By: Rohan Upadhyay
How to leverage the economy to fight climate change
How do we beat climate change in a cost-efficient way? Addressing climate change is ethically correct. But people are concerned that jobs could be lost and the debt could grow from throwing lots of resources at the problem.
What’s the answer? Liberals support the Green New Deal — a bold proposal to fight climate change and rebuild US infrastructure (among other things) with $16.3 trillion of government investment over about 10 to 15-years.
The proposal means well and has some points about how it will pay for itself. But the plan is costly and is not too specific about how it will raise money.
The Green New Deal over-relies on government spending. This could cause the debt to skyrocket. Also, once government spending stops, many public projects would cease to exist. So, this isn’t a truly long-term solution.
Conversely, conservatives like private-market ideas. For example, WSJ supports a “carbon tax.” This would save money, but the transition could be too slow if we rely just on the market.
So, What Can We Do?
Liberals want to save the planet. Conservatives want to save money.
Let’s do both.
The government can fund infrastructure projects and experimental green technology and provide loans to burgeoning companies, incentivize companies to go green, and penalize those that don’t.
We want an organized government response that addresses all issues. But the government should also use the private market to grow the green energy industry organically. That would create long-term yet cost-effective change.
1. Incentivize Going Green
Before spending tax dollars, we should exhaust all private-market solutions. Anything that can be accomplished by entrepreneurs should be given to them.
Carbon Taxes
In a nutshell, for each ton of carbon emitted, a company is taxed at a certain rate. This discourages pollution while promoting reductions in emissions.
About 40 countries are doing this, like the UK. According to WSJ, carbon taxes cut the UK’s energy usage from 40% coal to 10% coal. As a result, energy prices rose only 5% — noticeable, but not troubling. Another successful example was Australia (before the tax was repealed due to lack of popularity).
These examples show the potential of a tax. Furthermore, the Congressional Budget Office found that a $25 per metric ton tax could raise over $1 trillion in 10 years. That would reduce emissions and raise money for green tech.
Before anything else, the US should catch up in carbon taxes:
The US is not taxing emissions very much compared to Europe and China. This is troubling as the US is responsible for 25% of global emissions. The US should take this first step immediately to move in the right direction.
Cap and Trade Programs
This program incentivizes companies to reduce emissions. Companies would have “permitted” amounts of carbon that they can emit. If they surpass the limits, then they’re fined. However, if they emit less than their limit, then they can “trade” their remaining permitted emissions to another company.
Let’s say Company A is permitted to emit 15 metric tons of carbon a year. However, it projects that it’ll only emit 10 tons. So, they “sell” the remaining 5 tons to Company B. Company B can now emit 5 extra metric tons of carbon, but they have to pay a price. Company A must now emit 5 tons less, but they received benefits for making that sacrifice.
Several countries — EU countries, South Korea, and New Zealand — and states like California have implemented this system. The US should join. We start going green, but we don’t immediately shake up the economy too much.
Incentivize investments in green companies
The oil market is giant, so obviously it has tons of investors.
What if we channeled that investment into green energy? For example, we could offer tax credits to those who invest in green energy and penalize investors who stick with fossil fuels (after a certain number of years, maybe).
This is a more finance-intensive conversation — it deserves its own conversation— so I won’t go into it here. I just wanted to throw out that idea.
2. The Government Should Leverage the Market
The market ideas are a start, but they’re not enough. To actively expand green energy, the government can get the industry off the ground.
Government contracts for companies
The government can start by contracting companies to do some heavy lifting, like R&D with green tech. As an example, there are efforts to develop new batteries that store power cheaply on a large scale for a power grid. Lithium-ion batteries are often used, but companies are working on alternatives.
The government can prioritize contracts for companies that research green tech (or companies that generally work to go green and adopt anti-pollution controls). Contracts are worth billions, so companies will likely want them.
By contracting, the government gives itself leverage. The government doesn’t outsource the work to private companies. Instead, the government says, “you keep this contract if you spend X-amount of money on R&D within a given timetable.” This way, the government can hold corporations accountable.
