The Tragedy of Green

Source: wikipedia.org

This article originally appeared in the Fall 2014 print issue of the Swarthmore Independent.

Imagine a bag of sugar spilled on the kitchen floor. A colony of ants, attracted by the sweet smell, parades into the house to swarm the found treasure. Disgusted, you crush them underneath your foot, one by one, before they can reach the bag. But more keep coming and you realize how fruitless your endeavor will be.

This is the strategy of the modern environmentalist movement. The kitchen floor is our unpolluted environment. The ants have many names—the Keystone XL pipeline, a college endowment invested in ExxonMobil, hydraulic fracturing technology with the promise of access to natural gas. The movement seeks to crush these ants randomly, unsystematically, while ignoring the reason why they come in the first place—the spilled bag of sugar.

The environmental movement ignores the problem of incentives. Economic actors such as consumers seek to maximize their welfare, and the good life these days requires plenty of energy. As long as fossil fuels provide a cheap source of energy, people will use them. Environmentalist attempts at blocking the fossil fuel industry will never work as long as the sugar remains on the floor.

But cleaning up the sugar—changing the incentives—is hard. Not only are there political barriers to overcome, but barriers of conscience: leaving to find a broom requires allowing some ants to reach the sugar. It can feel good to score small victories by crushing the ants underneath your shoe. Indeed, this focus on small “victories” with entirely symbolic value has become the main strategy in the environmentalist movement’s policy war. It is a strategy that has done nothing to slow the effects of climate change, and alienated the American public along the way. It has set up a false dichotomy between economic well-being and environmental sustainability. It has chased Democrats—supposedly the party of progress—away from action on climate change. And it has purposefully associated itself with a draconian and ultimately hollow set of policies that ignore the incentives which drive economic activity.

Stopping climate change is one of the twenty-first century’s defining challenges. But the movement to do so has done its cause a terrible disservice. It’s time for a new approach.

The Anatomy of the Environmental Movement

For the incognizant observer, it might be difficult to deduce that September’s People’s Climate March was actually about the climate. The main protest and its little sibling, Flood Wall Street, were as much about capitalism as they were about climate change. “Capitalism Kills,” and “Demand a Socialist Alternative” frequently popped up on cardboard signs. Even placards in support of a $15 minimum wage could be found. (What these had to do with the environment is still unclear.)

The environmentalist movement at Swarthmore and beyond frequently points to capitalism as the main cause of environmental destruction. (Never mind that communist China is the world’s biggest emitter of fossil fuels and the Soviet Union drained ninety percent of the world’s fourth-largest lake.) Since unfettered capitalism causes climate change, the government must step in to steer the economy in another direction. State seizure of fossil fuel reserves, heavy-handed regulation, and massive subsidies for the renewable energy industry are common refrains.

The association of the environmental movement with such draconian policies is alienating to the majority of Americans who recognize the enormous benefits and virtues of free-market capitalism. This is perhaps one of the reasons so many Americans are skeptical of climate science. “If I choose to believe in global warming,” the reasoning goes, “then I must also support these leftist policies.” It’s no surprise that it’s more appealing for the public—and politicians—to stick their heads in the sand rather than admit the danger of climate change and thus implicitly endorse such policies. Environmentalists have offered no solutions but the most extreme, setting up a false choice between supporting the free market and saving the planet.

A 67% majority of Americans believes there is “solid evidence” that the earth is warming, according to the Pew Research Center. Yet a minority of 40% believes that climate change is a “major threat” to the country. Yet a 65% majority also supports building the Keystone XL pipeline. Only 34% think it is “essential” for Congress to enact new climate change policies.

Presented with the false choice between the economy and the climate, many have chosen the economy. This explains the titanic 33-point gap between those who believe in climate change and those who want to act on it.

