firms and households will face the same changes in fossil-fuel costs. On the other hand, private decision-makers underestimate the benefits they will gain from the social effects of the public policy – in the case of decarbonization, from the reduction in climate damage. These distorted evaluations lead some private decision-makers to oppose public policies that actually offer them a net benefit. When private evaluations of public policies are based on monetary evaluations, they may diverge sharply from correct estimates of social benefits.
They ignore the fact that other firms and households will face the same changes in fossil-fuel costs.
The limited influence of morality
To some degree the framing of public policy such as decarbonization in moral terms can offset these predictable biases in private evaluations of the policies. Human beings are willing to bear substantial real costs to achieve what they believe to be worthy social ends. We see this in the widespread popular approval of decarbonization in principle, particularly of specific policies like subsidies that lower the costs of green energy technologies, provided they do not directly change most individuals’ economic constraints, for example by increasing the price of gasoline. But we also see the limits of the moral effect all across the social spectrum – from the concerted political efforts of wealthy owners of fossil-fuel reserves to promote climate change denial and misinformation, to the protests of workers and small proprietors when they find gasoline prices rising just as their incomes are depressed by global competition.
Full compensation is possible
Society has a resource to advance socially beneficial public policies like decarbonization in the face of predictable and even understandable private resistance. It can pay monetary compensation to those individuals who will bear disproportionate private costs as a result of policies such as carbon fees. In the case of decarbonization, this compensation is likely to require very large amounts of money. In considering the politics of such compensation schemes, however, it is important to distinguish, not just between private and social costs, but between social costs and transfers of income and wealth. Because greenhouse gas emissions lead to externalities through global warming, they make the allocation of resources inefficient. The externalities can therefore be corrected without any economic opportunity cost. The present generation can benefit future generations without any cost to itself, by decarbonization paid for by reducing conventional investment in fossil-fuel technologies. This point is obscured by the evident large monetary cost of decarbonization, but nevertheless the externality implies it is possible to decarbonize without any individual or generation bearing a real cost in terms of their standard of living. The monetary transfers necessary to approximate this pattern of decarbonization are large, but can result in net improvements for everyone.
Sources of resistance
The stubborn opposition to decarbonization from owners of fossil-fuel reserves and those who perceive themselves as dependent on cheap fossil-fuel energy – opposition, for example, to meaningful carbon fees – is one component of the political logjam that is impeding progress toward decarbonization. Another component is the tendency of advocates of decarbonization to link it to other social goals, such as the elimination or reduction of economic inequality in the world economy. The problem with making this link is that, while we know how to address the problem of climate change through decarbonization, we are much less certain as to how to redress the deep problems of social and economic inequality within and between regions of the world. To insist on measures to correct economic inequality or to correct historic injustices as a precondition for effective policy toward decarbonization is to make the earth’s climate a hostage in an ongoing and unresolved human quarrel. The political logjam that can only be resolved by finding some compromise path that no one may be particularly happy with, but everyone feels they can live with.
A World Climate Bank
In this context an extremely valuable resource would be a stably funded, prudently governed World Climate Bank, which could raise large sums of money to finance both investment in decarbonization and the transfers necessary to compensate those who stand to lose the most from decarbonization. This bank would make it possible, in effect, for the future generations who will benefit from decarbonization to transfer resources to the present generation to allow them to pay for it. A further description of our proposal for a World Climate Bank can be found in our report A World Climate Bank, Global Challenges Foundation, April 2022, (https://globalchallenges.org/wp-content/uploads/2022/04/A-World-Climate-Bank.pdf)
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