Economic Failures Created the Climate Crisis, but Economic Policy Can Fix It

As a new resident of Montecito, I’m learning about issues and concerns in our community through reading the weekly Montecito Journal. Since the climate crisis is my major concern, I particularly appreciate articles by columnists Rinaldo Brutoco, Tom Farr, and Robert Bernstein, as well as frequent reports of news and opinions from local environmental groups. In the spirit of Earth Day and out of my distress that slow walking the transition to a clean energy will end in catastrophe, I’d like to comment on the big picture of global warming and suggest some specific policy solutions.

There’s no question that cheap abundant fossil fuels (coal, oil, and natural gas) powered the industrial revolution and improved the livelihoods of people around the world. At first, exuberance for these convenient fuels obscured awareness of their dark side. Then, as the industry gained enormous wealth and political influence, it has done all it can to deny, obfuscate, and delay dealing with the life-destroying impacts of its products. The pollution alone from burning these fuels contributes to respiratory diseases that kill millions every year (today more than eight million deaths worldwide). Even worse, heat-trapping emissions from burning these fuels now warms our planet at an unprecedented rate, setting in motion intolerable heat waves, rising sea levels, chronic droughts, destructive wildfires, and other extreme weather events.

Tragically, market economies have failed to include in the prices of fossil fuel products their true costs to society of the disease, death, and now planetary disruption they cause. Economists call these costs “externalities.” The effect is to make coal, oil, and gas appear cheap, and thus disincentivize investments in clean energy. According to former World Bank chief economist, Sir Nicholas Stern, “The problem of climate change involves a fundamental failure of markets.” If the price of these dirty fuels reflected their true costs to society, clean energy alternatives would have driven them out of the market years ago.

While the failure of economic markets is largely responsible for the climate crisis, economists today, in near unanimity, advocate correcting this market deficiency by legislating a comprehensive climate policy that includes a carbon fee, a cash-back dividend, and a border carbon adjustment. Under these policies as the price of fossil fuels go up, their demand diminishes; the playing field for renewable energy sources is leveled; other nations are incentivized to adopt similar policies; and tax revenue collected from the polluting industry and rebated to American households would off-set increased energy costs for consumers. These market-based policies are revenue-neutral, do not grow government, protect low-and-middle-income communities, and enjoy bi-partisan support, including the U.S. Chamber of Commerce, and the American Petroleum Institute.

The idea of a carbon fee is not unique to the U.S. Forty other countries and jurisdictions have already proposed or enacted legislation that prices carbon. Indeed, in the last two years more than a dozen carbon pricing bills have been introduced in Congress.

Phasing-out fossil fuels will require action on many fronts, such as eliminating subsidies and restricting future extractions. But economists assert that “a carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary.” The tax percolates through the entire economy, providing an incentive for all decision makers (governments, businesses, and consumers) to find ways to reduce emissions. As demand for fossil fuels declines, the industry’s political and financial power will also diminish.

If these policies were included in Build Back Better legislation, the goal of reducing emissions in half by 2030 could be achieved and America could lead the world’s transition to a clean energy future.

Robert Taylor is a resident of Montecito and a volunteer with the Santa Barbara Chapter of Citizens’ Climate Lobby, a nonprofit, nonpartisan organization that advocates for carbon pricing legislation in the U.S. and around the world