Yale economist William Nordhaus writes as if he wants to
address human-induced global warming—euphemistically called “climate change”
even by the most ardent environmentalists—but I think he loves what he calls
“the market” more than he does the environment.
You can see him grasping for straws to balance his love or
humankind and other living things and his greater love for the “market” in his
recent New York Review of Books critique
of Laudato Si’, Pope Francis’s
encyclical on the environment and capitalism. While he applauds the Pope’s concern for the environment, he
essentially condemns the Pope for specifically rejecting the use of carbon
credits. To do so, he has to take a leap of faith similar to the one taken by
Pascal and Kierkegaard. But instead of leaping towards a silent, hidden god,
Nordhaus leaps towards the infallibility of “markets.”
Nordhaus does a good job of describing how the carbon credit
system, also called cap-and-trade, operates, so I’ll repeat his brief
explanation: “Cap-and-trade
begins with actions by which a country, through its government, caps or limits
its carbon dioxide emissions. The country then auctions or issues a limited
number of ‘emissions permits.’ These convey the right to emit a given quantity
of emissions. Firms that own the permits can use them or sell them on carbon
markets, while firms who need them can purchase permits. The advantage of
establishing a market in permits is that it ensures that emissions are used in
the most productive manner.”
The Pope rightly asserts that the trading of carbon credits
can lead to speculation and enables countries and industrial sectors to buy the
right to pump excessive pollution
into the environment. The Pope doesn’t mention another
problem with trading carbon credits: it give these dirty industrial companies
and utilities absolutely no incentive to clean up their acts.
It makes sense that the Pope condemns markets. Markets by
their nature are brutal, because they reduce everything to money, and not to
the well-being of a community and its members. The market assumes that all
market players are individuals, responsible for their own selves. Market theory
further assumes that the mostly unguided action of all these individual players
will lead to the greatest good for all. This basic premise strikes me to be as
much based on faith as is the idea that a half god-half man born of a virgin
died for our sins and came back to life three days later. I have a feeling that
Pope Francis would rate the absurdity of the invisible hand much lower.
I’m uncertain why Nordhaus has so much faith in markets,
when it is the market economy that has helped to create the environmental mess
in which we find ourselves in several ways: 1) The market hides the social cost
of pollution by reducing the value and cost of producing goods and services to dollars
and cents; 2) The market mentality has contributed to the rampant consumerism
that has infected all western-style economies, thereby driving the rapid rise
of greenhouse gases, resource shortages and other environmental challenges.
Like all those who believe in the religion of free markets,
Nordhaus has to construct an overly complicated argument for why the current
market does not work to benefit the environment. Basically, he (and others) say
that environmental degradation results from “distorted market signals” that put
too low a price on environmental effects. The good professor uses as his
examples the water shortage in California and people dying before their time
because of small sulfur particles in the air. In both cases, he blames
underpricing—if people paid more for water or air pollution, they would use
less. That argument ignores the fact that the wealthy won’t care what they pay,
which will engender an inequality in resource access similar to the gapping
inequality in wealth that currently exists throughout the planet. It also
ignores the fact that water and some of the products made in processes that emit
sulfur particles are necessities for human life.
Nordhaus is talking in convoluted euphemisms. What he means
to say is that the market isn’t working because it’s leading to the
carbon-loading of the atmosphere and oceans.
And his solution for something that isn’t working? Create
another thing just like it. A market for the right to pollute.
Wouldn’t it be much simpler just to set limits for each
industry and make companies pay huge fines and shut facilities if they can’t
meet the standards? Sure prices will go up, but I assert that instead of
raising prices, corporations could absorb some of the costs to pay for pollution
controls, more fuel-efficient processes and alternative energy. All they have
to do is shrink the profit before paying executive salaries, bonuses and
benefits. In other words, executives could choose to pay themselves and
shareholders less.
That certainly won’t happen with cap-and-trade.
The essence of cap-and-trade is a dirty company paying a
clean company so that it can keep polluting. The immorality of this market
solution will leap into focus when you think about rich folk paying people to
serve in the military in their place during the Civil War. What about someone
who paid the Catholic Church money to receive absolution for sins or a church
office for a ne’er-do-well nephew in the 15th and 16th centuries? These situations rightly offend us. Cap-and-trade
is the very same thing. Nordhaus’ argument that cap-and-trade enables society
to use its carbon emissions most productively would apply to the wealthy draft
dodger or church manipulator. Why get the wealthy banker’s son shot up when he
could be making lots of money that he will use to build an art collection to
donate to a museum for a tax write-off?
In both the analogies I gave, an informal market was
created: Buying and selling humans for slaughter. Buying and selling church
favors. Buying and selling the pollutants that are rapidly degrading our
planet. Do you see a difference? I
don’t, nor does Pope Francis. Only a true believer in markets blinded by the
invisible hand would.
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