The 2014 midterm elections saw Democratic candidates run away from President Obama and the green movement on energy and environmental issues. Democratic West Virginia Senate candidate Natalie Tennant dramatically shut off the power to the White House in a campaign ad to protest Obama’s energy policy. Tennant’s counterpart in Kentucky, Alison Lundergan Grimes, proudly adopted Republicans’ “war on coal” rhetoric against the Obama administration. Republican candidates have effectively tied their opponents to the environmentalist movement and its billionaire political sponsor, Tom Steyer, in light blue states like Iowa and Colorado. In electoral politics, being tied to the leftist position on environmental issues is a losing attribute.

May I reiterate that two-thirds of Americans acknowledge that the earth is warming. The environmentalist movement is missing a tremendous opportunity to drive the climate change debate in a constructive way.

Instead, the movement relentlessly focuses on issues that carry huge economic cost for an entirely symbolic return. Nationally, the issue that fits this characterization is opposition to building the Keystone XL oil pipeline. At Swarthmore, it’s divesting the endowment of fossil fuel companies. Let’s visit each of these issues in turn.

The Keystone XL pipeline is a proposed 1200-mile pipeline from Canada to Texas that would carry crude oil from the tar sands of Alberta to refineries along the Gulf Coast. Building it would support construction and refining jobs (though admittedly claims about its economic benefits are sometimes overblown). The Obama administration has repeatedly blocked construction of the pipeline, making it a powerful symbol of what Republicans see as an overactive presidency stifling economic growth.

Environmentalists claim blocking construction of the pipeline is imperative to halting climate change. But this ignores several studies commissioned by Obama’s own State Department concluding that the pipeline would have no effect on carbon emissions. The reason is simple: if the pipeline is not built, the oil will get to market in other ways. Environmentalist opposition to Keystone XL ignores the massive economic incentive Canadian companies have to sell their product to refiners. Blocking Keystone XL is just crushing one of a thousand ants.

At Swarthmore, environmentalist groups on campus have adopted an almost singular focus on divesting the college’s endowment of stock in fossil fuel companies. They repeat the call despite the fact that such an action would cost the college $10-15 million per year. Yet even Mountain Justice, the divestment advocacy group on campus, admits that such an action would have no effect on the companies in question, thus making the benefits of divestment entirely symbolic. Once again the environmentalist movement has asked others to bear a massive cost for the sake of its cause.

Even the symbolic value of actions such as divestment and blocking Keystone XL is hollow. How can environmentalists claim the moral high ground against fossil fuel companies when they themselves continue to consume gasoline and electricity? Such companies would not exist without demand for fossil fuels from all Americans, including environmentalists. A vegetarian who seeks to protest the slaughtering of animals for food does so by not eating meat, not by divesting her holdings from stock in McDonald’s.

The narrow field of “solutions” to climate change offered by environmentalists, and the extremism of the ideas contained therein, has set up an us-versus-them understanding between the green movement and the public. Policies such as divestment and central planning of the energy economy are neither politically astute nor economically practicable. As for their stated goals of reducing emissions, the empirical record shows they have failed.

The Emptiness of Green “Victories”

In 2005, to meet the carbon dioxide emissions reduction goals of the Kyoto Protocol, the European Union implemented a cap-and-trade system, known as the EU Emissions Trading System (ETS). For the green movement, this was a victory before its time—climate change was not yet a salient issue in America and Al Gore had yet to release An Inconvenient Truth. The scheme—by which individual EU countries would allocate tradable emissions permits, in hopes of capping total emissions of carbon—was a model for the proposed Waxman-Markey cap-and-trade system in the U.S. With a central government telling companies who could produce carbon and how much, the world would enter a new age of environmental sustainability. The free market had been reined in at last!

Fast-forward to 2011 and ETS had yielded no significant reduction in carbon emissions, according to a UBS Bank report, and rang up a price tag of 210 billion euros. The trouble was that most countries had allocated their permits for free to established polluters, entrenching these companies’ position in the economy. In fact, the German Economic Research Institute found evidence that ETS actually increased pollution, by incentivizing firms to construct new coal plants in order to take advantage of the free emissions permits.

