Iss2/Ch4 Highway to h*ck (part 2)

(Continued from Ch4/Part 1)

“Well actually,” said the economists

It would seem Issue 2 could conclude here: we have identified a problem, found a viable solution, and ruled out other potential solutions.

But there are two commonly raised objections that we must address before concluding this issue.

…so adding years to my life means reducing my standard of living???

Any suggestion that we reduce our consumption or energy use always runs into some form of objection that people will not – and should not – accept a reduction to their standard of living.

This is a reasonable objection in the abstract, but it doesn’t hold up against real-world proposals. We can see how silly this argument is when applied to phasing out cars.

In economics, standard of living is defined as the monetary value of goods and services that are necessary for life, such as food, housing, transportation, and health care (eg, 1, 2). Above, we discussed the many benefits of phasing out cars, from health and financial benefits to eliminating congestion to beautifying our surroundings. If you gave up your car and added several years to your life due to the health benefits of biking and walking; and we replaced all the barren, ugly parking lots in your neighborhood with parks and green spaces; and you could get from place to place more quickly because we have eliminated congestion; and you saved thousands of dollars per year – this would count as drop in your standard of living. Why? Because you would be giving up an asset – your car – that was worth several thousand dollars. Even though your car can literally take years off your life, your standard of living is increased by having one.

Often, there is a tension between living standards, so defined as the monetary value of people’s possessions, and quality of life. We can have a low standard of living but high quality of life; for example, the Indian state of Kerala achieved quality of life indicators (literacy, infant mortality, life expectancy, etc) of a developed country on a tiny economy – just one-tenth of the per capita GDP of Brazil at the time. Since 1998, Costa Rica’s life expectancy has exceeded that of the US, despite having approximately one-fifth to one-third the per capita GDP. Moreover, Costa Rica consistently ranks as one of the world’s happiest countries despite very low carbon emissions. Cars are but one example of the occasional tension between living standards and quality of life.

Clearly, arguments based on living standards need to be evaluated on a case-by-case basis and informed by a wider discussion of what it means to live a good life. Yes, phasing out cars without strengthening other modes of transportation would reduce our standard of living and quality of life. But no one is seriously proposing any plan to reduce energy and resource use that would lower both living standards and quality of life. There is no need: our economy is so grossly inefficient that there are opportunities everywhere to reduce our energy use and consumption (and, yes, reduce our living standard) while increasing our quality of life.

Mainstream economists: wrong again

The other major issue we must address before concluding Issue 2 is that mainstream economists are unanimous that phasing out fossil fuels will exact extraordinary harm on the economy. We discussed this at length in Iss1/Ch4 and will not repeat those arguments here. In brief, mainstream economists, including Nobel laureates, believe that the damage to the economy from phasing out fossil fuels will be so enormous that it will exceed the damage to the economy from climate change. In Iss1/Ch4, we addressed one half of mainstream economists’ predictions: that climate change will not have a severe impact on the planet. As discussed in detail, where climate scientists warn of existential threats to civilization or a collapse of agriculture, mainstream economists absurdly predict climate change to have minor, or even beneficial, effects on the global economy.

Here, we will address the other half: mainstream economists’ mistaken belief that phasing out fossil fuels will harm the economy.

Mainstream economists’ dire predictions about phasing out fossil fuels stem from beliefs about carbon taxes (this also applies to similar cap-and-trade policies). More than 3500 professional economists, including multiple Nobel Prize winners and multiple past Federal Reserve Chairs, have signed onto the Economists’ Statement on Carbon Dividends, which the organizers of the open letter call “The Largest Public Statement of Economists in History.” The very brief letter begins:

Global climate change is a serious problem calling for immediate national action. Guided by sound economic principles, we are united in the following policy recommendations.

I.   A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary.

Clearly, for mainstream economists, there’s consensus that a carbon tax is a silver bullet policy to address climate change. Broadly, there are two problems with this approach. First, a carbon tax is an almost useless policy for phasing out fossil fuels. Second, mainstream economists’ assumptions about taxes are wrong. Let’s take these in turn.

No, a tax will not cause corporations to build out terawatts of green energy

First, it should be clear that a carbon tax cannot possibly lead to a green energy transition. Mainstream economists’ idea is to tax the burning of fossil fuels in order to make it more expensive, thus encouraging people to switch to green energy through market forces. But what green energy can we switch to if the public sector hasn’t built out green energy infrastructure? Corporations do not and never have made infrastructure investments on this scale (“The plain, hard truth is that universal electric service would never have developed on a timely basis in the absence of municipally owned electric utilities and rural electric cooperatives”). Worldwide and in the US, privately built infrastructure is rare: nearly all US roads and airports are publicly owned, and where private infrastructure exists – from utilities to airports – it was almost always government-built, then later privatized.

