A Capitalist Solution for Climate Change?

by Luke Muehlhauser on December 8, 2009 in Ethics,Guest Post,Science

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The ethical theory I currently defend is desirism. But I mostly write about moraltheory, so I rarely discuss the implications of desirism for everyday moral questions about global warming, free speech, politics, and so on. Today’s guest post applies desirism to one such everyday moral question. It is written by desirism’s first defender, Alonzo Fyfe of Atheist Ethicist. (Keep in mind that questions of applied ethics are complicated and I do not necessarily agree with Fyfe’s moral calculations.)

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My greatest frustration with respect to the climate change debate is that nobody seems to be presenting a capitalist free-market perspective on the problem.

We have the anarcho-communist perspective of the Republican Party/Conservative side, versus the big-government massively overregulated policies of the Democratic/Liberal side.

I discussed Conservative anarcho-communism last week. This amounts to a drive to keep climate use in a public commons, mostly because it provides whole industries with the economic equivalent of a multi-trillion dollar government subsidy. They get to push tens to hundreds of trillions of dollars of bills to other people – people who, in some cases, will pay with their lives. The destruction of whole cities and countries and the deaths and suffering of hundreds of millions of people do not seem to bring even a twinge of moral regret to these people, as long as they get their money.

However, the over-regulated big-government solutions of the liberal side are no panacea. They, too, have significant structural problems.

The first of these comes from the question, “What is the optimum level of greenhouse gas emissions?”

The economically efficient level of greenhouse gas emissions is that level at which the overall marginal costs of another unit of greenhouse gas emissions exceeds the marginal benefit.

We may assume that the first unit of greenhouse gas emissions will be created producing its most beneficial effects – whatever they are. This is a fundamental economic principle of the law of diminishing returns. By way of an illustration, if I were to give you $1000, you would spend it on what you want most. If I were to then give you another $1000, with what you want most already purchased, you would then spend it on your next most wanted purchases. Each $1000 buys something that has less value to you than the $1000 before it. This is the law of diminishing returns.

It applies to greenhouse gas emissions as well. The first unit of greenhouse gas emissions should go to those uses the provide the greatest benefit. The next unit will go to those that provide the next greatest benefit. Each unit produces less benefit than the one before.

Greenhouse gas emissions come with a cost. One of the set of costs that we are experiencing are the costs associated with global warming. A substantial portion of those costs are associated with sea-level rise. The ice caps melt, and sea-water expands as it gets warmer, causing the sea levels to rise, destroying coastal properties. As I said at the start, whole cities and countries are at risk.

If greenhouse gasses are kept at a rate where the earth’s natural cycles can absorb them, then these costs do not exist. These costs emerge only when greenhouse gasses exceed a given level. Even here, there is something to be said about the speed of change. More-slowly rising sea levels are less costly than rapidly-rising sea levels. They give people more time and opportunity to adapt (and migrate).

So, what is the best level of greenhouse gas emissions?

Cap-and-trade options tell us that government bureaucrats under the expert guidance of legislators know the optimum level of greenhouse gas emissions and can be trusted to set the level at exactly the correct point for greatest economic efficiency. Furthermore, as we learn more and as new technology changes the economic landscape, bureaucrats and politicians can be trusted to continually revise the cap so that it stays right where it needs to be for maximum economic efficiency.

They will do this, according to the ideal big-government model – even though they have absolutely no political incentive to do this. Politically, each legislative vote is a commodity that a legislator auctions away to the highest bidder. He sells it to whatever side promises the most re-election votes, campaign contributions, or support for whatever interests the politician or bureaucrat seeks to promote.

I am not talking here about back-room corruption. I am talking about the way voting actually works in a democracy. Politicians and bureaucrats are human, and as such they act so as to fulfill the most and strongest of their own desires, given their beliefs. This is true of every single vote cast and every single policy decision that a bureaucrat makes. This does not mean that politicians are corrupt or selfish. The most upright and altruistic politician imaginable will still cast her vote so as to fulfill the most and the strongest of her upright and altruistic values – as long as she can stay elected – which might not be long if she insists on voting for the economically most efficient (as opposed to the politically most useful) level of greenhouse gas emissions.

