Barack Obama’s administration wants to spend more than $10 billion to spur renewable energy development ― a move that has been cast as an important step toward sharing the burden of combating global climate change. But what if it isn’t really a burden at all? What if the thing being shared is actually an opportunity?
In the typical economic analysis, greenhouse-gas emissions create long-term risks, which can be reduced only through measures that will stunt economic growth today. Hence, the question is how much of a burden we are willing to take on now to avoid problems later. The most economically efficient solution is to find the point at which the cost of eliminating a unit of current emissions matches the value of future destruction averted.
This framing of the matter, though, might not be as well-founded as it seems. Chinese economists Yongsheng Zhang and He-ling Shi, for example, argue that some mitigation strategies may actually promote local economic growth. Recent research suggests, for example, that a better natural environment can improve the quality of resources and human capital, enabling technology to advance more quickly. In this sense, taking steps to reduce greenhouse-gas emissions can actually boost growth in the near term.
Other research points in the same direction. Environmental economists at the University of Cambridge note that the typical pessimistic conclusions about the costs of mitigation largely reflect the use of standard economic modeling techniques. Using more general, nonequilibrium models, they find a wide range of conditions under which emissions reductions in electricity generation could, if the right kinds of finance were available, produce benefits by spurring investment and creating jobs.
It’s hard to imagine that a hundred years from now, our descendants in an ecologically integrated society based on solar energy will despair that their ancestors took steps too early, and didn’t benefit by burning some more fossil fuel. The positives could include a range of social and economic transformations ― new technologies, new ways of employing people and resources, new kinds of economic organization. Today these possibilities do not even enter into the cost-benefit studies on what to do about climate change.
This thinking runs more along the lines of creative destruction envisioned by the economist Joseph Schumpeter in the early 20th century. There’s also an interesting historical analogy: A couple of centuries ago, many nations thought that free trade was a bad idea, and no one wanted to go first. Great Britain took the lead, ended up gaining early skills and experience in trade, and got ahead because of it. Soon other nations did the same.
The current unimaginative mindset may be the single biggest obstacle to achieving global action on climate. The only benefits we imagine are those that come directly from avoided damage, and the cost estimates are driven by severely limited economic models. If current economic theories didn’t even allow for a financial meltdown like that of 2007-2008, why should we trust them as a guide to the coming decades?
If we perceive climate policy as a problem in opportunity sharing, everything changes. Rather than dragging our heels to lose the least, we ought to be trying to gain the most. In this way of thinking, the Obama administration’s plans ― which include redirecting tax subsidies from oil and gas toward companies developing solar and other alternative energy sources ― may well be pro-growth and pro-business all the way.
By Mark Buchanan
Mark Buchanan, a physicist and science writer, is the author of the book “Forecast: What Physics, Meteorology and the Natural Sciences Can Teach Us About Economics.” He can be reached at buchanan.mark@gmail.com. ― Ed.
(Bloomberg)