The Stanford Net Zero Project estimates that we must invest 4-6% of GDP per year in green infrastructure, every year through 2050, to phase out fossil fuels in time to avoid catastrophe. While this level of spending is easily affordable, it is through governments that society will make these investments, not corporations. For corporations to undertake this level of infrastructure investment would be utterly unprecedented in the history of the world. Mainstream economists naively assume that simply adding a carbon tax will incentivize corporations to build out terawatts of clean energy and double the capacity of our transmission lines. This is absurd.

In the long run, we’re all dead?

The second key point to understand about carbon taxes is that mainstream economists believe that taxes, no matter the purpose, always inflict harm on the economy. If you have taken economics 101, this is the section on deadweight loss: in economic models, taxes always lead to fewer economic exchanges and therefore everyone is worse off. Obviously, this is not how the real world works, and there are many reasons why we should not let the concept of deadweight loss guide social policy, though a full critique of this idea is well beyond what we can cover here.

For our purposes, it is key to understand that mainstream economists believe that taxes are always harmful to the economy, and a larger tax always inflicts more harm than a smaller tax. When mainstream economists apply this logic to climate change, they predict that a green energy transition will usher in a severe economic recession. Remember, mainstream economists believe that a carbon tax is “the most cost-effective” way to phase out fossil fuel; but they also believe that taxes harm the economy, and a carbon tax large enough to phase out fossil fuels necessarily means a major recession with severe job losses and declining living standards. The suffering mainstream economists believe a green energy transition will cause is a major reason why mainstream economists like William Nordhaus recommend we continue to delay a green energy transition even though climate scientists fear it is already too late.

But mainstream economists are wrong. A green energy transition will not cause a recession. A green energy transition will actually benefit the vast majority of people.

Rather than a carbon tax, we need a green energy transition based on industrial policy, wherein the government takes the lead in building out new sources of green energy and the transmission lines they require. As mentioned above, this is exactly how the US was initially electrified, and policy experts and heterodox economists have been arguing for years that such an approach would substantially improve the lives of all but the very richest, for two reasons. First, wind and solar energy can now generate electricity more cheaply than fossil fuels. By reducing energy costs, phasing out fossil fuels will significantly reduce ordinary people’s cost of living (eg see p104 and p15-16). Moreover, wind and solar technologies continue to improve rapidly, so the cost of generating green energy is expected to continue to fall.

The second reason a green energy transition based on industrial policy will be great for ordinary people is that, rather than inflicting harm on the economy, it will be a massive economic stimulus. The Goldman School at UC-Berkeley estimates that building out a green electrical grid would generate more than 500,000 new jobs each year. While this estimate is for a full green energy transition, any green energy transition will require a buildout of an extraordinary amount of infrastructure and will thus generate many jobs and economic stimulus. New, high-paying jobs will be available for all levels of education – from trades like construction and electricians, to advanced science and engineering degrees. What’s more, consumer spending from all these new jobs will have knock-on effects throughout the economy. This is akin to the way that the massive government spending on World War II pulled the world economy out of the Great Depression: all the war spending created new jobs with higher wages, and all that money circulating in the economy created more jobs with higher wages outside of arms production. We all need green energy, so this economic stimulus will reach all corners of the country. A green energy transition is not a terrible thing we unfortunately must do, as mainstream economists argue; we will save the planet and create a massive economic stimulus that will benefit everyone but the very richest.

In fact, we have real-world proof that industrial policy is the solution to climate change. As the implications of climate change became clear, the government of China embarked on a massive, decades-long program of industrial policy, deeply subsidizing wind and solar technology. As Genevieve Gunther points out in The Language of Climate Politics, it was not obvious a decade ago that wind and solar could ever be optimized to the point that they could generate electricity more cheaply than fossil fuels. The technological breakthroughs that led to the precipitous drop in price of wind and solar energy were only made possible by the Chinese government’s industrial policy. Ironically, mainstream economists give the free market credit for the plummeting price of wind and solar power, but nothing could be further from the truth. As discussed in Iss1/Ch4, corporations are reneging on climate pledges, and banks and investors are investing heavily in fossil fuels – yet somehow, according to mainstream economists, corporations, banks, and wealthy investors are supposed to save the world from climate change via the free market. Clearly, following mainstream economists’ advice and waiting for the free market to work its magic instead of implementing green energy industrial policy – as has proven successful in China – is a recipe for disaster.

