Recent months have seen something of a turnaround in the conventional wisdom about how to address climate change. In December, on the weekend before the Swedish Academy presented the Nobel Prize to my uncle, the economist William Nordhaus, for his work on climate change and carbon taxes, France’s yellow vest movement flooded into the streets, shutting down Paris and other cities across the country and forcing President Emmanuel Macron to rescind the carbon tax he had recently imposed on transportation fuels.
A month earlier, voters in Washington state, as environmentally minded a place as you will find in the United States, soundly rejected a ballot initiative that would have established a carbon tax in that state. Meanwhile, residents of New York’s 14th District elected Alexandria Ocasio-Cortez to Congress. Ocasio-Cortez, a self-described democratic socialist, promised to return the Democratic Party to its working-class roots with a Green New Deal that would combine massive public subsidies for clean energy with universal health care and a government jobs guarantee. She explicitly contrasted her proposal with market-based efforts to price carbon, which she dismissed as a sellout to corporate interests. Within weeks, most of the major contenders for the Democratic presidential nomination had jumped on her bandwagon.
The prospects of implementing a price on carbon—long a north star for economists, policy wonks, and much of the institutional environmental movement—now appear to be severely diminished. In the face of voters unwilling to pay higher energy prices, politicians wary of an increasingly populist electorate, and center-left political parties skeptical of market-based policies, much of the advocacy community has moved on to other strategies. For the first time since climate change emerged as a significant issue in the early 1990s, establishing a price on carbon is no longer the starting point and central focus of the climate policy response at the federal level.
The Green New Deal, as Ocasio-Cortez and others have proposed it, is unlikely to offer a practical alternative to pricing schemes. But even as it has become a lightning rod for partisan conflict, it does point the way toward other opportunities for substantive climate action—quiet, more incremental steps that might prove capable of breaking the deadlock that has paralyzed progress on mitigating climate change.
Carbon pricing’s greatest strength has turned out to be its Achilles’s heel. Theoretically, pricing works because it sends a signal to consumers and businesses to reduce their consumption of things that produce a lot of carbon dioxide emissions. Firms invest in new equipment or switch to less carbon-intensive materials. Consumers turn down the thermostat, drive less, buy more fuel-efficient automobiles, and fly less frequently.
One response to a carbon tax is to wrap your hot water heater in a thermal blanket and install double-paned windows. Another is to riot.
In the parlance of economists and political scientists, carbon taxes are highly salient, meaning that people will do more to avoid paying the tax than they would in response to the same increase in the market cost of energy. But that salience also makes carbon pricing politically toxic; taxes often stoke an outsized reaction even when they are very modest. One response to a carbon tax is to wrap your hot water heater in a thermal blanket and install double-paned windows. Another is to riot.
It is also not clear that consumers’ reactions to carbon prices translate very well into a national or global response capable of deeply cutting emissions. Much of the real-world evidence that carbon pricing might be effective derives from observations about how economies respond when energy prices spike sharply upward, as they did after the oil shocks of the 1970s.
But in most cases, the reaction to price shocks has extended well beyond consumers and businesses responding to prices. Governments also invested in new infrastructure, such as mass transit and nuclear power plants, and ploughed money into research and development for new energy technologies. Historically, energy scarcity, whether due to an act of God or malice, has sparked a very broad response from the entire political economy.
Such an effort, of course, is exactly the sort of thing that many people believe is necessary to address climate change. But producing scarcity by political fiat is much harder in the real world than in an economist’s model. And the factors that work for you when the price shock is exogenous—the mobilization of the public, businesses, and government to solve the problem—more often work against you when it is self-administered.
Climate advocates commonly reduce this dynamic to the outsized economic power of the fossil fuel industry. But the economic interests of that industry are often closely aligned with the interests of many others. Members of Congress end up hearing concerns not only from fossil fuel players but from local manufacturers worried about how higher energy prices will affect the cost of manufacturing widgets, from farmers worried about fertilizer prices, and from the John Deere dealer around the corner who worries about tractor sales. Compared with these sorts of local and immediate concerns, appeals to intergenerational equity and the vulnerability of the global poor simply can’t compete.
There is little reason to believe that a major climate initiative wrapped in the language of socialism and the Green New Deal is likely to fare any better than have similarly ambitious measures that have claimed the mantle of markets. Already, the Senate has voted 57-0 against the Green New Deal resolution sponsored by Ocasio-Cortez, with most Democrats voting present in order to avoid having to place a vote on the measure on the record.
Yet the Green New Deal contains a crucial insight. Economists argue for carbon pricing because it makes the social cost of carbon visible in our day-to-day consumption. Voters and politicians, by contrast, have generally preferred to hide the costs of climate mitigation. Policies to subsidize clean energy technology—including nuclear, wind, and solar—have tended to be far more successful politically than efforts to price carbon.