Here, then, we have two problems.

The first is that the politicians and bureaucrats do not know what the proper level for the cap is. The second is that, even if they knew, they have little political incentive to set the cap at that level.

The second problem is that bureaucracies are notoriously poor at responding to new information or technological changes. We have proof enough of this by looking at their response to the scientific data on global climate change itself. Look at how long it has taken them so far to consider any type of meaningful change, and we do not know yet how much further we have to go. If ever.

My bet is that there will be no significant action on global climate change.

Even if a cap is set, it will be set at the wrong level, and it will remain the long level while political factions continue to spend billions of dollars in a political battle, while greenhouse gas emitters will continue to muddy the water to prevent any type of political conclusion that will prevent them from passing the bill to innocent third parties.

These will be the effects of the big-government solutions such as cap-and-trade. They are almost as economically disastrous as the anarcho-communist solutions favored by Republicans.

They also do not address the underlying moral problem. Here, too, the people who are causing the problem – the greenhouse gas emitters – get a huge subsidy because they can pass the substantial costs of their actions onto others.

Where the anarcho-communist system says that the people who are required to pay are those who will suffer the effects of global warming. These are the externalities that the subsidized industries get to pass on to others – the costs that some people will pay with their lives.

The big-government faction says that the taxpayer pays. We will send every tax payer a huge bill that will be substantially independent of the degree to which they contributed to the problem, and the money raised will then go to mitigate the costs of global warming. The people who caused the problem will only get their taxpayer portion of the bill.

Note that in both of these systems the people who cause the problem get to pass the costs on to somebody else. The only real difference is in the identity of “somebody else”. In the first instance, the bills are passed to the victims of global warming. In the second instance, the bill is passed on to the tax payer. In neither case is the bill given to those who are actually responsible for the problem – the greenhouse gas emitters themselves.

This is the option that is not being discussed, presented, or investigated (because the emitters, who do not really care who they kill or how much they destroy for their own benefit, have successfully propagandized this option off of the table).

The question is: How do we organize the system so that those who are creating the costs pay for the costs out of their own pocket? This is the free-market, capitalist perspective on the climate change issue.

This is a very difficult question to answer. My frustration is not that the free-market, capitalist system has some easy answer that is being overlooked. My frustration is with the severe shortage of suggestions coming from this perspective – from the perspective of “those who create the consequences take responsibility for their actions and cover the costs.” The people who should be giving us these options – because they bill themselves of advocates of free markets – have, instead, become the well-paid boot lockers of corporate interests seeking to avoid just this type of moral and economic responsibility by passing those costs onto either the victims of climate change, or the taxpayer.

We have many and strong reasons to promote a particularly strong desire for internalizing the costs of one’s actions where possible – for preferring a policy of, “If you break it, you buy it.” Those reasons are very well modeled in the climate change debate, where we can see the huge problems that are associated with alternatives that give people moral permission to pass the costs onto other – to the victims of global warming in the one case, or to taxpayers in the other.

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{ 13 comments… read them below or add one }

Ben December 8, 2009 at 12:35 pm

Hopefully this whole debate just ends once enough people realize that the science behind climate change is driven only by political interest, and is utterly faulty as a result.

Real science can resume once this whole thing blows over (if it ever does *sigh*).

EDIT: I do like your thoughts here, nonetheless.

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Alonzo Fyfe December 8, 2009 at 1:32 pm

The uses of the climate change science is clearly politically motivated. However, the bulk of the science itself is very good science.

I make it a point not to write on issues that I do not know much about. Climate change science is one of the issues I know a good deal about. I worked for 6 years for a consulting company that mostly served the energy industry that research on this topic.