Loans to private companies
The government can loan money to companies to help them take off. The loans can be of low interest so that companies don’t have too much stress.
An example of this was during the original New Deal — a broad agenda of President Roosevelt (FDR) to fight the Great Depression. The government gave 20-year loans (at 2.88%) to nonprofit groups that were expanding electrical power lines in rural areas.
The government could help companies that invest in new energy storage methods, and it could help companies that work on developing green airplanes and ships (it could loan to or contract with these companies).
Insurance Agreements
It’s possible that — early on—some green businesses fail. That could slow economic growth and make the transition cumbersome. To protect against that, the government can set up an insurance program so that if companies experience losses, they can be “bailed out.”
Companies could pay premiums into an insurance pool (the government wouldn’t spend money) in exchange for coverage if they experience losses. Of course, we don’t want to promote reckless companies and bad entrepreneurs — there would have to be conditions for receiving insurance money.
This was done in the Great Depression with housing. The government knew that as people couldn’t pay mortgages, lenders (e.g. banks) would lose money. So, the government’s Federal Housing Administration created an insurance program into which lenders paid premiums. If a lender’s client couldn’t pay back a loan, then the lender was bailed out. A similar idea can be used today.
3. Government Regulations
Regulations in Trade Agreements
The government should put environmental standards in its trade deals. For example, NAFTA (or USMCA) acknowledges environmental conservation — it has provisions about water pollution, for example. However, they lack teeth, as there aren’t clear enforcement mechanisms or incentives to go green.
Domestic Regulations Against Pollution
The Trump administration removed many climate regulations, particularly limits on emissions from automobiles, factories, and fossil fuel companies. Ideally, these rules would be restored, but that probably won’t happen.
In that vein, we should stop giving billions in subsidies to oil companies.
We could potentially pass laws that ban certain fossil fuel practices over a period of time (like fracking, for example) — similar to how President Obama banned offshore oil drilling in many areas. However, to phase out fossil fuels like this, we have to build up green energy so that we don’t skip a beat.
Materials Recycling Program
The government can mandate private companies to buy back goods from consumers, then reuse the materials for products that are needed for the green transition (e.g. electric vehicles). Maybe this could be a condition for companies that want government contracts, for example.
This was done in World War Two to make supplies for the war effort.
4. Direct Government Investment
While the market can do a lot, there are certain ideas that are too big.
For example, in the New Deal, the government invested in infrastructure (national parks, dams, etc). These projects were too large for individual companies, and they weren’t immediately profitable as they were intended to help people who didn’t have a lot of money. They require a centralized approach and a constant funding stream — the government has to step in.
Direct government spending should be a last resort. But, at times, it’s needed.
Infrastructure — Transportation
If we want to go green, we need better public transportation. If people share transportation more, then there are fewer emissions being released. The government can invest in high-speed rail, for example.
The government could also invest in an EV charging-station network.
More Infrastructure
The government can also invest in electrifying and weatherizing buildings to make them more energy-efficient and durable. This way, people can work and live more comfortably, increasing the quality of life and productivity.
There are many things the government can do — the point is that investments in infrastructure increase productivity. Thus, while investing in infrastructure isn’t immediately profitable, it helps the economy in the long-run.
A Car Buyback Program
The government can buy gasoline vehicles from people to get them off the street — people can use that money to subsidize the purchase of electric vehicles. Those gasoline vehicles can be broken down for parts to be reused for other technology.
Recap and Conclusion
To review:
- Reward companies who go green and punish companies that don’t.
- Help green energy companies get started with loans, contracts, etc.
- Have the government pass regulations to phase out fossil fuels.
- Use government investment for certain projects that are impractical for private companies.
By involving the government, we can make the response efficient. If we simply rely on the market to respond to climate change, then there’s no guarantee that the market will act how we need it to act — thus, our response could happen too slowly.
The government’s presence ensures that things move along and that corporations are held accountable. However, involving the private market prevents the government from spending too much, and it amplifies the economic benefits of going green.
Though I haven’t touched on everything we need to do in a green energy transition, I hope this gives an idea of the kind of approach we can take.