If you like the carbon footprint, you’ll love carbon taxes

As discussed in Chapter 3, fossil fuel companies actively promote the carbon footprint idea because it has been useful in deflecting public attention and support away from policies that would successfully phase out fossil fuels and prevent catastrophic climate change.  A similar story is playing out with carbon taxes. Economist Naef Alain systematically studied fossil fuel corporations’ press releases, advertisements, and other communications and found that a large majority favor carbon taxes. Why would fossil fuel companies support policies ostensibly designed to limit their profits?

Like the carbon footprint, carbon taxes are a very convenient red herring for fossil fuel corporations. Fossil fuel corporations want the public to equate climate change policy with carbon taxes for three reasons. First – as discussed above – carbon taxes will fail to phase out fossil fuels, thus preserving fossil fuel corporations’ profits. Second, carbon taxes pass all of the costs of a green energy transition onto ordinary people. Fossil fuel corporations will continue to profit while everyone else pays.

Third, carbon taxes raise the cost of living. Wherever carbon taxes have been implemented, they have triggered protests against green policy and have led people to associate phasing out fossil fuels with deprivation. Ironically, wind and solar can now produce electricity more cheaply than fossil fuels, yet the experience of carbon taxes has led people to protest a green energy transition. As discussed at length in Issue 1, environmental policy cannot succeed without parallel policies to guarantee people’s basic well-being. This example again reaffirms that social policy and environmental policy are not two separate issues, but actually two sides of the same coin.

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In sum, mainstream economists have invented a very convenient false solution to climate change in carbon taxes. Fossil fuel corporations advocate for carbon taxes not only because they will fail to phase out fossil fuels, but also because their implementation would create abrupt  hardship and rising costs of living for ordinary people. This causes the public to associate phasing out fossil fuels with misery.

Clearly, the way forward is a green energy transition based on industrial policy. As discussed above, whereas carbon taxes impose real hardship on ordinary people, a green energy transition based on industrial policy will make ordinary people’s lives substantially better by lowering the cost of living and creating a massive economic stimulus.

Conclusion: reasons for optimism

This issue has left us with so many reasons to be optimistic. We learned about the devastating human and environmental consequences of mining, but we also learned that phasing out cars in favor of other modes of transportation would dramatically reduce the amount of mining necessary to phase out fossil fuels while maintaining our ability to get around. We learned that gasoline-powered cars cannot be replaced with electric cars quickly enough to prevent catastrophic climate change, but phasing out cars in favor of other modes of transportation is a viable solution to that problem, too: as discussed in Chapter 3, many policies to start phasing out cars could be implemented nearly overnight (eliminating bus fares, signs/barriers to create protected bike lanes, etc.) or very rapidly (more buses in order to expand routes and service frequency, redesigning transit routes to better serve riders’ needs, etc.). We encountered the argument that phasing out fossil fuels will lead to rising cost of living and hardship, but learned that phasing out fossil fuels will actually lower the cost of living because green energy is now cheaper than fossil fuels. We identified some severe drawbacks of green energy in Chapter 1, but saw in Chapter 1 and Bonus Chapter 1 how these problems can be solved.

Tying together all the information from this issue, the biggest implication is this: it is possible to reduce our impact on the planet while simultaneously improving our quality of life. Phasing out cars would dramatically reduce our energy and resource use while adding years to our lives, improving our finances, beautifying our surroundings, improving our sense of community, making our world safer and less polluted – the list of benefits goes on. Fortunately, this is not a one-off: our economy is so grossly inefficient that opportunities abound to reduce our energy and resource use while improving our quality of life. Future issues of Finite will explore even more examples, from social media and devices (Issues 3 & 5) to healthcare (Issue 6); from recycling (Issue 4) to wars and military spending (several upcoming issues).

In sum, while the challenges we face are real, we can prevent catastrophic climate change and make our lives a whole lot better.

Of course, we also saw throughout this issue that our political and economic system defaults to irresponsible decisions: public spending on buses and trains falls as public spending on highways rises, governments continue to subsidize fossil fuel corporations and approve new fossil fuel projects, corporations continue to renege on climate pledges, and banks and the wealthy continue to invest heavily in fossil fuels. In other words, while we have the technology and physical capacity to stop catastrophic climate change, we lack the political capacity to do so because society’s most powerful support the continued – and accelerated – use of fossil fuels.

In other words, this issue helped us to understand the technological and social challenges of phasing out fossil fuels. But this is only a first step. The necessary second step is to understand the political challenges. That is the topic of Issue 3: how can ordinary people take on the powerful and win?

This question becomes more urgent by the day as we run out of time to prevent catastrophic climate change, but fortunately, the climate movement has real-world examples of ordinary people taking on society’s most powerful and winning. The examples covered in Issue 3 will show a clear path forward.