There is nothing at all incoherent with a free-market economist admitting, “Whole cities are being put at risk as a result of human greenhouse gas emissions,” then putting his free-market ideas to work figuring out the best way to deal with that fact.

The propositions, “If human greenhouse gas emissions cause global climate change, then socialism is better than capitalism,” and “Capitalism implies that humans cannot cause significant climate change through greenhouse gas emissions,” which suggest that the political case depends on the scientific claims, are just plain stupid.

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drj December 8, 2009 at 2:27 pm

Alonzo Fyfe: The propositions, “If human greenhouse gas emissions cause global climate change, then socialism is better than capitalism,” and “Capitalism implies that humans cannot cause significant climate change through greenhouse gas emissions,” which suggest that the political case depends on the scientific claims, are just plain stupid.  

Oh how true. I find its tremendously difficult to decouple in peoples minds, the connection between the science and ideology.

The nature of the debate has simply cemented in peoples minds, the notion that if you believe the science behind global warming, you must be a radical socialist who endorses everything Al Gore says and any left-wing policy that attempts to address it. Or the reverse is true. If you don’t accept the science behind global warming, you must be a radical free market conservative who likes to hump oil wells.

I try to drive it home, that one can accept the science, without accepting the political roles that people seem to expect of them – but it often seems a futile battle.

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Penneyworth December 8, 2009 at 4:07 pm

Alonzo, wow, this is a huge improvement. In your last post, it seemed strongly implied that the cap and trade proposal was the morally correct position, and that this was some sort of calculation from the theory of desirism. Now it seems that all your moral judgments are detached from particular plans of action, and therefore your analysis is much clearer. The remaining tidbit of moral speak in this post can also be discarded with no loss to the point you are driving at.

Because consider this: Nobody is trying to cause loss of life and property (even Karl Rove or Suzanne Somers). We all agree on this. The issue is: how exactly do we best prevent this loss of life and property. So you see, moral speak does nothing to motivate us toward this end. What helps is better analysis, research, and education about climate change.

It seems to me that the real problem is that the hordes of voters are far to busy consuming the cheapest possible products to think twice about the environment, and unfortunately, they are the only ones who can either put polluters out of business by spending the extra buck on green products (which would cause green business to flourish, and more new ones to start up), or demand better solutions from the leaders they may choose in the popularity contests… er… elections.

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Jeff H December 8, 2009 at 8:48 pm

Alonzo, just to clarify a little:

Do you think that a cap on emissions, even if set at the “wrong level”, would still be better than no cap at all?

Also, you say that cap-and-trade ends up pushing the cost onto the taxpayer. I was a little unclear about why you think this is the case. Is it because of the “political factions continuing to spend billions of dollars in a political battle” that you speak of, or is it something else that I missed?

I agree that cap-and-trade needs to be somehow linked to market-sensitive indicators if it’s going to work properly. It can’t simply rely on the decisions of the almighty politician. However, surely this should be a solvable problem. I wish I were more of an expert in economics to suggest a solution…

The other option that has been tossed around is a carbon tax. The main complaint I’ve heard about it is that it will supposedly push the cost onto the consumer, but at least with the plan that was proposed by a political leader up here in Canada, he was going to introduce income tax cuts in order to level off the cost to the consumer. What do you think of this type of plan?

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AlonzoFyfe December 8, 2009 at 9:08 pm

Jeff H: Alonzo, just to clarify a little:Do you think that a cap on emissions, even if set at the “wrong level”, would still be better than no cap at all?

On one level, “no cap at all” is equivalent to “a cap of 100% of emissions” (as opposed to 99% or 90% or 40%).

I believe that the economically efficient cap would be less than 100%. That is almost guaranteed given that, if we internalized all of the costs of greenhouse gas emissions, the total amount of emissions would drop.

But to say that “any cap at all” would be better than “no cap” would have to argue that a cap of 0% emissions is better than a cap of 100% emissions – and I would not be willing to defend such a claim.