Government subsidies typically make economists pull their hair out. They encourage rent seeking and require policymakers with imperfect knowledge to make decisions about which technologies to champion. And it’s true, from synthetic fuels to biofuels, Solyndra solar cells to plutonium breeder reactors, governments have bet on plenty of energy technology losers.
But governments have picked plenty of winners as well. Washington may have wasted billions of dollars in the 1970s and 1980s on synthetic fuels, but during the same period, it spent a fraction of that on shale gas, which has brought such extraordinary economic benefits to the U.S. economy that it alone has probably made up for the cost of all other federal energy investments since the end of World War II. It has also turned out to be an extremely cost-effective climate policy. Calculated on a per ton basis, the investment pencils out to perhaps a few dollars per ton of carbon emissions avoided, a cost that continues to fall with every ton of coal that shale gas replaces.
Over the last half-century, nuclear plants have avoided somewhere between 15 and 20 gigatons of carbon emissions, at a cost of less than $5 per ton.
U.S. investments in nuclear energy have proved similarly efficient. Over the last half-century, nuclear plants have avoided somewhere between 15 and 20 gigatons of carbon emissions, at a cost of less than $5 per ton. Renewable energy subsidies, although costly today, may also wind up being low-cost climate mitigation over the long term.
Beyond the efficacy of those investments, the fact that they obscure the cost of climate mitigation policies is a political feature, not a bug. Pricing carbon is hard because it demands that people pay today to avoid uncertain climate impacts far off into the future. Because public subsidies are usually paid for with general tax revenue, they work in exactly the opposite manner, promising tangible benefits—better air quality, new jobs, perhaps even new industries—today while burying the costs in much larger government budgets.
Federal carbon tax proposals and the Green New Deal may seem antithetical to each other, insofar as the former would pull technology into the market by increasing the cost of dirty energy whereas the latter depends on pushing it into the market through public investment. But they share a common assumption: Concern about climate change is significant enough to support an explicit, far-reaching, economywide approach to the problem.
Unfortunately, there is little evidence to back that idea. For this reason, it is likely that a quieter and less sweeping approach to addressing climate change, one that disaggregates the costs of the policy and avoids becoming a rallying point for either climate advocates or their opponents, will prove more effective.
In contrast to most current climate advocacy efforts, which seek to raise the salience of the climate problem in order to motivate politically difficult and economically costly climate action, quiet climate policy seeks to deescalate the political controversies associated with climate change and break up the costs of climate action.
Democrats use climate change to rally their base. Republicans, meanwhile, stoke fear among their base and donors that climate action will wreck the economy and expand the power of the federal government.
Examples include establishing a federal clean energy standard that would require utilities to gradually transition entirely to zero-carbon technologies over the coming decades. Or government procurement at the U.S. Defense Department and national laboratories could be used to create initial markets for promising small nuclear reactors and geothermal and energy storage technologies. Providing U.S. farmers with technology and incentives to become more carbon efficient could bring huge benefits for the climate, as could government investment to develop zero-carbon technologies for industrial heat and power.
Working toward decarbonization, technology by technology and sector by sector, on a bipartisan basis and through careful negotiation with key stakeholders is the sort of thing that Congress still occasionally manages to do—as recent legislative efforts to support commercialization of advanced nuclear and carbon capture technologies demonstrate.
Unfortunately, quiet climate policy presently serves the broader political and institutional needs of almost none of the parties involved. Democrats use climate change to rally their base, and environmental nongovernmental organizations use it to raise money from their members. Republicans, meanwhile, stoke fear among their base and donors that climate action will wreck the economy and expand the power of the federal government.
Even so, a number of Republican officeholders have quietly concluded that outright climate denial is a political liability and have recently offered a series of modest proposals explicitly focused on climate mitigation and adaptation. Democrats, meanwhile, have come around to the view that nuclear energy, carbon capture, innovation, and adaptation will be necessary to address the climate challenge.
Ultimately, the choice we face is between some action and no action.
In these evolving attitudes, there is the possibility of progress. By shifting the climate debate from one in which one party posits an existential threat demanding solutions that serve its own interests and the other denies that the problem even exists for similar reasons to one in which both parties acknowledge that the problem exists and offer competing solutions to address it, there is at least the possibility of compromise.
Ultimately, the choice we face is between some action and no action. Neither economists’ dreams of rationalizing environmental policy through the power and efficiency of markets nor progressive environmentalists’ hopes of heroic state-led mobilization to save the planet are likely to do much to address the problem.
Quiet climate policy, by contrast, is the art of the possible, focused on reducing the costs of action, disentangling climate policy from the ideological disputes and electoral calculations that drive the national political conversation, and lowering the political threshold for meaningful action. The solution it offers may be rather less satisfying. But it is also likely to accomplish far more than any of the alternatives.