Four years after ETS, the U.S. was poised to make the same mistake. The Waxman-Markey cap-and-trade bill died in the Senate in 2010, but it would have implemented a similar carbon trading scheme whereby 85% of the permits would be allocated for free, again to established polluters. While such a system might reduce pollution on the margin, it ignores the central purpose of cap-and-trade: to make pollution more expensive, giving new firms the opportunity to get their foot in the door and innovate ways to reduce carbon emissions.

Importantly, the Waxman-Markey bill also dealt a blow to environmentalism in the court of public opinion. Democratic Senate candidate Joe Manchin famously shot (yes, with a rifle) a copy of the cap-and-trade bill in a campaign ad. Average people saw no benefit from action on climate change other than a vague promise that the future effects of global warming might be mitigated. For most of America, green policies were the pet passion of wealthy, idealistic coastal liberals that meant higher energy prices and fewer jobs in the coal, oil, and gas industries.

This bad press for the planet only multiplied following the calamitous failure of Solyndra. A government-subsidized manufacturer of solar panels run by major donors to the Obama campaign, the company went belly-up in 2011, taking with it $535 million in taxpayer money. Solyndra’s failure became a symbol of incessant and expensive government meddling in the economy to promote the favored renewable energy industry.

This view has much validity. According to the Congressional Budget Office, in 2013, the federal government allocated $16.4 billion in tax preferences for the energy industry—74% of which supported either renewable energy or energy efficiency. By contrast, fossil fuels only accounted for 20% of this support. This number is down from roughly $21 billion a year in energy tax preferences—again, mostly benefitting green initiatives—from 2009 to 2011.

Since the dawn of the Obama era, the federal government has tried to systematically prop up green energy with expensive interventions. Not only do these cost taxpayers billions, but also distort the economy by effectively allowing the government to pick winners and losers in the energy sector. The government cannot know which new energy technologies will succeed and which will fail. By subsidizing one company over another, the government may doom the latter company to failure—a company which might develop a better alternative energy solution, given time.

Any environmentalist would retort that some economic distortion right now is a small price to pay for a cleaner, cooler planet in the future. But that is not how Americans have come to see things. Their view is that the U.S. federal government, with its pernicious network of taxes, regulations, and subsidies, seeks to drown the American energy sector, killing millions of jobs, and while imploring its victims simply to “trust us.” For all but the environmentalist left, the famous Ronald Reagan quote holds true: “The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.’”

Once again, global energy policy has ignored the problem of incentives and left the bag of sugar idle on the floor. In the EU, a failing cap-and-trade system has failed to reduce carbon emissions and entrenched the economic power existing polluters. And in the U.S., subsidies and planning have made renewable energy less about saving the planet and more about milking the government for cash. Each policy has scored small victories—some additional renewable energy capacity here and there—but has largely failed to improve our prospects of halting climate change. Mind you, we haven’t even touched yet the world’s biggest polluter—China. To stop carbon emissions on a global scale, we need the help of the most powerful innovation in human history—the free market.

Free-Market Environmentalism

In 1900, New York City was exploding. The city’s population of 3.4 million would double within 40 years. All these people required transportation—100,000 horses, to be precise—which produced approximately 1,250 tons of manure every day. Urban planners feared that if New York City continued to grow, the streets would be buried under feet of horse leavings, suffocating the booming metropolis quite literally under its own weight.

These fears did not bear out, of course, because the urban planners of 1900 did not anticipate Henry Ford’s model T and the rise of motorized transportation. The horses disappeared, and thankfully most references to horse-shit in New York nowadays are metaphorical.

The point here is that forecasts into the future frequently assume that current patterns will stay in place. This approach does not take into account technological change, such as the invention of the model T. Regarding the problem of climate change, technological progress has already slowed the growth of emissions—the proliferation of natural gas has made it a cheaper alternative to coal. Natural gas produces around half the carbon dioxide per unit of energy as coal, and none of the sulfur dioxide. After natural gas prices started consistently falling in 2005 from the all-time high of $13.42 per million btu, energy-related carbon dioxide emissions plummeted by 10% and hit their lowest level since 1994.

