Whine and Cry or Cap and Trade

Or, Is putting a price tag on greenhouse gasses the only way to slow greenhouse gas emissions? Is there something inherently wrong (or right) with this approach?

You can’t change the very nature and underlying culture of a nation in less than a decade. It just isn’t possible. But, a decade is all the time we have to stabilize current levels of green house gasses if we want to head off the worst effects of climate change.[1] But, much of the talk over the last number of decades among left-leaning environmentally-conscious Americans has focused on exactly that. There is a perceived need to convince Americans to change their habits, and begin thinking of how their actions effect the environment as a primary response to climate change. Some are afraid that there are moral concerns with allowing some companies, and countries, to ‘get away’ with polluting by way of buying themselves out of it, a process akin to the mid-evil practice of buying your way out of Hell.[2]

Certainly, there is a benefit to individual consciousness-raising on the subject. But, is it realistic to expect to change the habits, the culture, of a people so drastically in such a short period of time? The answer is a resounding, “No.”

You can however work with a culture to get the results that you want. And American culture, and western culture in general, is a culture of (among other things) innovation and competition: that is, a culture of Free Traders. We are Free Traders, each and every one of us, even those of us who are convinced we are not.[3] We may not all be engaged in the direct act of selling, but we are all in the business of buying things. And we like it. We like movies and TV shows that reflect what we want. We like having computers, nice cars, easy access to multiple varieties of bear, wine, potato chips, snow boards, outriggers, jeans, t-shirts, spandex, shoes, etc. But, all if that is only possible because of the democratic nature of free trade. Even liberal-types like me often prefer to buy locally grown produce and meat, which is only possible because of free markets that exist in that area. Free markets are not the messiah. But neither are they a pariah.

Putting a price tag on greenhouse gas emissions, by itself, will not eliminate the problem. But, it will provide an incentive structure that will enable and encourage innovators to take bolder steps, and companies to conserve more.[4] This will happen not because of some innate altruism, but because of a selfish need to increase ones-own bounty. There are precious few motivators as powerful as greed.

Thankfully, the tides are turning in favor of free market partial-solutions to the problem of climate change. Simon Thomas, chief executive officer of Trucost, a climate change related consulting firm, said, “That is the job of the government. It has to set a level playing field so that a market economy can deliver what it’s capable of delivering.”[5] He was discussing the benefits of a Cap and Trade system where companies can buy and sell carbon emissions on a commodity-like market.[6] Free markets work best when the government provides a clear system of rules and regulations according to which the game of capitalism is to be played. By creating a market (by way of pricing CO2 emissions as they realistically should be) the government can harness the power of one the greatest innovations our species ever had-capitalism-to the benefit of the environment. Another benefit of a cap and trade system is that it creates a clear limit, or cap, on how much polluting a company is allowed to get away with.[7]

It is naïve and short sighted to whine and cry about the “moral” implications of allowing large companies and third world countries to buy and sell CO2 as though it were milk. To put is succinctly, in the words of Richard Sandor, a former Economics professor at UC Berkeley and current CEO and exchange chairman of the Chicago Climate Exchange, “Behavior changes when you offer incentives … I say, solve the problem and deal with the bad guys somewhere else.”

[1] “Big Foot.” Michael Specter. The New Yorker. Feb. 25th, 2008.

[2] See footnote 1.

[3] In the interest of full disclosure, I am a “true believer” in free trade. I think Capitalism is far from inherently bad, but instead inherently human. Certainly, regulations and laws must be in place to keep the system in check (I’m clearly for things like the Clean Air act, etc), but capitalism and free trade serve a vital function in society and to deny their prescience is to deny a fundamental part of who we are. After all, Linear A and Linear B, the first writing systems ever discovered on earth were used almost exclusively for merchant account keeping.

[4] See footnote 1.

[5] See footnote 1.

[6]“How it Works: Cap and Trade Systems.” Catalyst, the magazine of the Union of Concerned Scientists. Vol 4, number 1. Spring 2005. http://www.ucsusa.org/publications/catalyst/page.jsp?itemID=27226959

[7] See footnote 5.


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