Centerblue.org

For a while now I’ve considered myself rather libertarian where it comes to regulation of the marketplace–that is, the view that what’s “best” should be determined by the market forces of supply and demand. When something “bad” or “expensive” is bandied about, inevitably someone else will offer a competing product that is cheaper, better, whatever…and solve the problem.

On the other hand I’ve also passionately advocated government regulation in certain other areas, most notably the environment and global warming. This non-libertarian view was a contradiction I intuitively embraced, but found hard to defend when debating libertarian principles. An article in today’s New York Times (“The Cost of an Overheated Planet”) crystallized the issue for me and resolved the contradiction.

Market competition requires that alternatives carry a cost that can be compared against other alternatives in order to judge what is “best.” The problem with carbon emissions and global warming is that while the costs are very real over the long term in terms of land loss and desertification, decrease of agriculture, etc. they are not quantified or recognized by the market. Why not? Because spewing carbon dioxide into the air is absolutely free.

Because pollution is free and there is no incentive to account for future costs, there is also no incentive to do anything different. Free always beats an alternative of any cost whatsoever. Why should the market push for costly energy alternatives, increases in efficiency, and decreases in emissions when the alternative cost of doing nothing is nothing?

The market, then, is doing exactly what it’s supposed to–it is encouraging that which is “best” and least costly. Until that changes, there will be little headway in tackling carbon dioxide emissions. The failure here, then, is in a wrong value of $0 being put on the pollution alternative–it’s not a failure of the market itself or of libertarian principles.

The answer, then, is to make carbon emissions NOT free, so that the cost of polluting can then be compared against other alternatives in a fashion that takes into account the very real long-term costs posed by global warming. That’s where carbon taxes and carbon trading systems come in–they impose a penalty where none existed before, and depending on how punitive it is it may or may not encourage alternate technology and efficiency.

Under a carbon tax regime, you simply fine companies for each ton of carbon dioxide emitted. A $14 per ton tax would amount to about a 100% tax on coal, and a 12 cent tax per gallon of gasoline. It would generate $80 billion a year for the United States, which would ideally be put to fund research into “green” energy alternatives. The disadvantage of this approach is, unfortunately, the political repercussions of a flat-out tax increase.

Under a carbon trading/”cap and trade” system, an absolute limit on emissions is decreed, and all polluters are granted permits with accompanying carbon quotas. Companies able to operate at below quota can sell their excess carbon capacity to other companies who cannot. Since permits are the equivalent of cash, governments will gain support from those who stand to profit (i.e., low emitters) and doesn’t need to justify a tax increase. This system has also been used successfully in other scenarios such as reducing acid rain.

Under either system, polluting companies will suddenly have an incentive to invest in clean technology and energy efficiency so as to reduce the costs for pollution they are paying or being forced to pass on to consumers. Rather than being free, emitting carbon will bring with it the acknowledgment that a very real cost is being imposed on the marketplace as well as our environment.

I love it–a market-based policy that is environmentally friendly!

Even though Bush has his head stuck in the sand about global warming the same as he does about everything else, the incoming Democratic Congress along with the positions taken by both Republican and Democratic candidates for president in 2008 promise to lend new life to imposing a cost on carbon pollution. If you care about global warming and are wondering what to do about it, one great way to start is to make sure that whatever candidates you support are in favor of making sure the market deals fairly with carbon dioxide by imposing a cost on it that accounts for the damage being done to the Earth and future generations.