There is also the issue that, even though a cap of 83% of emissions (the present proposal) is probably still high but better than a cap of 100% (that is to say, no cap) in itself, we still have to deal with the issues of the bureaucratic mess we will be stepping into.

AND the fact that once a huge complex law exists, the energy industry will then work on getting through one small change after another, under the radar (because almost nobody pays attention to such minor details except the regulated industry that has a huge stake in the outcome). Which has the potential to do significantly more harm than good.

The best proposal is a carbon tax. You state that the problem is that it pushes the cost to the consumer – but isn’t that really WHERE THE COST IS SUPPOSED TO BE? The whole idea is that the emitter of greenhouse gasses should pay the costs, so – morally – there is no better option than a tax on emissions. Nothing gets closer to the moral principle of, “He who causes the problem pays to clean it up.”

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Charles December 8, 2009 at 10:53 pm

I agree a carbon tax is the better of the two being discussed. But it seems you have the same problem on how to set the level. Here, the question is, how much tax, and on what?

Then there is the practical side. Setting a carbon tax on household electric and gas is easy enough–we already have “tiers”, but what can be done about this at the pump?

What I would really like to see is the equivalent of a gasoline allowance. You get a reasonable amount of fuel at today’s prices, enough for say, a 15-20 minute daily commute in an economy car. But using more fuel should be treated as a luxury. I want the assholes that drive their Hummers everywhere to really hurt.

Another option (approximate but workable) might be more aggressive tiering on license and registration fees. If the civic costs $100/year, the Hummer should be $10,000.

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daria grimaldi December 9, 2009 at 3:19 am

it would require also that the worst offernders in the industries causing pollution develop a conscience ..which I believe to be far far removed from their money grabbing “…live now .Fxxk the future ..I won’t be here “attitudes.. Besides as you say they throw more money at lobbists to keep it exactly where we now are ..IMPASSE ..”.

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Alonzo Fyfe December 9, 2009 at 6:35 am

Penneyworth:Because consider this: Nobody is trying to cause loss of life and property (even Karl Rove or Suzanne Somers). We all agree on this.

Rove and Somers are not trying to cause loss of life and property. However, their actions show that they lack a serious concern in preventing it either. Their actions show a callous indifference to the loss of life and property – because a more responsible person would do a better job making sure that their actions did not cause this type of harm.

Rove’s arguments are simply misleading. He may not be deliberately trying to destroy lives and property, but he did deliberately try to mislead people into thinking of this as a conflict between spending $1,600 on something or spending nothing. That simply is false. It is so far from true that no morally responsible person could have failed to see the error.

And we have good and reliable tests for determining the efficiency of different treatments. To ignore the scientific facts with respect to which options save lives and which do not is to show callous disregard for those who will loose their lives as a result of being guided to take the less effective option.

There is a difference between a simple and honest mistake, and a mistake so huge that it tells us something about the moral character (or, more precisely, the immoral character) of the person who makes it.

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Jeff H December 9, 2009 at 10:06 am

AlonzoFyfe:
But to say that “any cap at all” would be better than “no cap” would have to argue that a cap of 0% emissions is better than a cap of 100% emissions – and I would not be willing to defend such a claim.

Fair enough – I guess I was implying that it would be at least a somewhat reasonable standard, but I suppose we’d have to first define what the “reasonable standard” is, and after that, then the problem would disappear anyway.

The best proposal is a carbon tax. You state that the problem is that it pushes the cost to the consumer – but isn’t that really WHERE THE COST IS SUPPOSED TO BE? The whole idea is that the emitter of greenhouse gasses should pay the costs, so – morally – there is no better option than a tax on emissions. Nothing gets closer to the moral principle of, “He who causes the problem pays to clean it up.”  

