BOHANON & CUROTT: Use incentives, not mandates to improve the climate

Economic Analysis by Cecil Bohanon & Nick CurottEconomists are not climate scientists. The impact of man-made carbon emissions on the climate is not part of our professional expertise. What economists can do, however, is recommend efficient ways of attaining desired policy goals. If policymakers want to reduce man-made carbon emissions, how is this best accomplished?

A petition signed by a number of economists—including 27 Nobel Laureate economists, four former Federal Reserve chairs, 15 former chairs of the Council of Economic Advisers (from both Democratic and Republican administrations) and two former secretaries of the U.S Department of Treasury—recommends that we reduce carbon emissions by adopting a “sufficiently robust and gradually rising carbon tax.” They argue that “a carbon tax offers the most cost-effective lever to reduce carbon emissions … a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors toward a low-carbon future.”

This is in marked contrast to the approach proposed in a resolution co-sponsored by 90 Democratic House members (none from Indiana) known as the Green New Deal. It proposes reducing carbon emissions via “a new national, social, industrial, and economic mobilization on a scale not seen since World War II and the New Deal era” directed by the federal government. The resolution is long on “community grants, public banks, and other public financing.” The resolution insists on a lot of ensuring (the word comes up nine times) of everything from the “use of democratic and participatory processes” to “creat(ing) high-quality union jobs.” Most of these ensuring(s) have little to do with reducing carbon emissions.

After reading the resolution in some detail, we can’t help but conclude that the Green New Deal is about: a) using federal powers to impose on industry and households certain anointed methods to reduce carbon emissions, and b) rolling it in with a number of extraneous causes dear to the hearts of its proponents.

The law of parsimony is “the scientific principle that things are usually connected or behave in the simplest or most economical way, especially with reference to alternative evolutionary pathways.” From an economist’s perspective, the simplest and most straightforward way to speed the evolution from fossil fuels to clean energy—if that is what we want—is by directly taxing the attribute of fossil fuel that is offending: its carbon emissions. Hey, D.C., give market participants a simple and clear incentive. They will do the rest.•

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Bohanon and Curott are professors of economics at Ball State University. Send comments to [email protected]

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