Market Meltdown: Understanding Climate Economics

…The Stern Review outlines the economic costs of climate change (declining food and water supplies, coastal flooding, storm damage, the extinction of up to half of all land species), the distribution of those costs (to be borne most acutely by poor subsistence farmers), and the economic ethics of why the rich must act to help the poor and why the present must act to protect the future.

Climate-policy skeptics love to dwell on questions like these. To them, the cost of any policy weighs heavily because we pay that cost now, while the benefits will come later and accrue to others. Why, they ask, should we sacrifice in order to help future generations, who will have all the benefits of technical progress and economic growth yet to come? Because, as the Stern Review makes clear, if CO2 isn’t stabilized soon, then catastrophe is certain. And extinctions and sea-level changes cannot be reversed by the wealth that might be created in the next 50 years. Facing the judgment of history, no ethical standard entitles us to condemn the future to a hot, dry, famished, and flooded world. For this reason, we must treat the costs and burdens of climate change as if they are already falling on us.


And that’s the rub: They aren’t. The market’s real failure is that it allows for no signal from the future to the present, either from the conditions that will exist 30 years hence or from the people who will be alive and working then. The question becomes: Can we really create a market in which those far-off voices are effectively heard?

Mainstream climate change economics assumes so. “Establishing a carbon price, through tax, trading or regulation, is an essential foundation for climate-change policy,” the Stern Review posits. This makes some sense. After all, markets and taxes encourage cheap solutions, and there is plenty of low-hanging fruit. For a start, why not replace state sales and federal payroll taxes with carbon taxes? A cap-and-trade system would lead industry to use low-emissions technologies more and high-emissions technologies less. Business leaders are rallying behind a “carbon price.” Fine. Give it to them.

But is tinkering with the market enough? According to the Stern Review, stabilizing atmospheric carbon at 550 parts per million requires cutting total emissions by a quarter by 2050, in the face of population and economic growth. Many experts, including nasa’s top earth scientist, James Hansen, favor even more drastic reductions. Goodstein simplifies bluntly: We have 30 years to get the gasoline out of cars and the coal out of power plants, a goal beyond the power of markets.

Mother Jones