Even if the schemes devised by Western governments to reduce emissions had worked, the world would still face the problems of China, India, and Russia, which are respectively first, third, and fourth in the global ranking of carbon emitters. Without a strong middle class to lobby for environmental protection, these countries have little incentive to join the battle against climate change. The only way to get them to reduce their emissions is to offer them a cheaper alternative—policy will not help.

America is the world’s great innovator. It has been American innovations such as the automobile, electricity, and the telephone that have driven the exponential increase in global standards of living over the last century. In the 21st century, America can be a leader in producing alternatives to fossil fuels—alternatives that big polluters such as China and India can then incorporate into their own economies.

I am not so naïve as to rely on the assumption that the market will come up with an alternative energy source before the world feels the worst effects of climate change. Some sort of policy change is necessary. But all the policies that have thus far been tried—cap-and-trade, renewable energy subsidies, carbon taxes, divestment—have been top-down solutions that leave tremendous power and money in the hands of government bureaucrats. It’s time for a market-based, bottom-up approach.

My proposal, which builds off one offered by economist Martin Feldstein, is a variation on cap-and-trade that assigns pollution permits directly to American citizens. People are then free to sell these permits to whomever will buy them, and pocket the money. This distributes the financial benefits of cap-and-trade directly to the people, not to the government. Importantly, the policy is highly equitable, with every person in America, rich or poor, receiving the exact same benefit. Unlike the Waxman-Markey proposal, there is little opportunity here for political favoritism.

According to economic theory, this is no different from a regular cap-and-trade system, but politically it makes all the difference in the world. Rather than the government imposing a burden on American families, this solution gives everyone a personal stake in supporting and maintaining the program. While top-down policies are vulnerable to political headwinds, no legislator would touch a program that provides direct financial benefits to the vast majority of American households.

The purpose of this program is not to reduce emissions directly, but to make pollution more expensive by requiring the purchase of the permit to emit carbon. Allocating the permits to households will also offset the inevitable rise in energy prices. Imposing this extra cost will encourage more companies to look for non-polluting (or less-polluting) alternatives. It does not involve the government picking winners and losers and trying to guess which form of alternative energy will power the future. It simply sets a price on carbon, gives consumers the proceeds, and lets the free market figure out the rest. In short, it changes the incentives.

The Tragedy of Green

A free market is not only consistent with preserving the environment—it is intrinsic to it. The near-total association of the environmentalist movement with the ideological left causes me to fear for our prospects of halting climate change. Tying action on climate change to an interventionist agenda will not only fail in its goals, but it will alienate the majority of the political spectrum from supporting any sort of environmental protection policies. Yet the strategy of the environmentalist movement has not been to find green policies that can appeal to the majority of the public; it has been to support the policies which meet their goals in the quickest way possible, regardless of the unintended consequences.

Currently our political system is divided between those on the left, who support extreme, distortionary and unpopular green policies, and those on the right, who either deny the existence of climate change or refuse to act on it for fear of being associated with the radical environmentalist left. With such a sharp division, it is no wonder that a policy like the one I outlined has not come to the floor of Congress.

The passion of the environmentalist movement is admirable and honestly motivated, which is why I hope that greens can take the lead in proposing a more politically moderate and realistic approach. But that will require a reexamination of their own movement and the motivations that drive it. It will require giving up issues like divestment and Keystone XL—letting some ants through—and refocusing their energy on fixing the problem of incentives. Cleaning up the sugar is more difficult than squishing the ants, but I believe the enthusiasm of today’s environmentalist movement is up to the challenge.

Environmentalists have an opportunity to save the planet, if they can first be saved from themselves. They must not let their movement become a tragedy.

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