Thoughts on climate policy and the Green New Deal

I’ve been tweeting a lot on climate policy lately, so I thought it would be good to get some of this stuff down in long-form.

1. We need aggressive decarbonization, though a 1.5C target is not the end-all be-all.

We have around 12 years to avoid 1.5 degrees Celsius of warming, according to the IPCC. 1.5C of warming would lead to a tremendous amount of damage around the entire world. On the flip side, 1.5C will very likely NOT lead to anything like human extinction or the total collapse of global society. The world is very large, and while climate change may do a very large amount of damage, there is frankly a lot of damage to be done before we should become fatalistic. 2C is still better than 2.5C, which is better than 3C, which is better than 4C, which is better than 6C, and so on.

2. The Green New Deal FAQ released by AOC’s office was a mess.

Rep. Alexandria Ocasio-Cortez (henceforce AOC) and Senator Ed Markey released a Green New Deal resolution recently. Separately, AOC’s office published an FAQ online with more details on the GND. This FAQ, which is no longer available on AOC’s website, has now been retracted under a set of confusing circumstances, and AOC’s office now stands by the resolution. That’s fortunate, because the FAQ was pretty bad.

Noah Smith, economist and Bloomberg columnist, goes over it pretty well. The first problem is that the non-climate related policies are too ambitious (single payer AND jobs guarantee AND UBI), so the overall policy package probably leads to too much overall government spending. Also, because they are so large, they distract the focus away from actual climate policies.

Second, it made a lot of contentious and probably wrong-headed claims about what the best way to decarbonize is. For one, the FAQ expressed a desire to shut down nuclear plants, though it left open the possibility that nuclear plants may be left open for a while. Since nuclear plants are a source of clean and reliable energy, we should definitely be trying to keep nuclear plants open until renewables are ready to replace fossil fuels AND nuclear. Also, the FAQ explicitly downplayed the role of carbon taxes, stating the following:

We cannot simply tax gas and expect workers to figure out another way to get to work unless we’ve first created a better, more affordable option. So we’re not ruling a carbon tax out, but a carbon tax would be a tiny part of a Green New Deal in the face of the gigantic expansion of our productive economy and would have to be preceded by first creating the solutions necessary so that workers and working class communities are not affected. While a carbon tax may be a part of the Green New Deal, it misses the point and would be off the table unless we create the clean, affordable options first.

This is obviously silly, since the GND and any other climate policy is premised on the fact that clean alternatives to fossil fuels already exist and should be adopted now. A carbon tax would incentivize adoption of those alternatives, as well as investments into improving and innovating on those alternatives.

3. The actual GND resolution is pretty vague.

I certainly do support the ambitious targets of the resolution. But it’s mostly a list of goals (we will decarbonize X, Y, and Z) instead of mechanisms to achieve them (we will mandate X, subsidize Y, tax Z). So at this point in time it’s hard to have too much of an opinion on it as a policy.

However, we can infer from the structure of the proposal (goals before mechanisms) that it will involve government central planning of some sort, and will not use carbon pricing as the primary enforcement mechanism. I say “central planning” loosely — it could mean direct regulation (“command-and-control”), targeted subsidies towards some technologies (providing a market incentive not dissimilar to carbon pricing, but with the government playing a bigger role in choosing winners and losers), and infrastructure upgrades (this is inherently centralized, and also inherently part of any climate agenda. A comprehensive climate policy can’t be done purely through market incentives because the government inevitably plays a direct role in building and upgrading infrastructure).

4. Carbon pricing is probably relatively inefficient in terms of political capital.

E.g. a carbon tax of X/ton might produce the same emissions reductions as Y dollars of subsidies and infrastructure spending per year, and with lower overall social cost due to the flexibility of the carbon tax. But if X is the highest carbon tax that can be accomplished politically, the maximum amount of green spending than can be accomplished politically might be a lot higher than Y.

Punditry about what is politically easy or difficult is always fraught and easy to get wrong. But I think it is fairly likely that spending-side climate policy is easier to get done politically than carbon pricing. Historically, carbon taxes have passed in places like Canada, but they tend to be pretty low even when they exist. Existing spending-side climate policies, such as massive German investments in renewables and existing green subsidies in the US like renewable tax credits and the $7500 EV tax credit (which has a comparable effect on EVs as a $100/ton carbon tax, or at least it does temporarily until the tax credit gets phased out when an automaker sells 200k EVs), tend to be bigger and more effective than existing carbon pricing policies.

Intuitively, carbon taxes highlight the downside (taxes! sacrifice!) of climate policies while subsidies and green spending highlight the upside (new jobs! new stuff!). This is of course a trick of human psychology rather than a fact about the relative merits of the two approaches — a large increase in green spending necessarily requires the government to raise taxes on something, and a carbon tax would lead to lots of cool innovation and bring in revenue that the government can use to spend on jobs and other stuff people like.

5. That said, let’s not pre-emptively surrender on carbon pricing.

Carbon pricing is good and important on the merits. It’s good because without a carbon price, producers and consumers do not internalize the costs of carbon emissions and emit far more than is socially optimal. Carbon pricing both restrains private actors from emitting too much, and provides an incentive to find solutions to climate change. This flexibility is the unique advantage of carbon pricing. Private companies will often find cheaper and/or more effective ways of reducing emissions than the government can.

Everything that climate activists like to say about recognizing the urgency of the problem, having the courage and imagination to confront it, and shifting the Overton Window applies. We don’t know for sure that a carbon tax, and maybe even a sizeable one, is politically impossible. A GND-scale climate agenda will be a difficult political sell no matter what the specific mechanisms are. If we build a political movement based in climate action, then climate policies might become much easier to pass across the board. In addition, carbon taxes might be easier to pass in conjunction with other policies such as a dividend that rebates carbon tax revenue, or as a funding mechanism for GND-style spending programs.

6. Carbon pricing by itself definitely isn’t the only climate policy we should pursue, even setting aside politics

First, there’s infrastructure, which necessarily can’t be left entirely to the market. Infrastructure improvements might include building more (high-speed) rail, tearing up highways, and building a national grid to help solve renewable intermittency. Relatedly, land use changes that would reduce emissions are currently help back by zoning, which prevents more people from living in denser areas and reducing their carbon footprint. We need to upzone, and since that’s a regulatory fix it won’t necessarily be accomplished through carbon taxes.

Carbon taxes also don’t provide efficient incentives for R&D, since R&D can decrease other people’s emissions as well as your own. Carbon taxes just incentivize you to decrease your own emissions.

Ramez Naam (one of my favorite writers on climate/green tech issues) wrote a great piece detailing what an innovation-focused climate policy would look like. Crucially, subsidizing R&D has positive spillover effects on emissions in countries outside the US (85% of emissions come from outside the US, and that share is growing). And R&D is the best way forward for sectors like heavy industry and agriculture where the technology to decarbonize just isn’t here yet in the way it is for transportation and electricity (EVs/mass transit and renewables, respectively).