I agree to a certain extent. I personally have little problem with the cost getting pushed onto the consumer. But there are two problems, I suppose. First, we should acknowledge the reality that exists today: many people use natural gas to heat their homes, and especially up here in Canada, that’s kind of important. If a tax is going to impact the average Canadian to the point where they can no longer afford to heat their home, that’s a problem. Obviously such pressure will cause a large push toward future change, which is good, but we should probably do it without causing elderly people to freeze to death in the process.

Second, by pushing the tax onto the consumer, the businesses that are the real polluters are getting by scot-free. Their costs will of course be higher, which may affect their competitiveness, but ideally we’d like them to be paying the bulk of the tax rather than the individual consumer shouldering the burden.

Anyway, those are my thoughts. I tend to think that, at this point, any plan is better than no plan at all. The Canadian politician that advanced the carbon tax plan I mentioned was essentially crucified for it. The more that government is forced to stop bowing down before the feet of major corporations and instead face the reality of our situation, the better. And at least putting forward a viable plan gets the conversation going.

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Alonzo Fyfe December 9, 2009 at 10:36 am

Jeff H.

…we should probably do it without causing elderly people to freeze to death in the process.

Yep. Please note that point in the post where I said that the free-market approach does not have easy answers that are being ignored. There are issues. One of the issues is the income effect – the fact that wealthy people can bid important resources out of the hands of poor people who nonetheless have a greater value in the use of those resources. They just lack the means to translate their greater value into a larger cash offer.

Second, by pushing the tax onto the consumer, the businesses that are the real polluters are getting by scot-free.

Nope. This is a false dichotomy. the people who are ultimately responsible are the customers who keep these businesses in business. It is, in fact, the customer, and not the business, that should be paying these costs because it is the customer, not the business, who is responsible for the demand that is generating the pollution.

The Canadian politician that advanced the carbon tax plan I mentioned was essentially crucified for it.

Yep. This is just a sign that the people who are responsible for the harm and the costs will stop at nothing to ensure that they can continue to force others to pay their bills – either in the form of higher taxes or in the form of suffering the effects of this pollution. The fact that this is morally contemptible does not prove that it is not politically viable. Morally responsible alternatives are not going to be a politically viable option for population that is, in this case, fundamentally evil.

Moral people . . . those who are not evil . . . accept responsibility for harms done to others and compensate the victims for their costs. Immoral people hide from their responsibility and try to pass the costs onto others.

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Neil Jordan December 10, 2009 at 9:26 am

Um, I’m going to have to disagree with the superiority of the carbon tax vs. cap-and-trade, and for the same reasons Alonzo Fyfe highlighted in this article.

First, I’d like to point out that both cap&trade and a “straight-up” emissions tax are, in fact, taxation on carbon emissions. I disagree with the claim that all costs in the former are ultimately shifted to the taxpayer and not the polluters, because a more pollutant industry would be required to purchase more credits, which would of course become more scarce (and costly) the closer you get to the cap, thereby diverting the costs directly to the big polluters (and their consumers – in this regard I agree with Fyfe that this is only proper and fitting). With the credits coming from the government, this is essentially a carbon tax too.

So, both are a form of tax on carbon emissions. In either form, the big pollutants have an incentive to reduce their carbon emissions, whereas the smaller polluters are less affected.

The difference: In cap&trade, you set a (flawed) cap, wherein using the carbon tax you set a price on carbon – but why would this set price be any less flawed than the cap? A tax of 0 would have no impact, and so it is clear that a tax set too low would not provide enough incentive for emissions cutting. The result could well be a higher total carbon output than desired, and just like cap&trade, the political weather may well foil attempts to adjust the tax.

So, which is better? To me, it seems more prudent to set a (flawed) cap that directly aims at the emissions level, than setting a (flawed) tax rate which aims to indirectly reduce emission levels – same idea, but the straight tax is a blunter instrument here.

I’d appreciate your analysis on the matter, especially if you see a flaw in my reasoning.

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Nathan Snow December 19, 2009 at 1:58 pm

Look into Roy Cordato, Rick Stroup, and PERC in Bozeman for more on libertarian info on climate control.

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