Tuesday, July 10, 2012

Environmental economics discussion at GreenFaith

One of the great parts of the GreenFaith fellowship program is our monthly webinar.  Yesterday's webinar featured an opportunity for us to hear from Gernot Wagner, an environmental economist who works for the Environmental Defense Fund. It was a privilege to hear from someone who has been active and involved at a high level in so many environmental causes.  Nevertheless, I found myself increasingly uneasy with some aspects of his presentation - I hope it is not out of order to say why.

A good summary of Gernot's thinking can be found in this New York Times op-ed which he wrote a year or so ago. Titled, "Going Green but Getting Nowhere", it makes the undeniable point that individual "green" efforts, however worthy, do not aggregate to anything like enough to make a dent in society's consumption and pollution trajectory  So,

individual action does not work. It distracts us from the need for collective action, and it doesn’t add up to enough. Self-interest, not self-sacrifice, is what induces noticeable change. Only the right economic policies will enable us as individuals to be guided by self-interest and still do the right thing for the planet.  

In writing, "Self-interest, not self-sacrifice, is what induces noticeable change", Gernot articulates the economist's understanding of human behavior since the days of Adam Smith.  And this leads him to his policy proposals: to make it harder for individuals and business to externalize pollution costs, we need to create property rights related to these costs, and markets in which these rights can be traded.  For Gernot, this is "Common Sense 101" and is also biblical, an implementation of the commandment "Thou shalt not steal". In practical terms, what it means is "cap and trade".  Based on expert advice, a national or supranational limit is agreed on the total amount of carbon dioxide (or whatever) that can be emitted (the "cap"); emissions permits are issued to businesses and/or individuals up to this total, and these permits may then be sold or exchanged ("trade"); it becomes a crime to emit carbon dioxide in excess of the number of permits held.  The invisible hand of the market then sets the price of emissions and achieves the "safe" outcome (determined by the experts) in the cheapest possible way.

Cap and trade has had notable successes, especially in combating acid rain.  And it's hard to disagree that financial incentives must play and important part in limiting pollution and other negative externalities (though there are alternative ways to achieving this, such as Pigouvian taxes).  The problem that I have with the model, as least as it was presented in the webinar, is its tendency to confiscate from ordinary people their ability to make a moral response to climate change and ecological devastation, surely among the greatest moral and spiritual crises of our time.  Under cap and trade, the only people on earth whose concern about climate change need be more than purely financial - the only ones whose response is, if you like, "normative" rather than merely "positive" economics - are the experts who set the cap. As for the rest of us, we pay the increased price that the market demands and go on our polluting way.  Our coin "in the coffer rings" and, like the hapless purchasers of Tetzel's indulgences, our soul "from (environmentalist) purgatory springs". No more moral concerns for us!

In the cornucopian picture, humanity wanders a garden of delights which are there for the taking.  "Cap and trade" adds a wall around the garden and a stern warning not to go too far.  But it leaves unchallenged the idea that, within the wall, our life goal is to consume as much as possible.  Perhaps some of the fruits of this garden are not even good for us?


Genny Rowley said...

Powerful and thoughtful post, John. I'm curious if there's a way to frame this that's more of a "both/and" approach: while I very much agree that asking people to take moral agency in the climate change struggle is imperative, how do we hold "nonmoral" - i.e., faceless corporations (whom I , personally, do NOT think are people!) responsible for the harm they cause Earth?

Ah, complexity! Thanks for the food for thought.

John Roe said...

Yes, I agree that financial incentives have to play a big part - especially for "corporate persons" but for regular people too - in guiding more eco-friendly behavior. The question is how we get to the regime by which these incentives are put in place? I don't think that we can just say "leave it to the experts" because this is a *moral* decision that concerns everyone. Plus, if one's theory of human behavior is that it's driven by self-interest, I don't see how one can expect the "experts" to behave in the altruistic way that cap-and-trade requires. The opportunities for corruption would be incredible.

Unknown said...

John, Thank you for your thoughtful response. I'd only say that capping or pricing emissions properly will still leave plenty of opportunity for everyone to act morally as well. None of it replaces individual moral behavior. It simply corrects the most egregious market failures in a way no individual ever could. Best wishes, Gernot

John Roe said...

Thanks very much for responding, Gernot...