Praise be and Hallelujah. Michael Mann, a leading climate scientist, is now halfway to understanding climate change. It’s a pity it’s taken him this long, and he is still only halfway, but this is indeed an advance insofar as he’s caught up with what every economist on the planet has been shouting for decades now.
Leave aside whether climate change is actually happening— we all have our entrenched positions on that debate. My own view is that it’s so engrained in the establishment’s thinking that the fools are going to do something about it anyway, whatever the truth. We must therefore steer them towards pursuing the sensible option, which is a revenue neutral carbon tax. That’s where Mann comes in. “I would place a price on carbon,” he said recently. That’s the correct position, as William Nordaus has been pointing out at least since the 1990s, as the Stern Review for the UK government did, and as every economist who has even glanced at the problem has said.
If consensual and voluntary actions cause damage to some third party, then we have problem. Consenting adults can usually be left to their own devices, that’s what liberty and freedom mean. But damage to someone who didn’t consent is problematic— and the oceans boiling would certainly constitute damage. The answer is thus to tax the offending action at the rate of those damages.
No, it’s not to compensate for the damages caused, it’s to make sure only those damages that are worth it occur. Fossil fuels make the people who use them richer. But those other people who suffer because of the rising sea levels are made poorer. Our aim should be to maximize the wealth of human beings over time. And I mean the broader definition of wealth, not just piles of cash, but standards of living. So we want to stop emissions that add less value than the damages they cause.
Say, for example, it takes a liter of gas to drive me to get fresh bread for my lunch. That liter causes damages of about 15 cents (that is about the right number, at a social cost of carbon of $80 per tonne CO2-e). Instead, however, I could just toast yesterday’s bread— and perhaps I would if I thought paying a tax of 15 cents made the fresh bread not worth the drive. The same liter might instead be used to power an ambulance carrying a woman in need of a magnesium injection. Saving lives at the cost of 15 cents? Yep, we want that ambulance to roll.
Again, we want the emissions that add more value than their costs to continue, we only want to stop those where the climate damage is greater than the benefit of whatever produces the emissions. Which is where Mann gets it wrong. “The price on carbon needs to be set such that it leads to a reduction in carbon emissions of several percent a year for the next few decades,” he said. No, the tax should be set at the damage the emissions do. How much we reduce emissions will depend on our reactions to the tax. And as it should be. We’re trying to maximize human wealth over time. If we think that means being warm today, and damn the future, then that’s what we think.
To be honest about it, this is what I find so enraging about nearly all discussions of climate change. It’s an economic problem with an economic solution. And that solution is a simple carbon tax at the cost of the damages caused by emissions. Use the revenues to reduce some other tax (FICA for the low-paid being my favorite), and we’ve then solved climate change. But that’s the one thing those most vocal about the need to do something about climate change never will agree with, or in this case seem not even to understand.
If you don’t think it’s happening at all, good luck to you. But do note the fools are going to do something, and indeed they already are. Unfortunately, none of the things they’re doing are the known and efficient solution to the problem.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at The Continental Telegraph.
