A closer look at a free market solution to climate change

This blog was written by John D. Wilson, former Deputy Director for Regulatory Policy at the Southern Alliance for Clean Energy.

Guest Blog | November 14, 2011 | Climate Change

This is the first in a series of posts about how the “power of free markets” may be able to help solve climate change. You can view the rest of the posts here.

Former U.S. Congressman Bob Inglis (R – SC) once again provoked organized climate change denialists with his recent essay, “Conservative Means Standing With Science on Climate” (Bloomberg Businessweek; a similar essay appeared in USAToday). Responses to his essay have been surprisingly muted; energy lobbyist Mark McKenna offered a superficial riposte, ClimateProgress simply re-posted the piece by Inglis.

Congressman Bob Inglis lost his seat in a backlash against his views on climate and opposition to fear-mongering.
Congressman Bob Inglis lost his seat in part to a backlash against his views on climate change and opposition to fear-mongering.

To briefly recap, Bob Inglis asserts that conservatives normally “deal in facts,” but when it comes to the well-documented facts of climate science, he maintains that opponents have channeled fears about the economic implications of responding to those facts.

Some conservatives even allege that the scientific conclusion about climate change is affected by the flow of grant money — a conflict of interest that we overlook when taking the drug Lipitor, even though the tests proving its efficacy were financed by its maker, Pfizer. Conservatives seem to think that climate change is for elitists, enviros and Democrats, not hard-working, God-fearing Republicans.

Much to Inglis’ dismay, I’m sure, it only took a few days for Robert Bryce to break new ground in anti-scientific rhetoric by using high-speed neutrinos as a climate-change-smashing metaphor. Sadly, as long as voices like Bryce’s hold sway, conservative sentiment isn’t likely to “deal in facts” or “accept science.”

Even as a Congressman, Bob Inglis long advocated for a carbon tax, offset by reductions in income taxes, rather than the approach that came to be known as cap-and-trade. Cap-and-trade was the centerpiece of the legislation passed by the U.S. House of Representatives in 2009 (which many liberals favored because they thought conservatives would automatically be opposed to new taxes).

And just for the record, SACE was one of the leaders in the fight to ensure that there were no carbon credit giveaways to polluters. Personally, I prefer the concept of an upstream cap on emissions (with a refund of permit revenues to individuals). But that isn’t so different from what Congressman Inglis favors.

SACE has carried two key values to all the debates about a response to climate change: certainty and flexibility. Certainty, in the sense that we need a policy that will work to effectively reduce climate pollution.

Flexibility, in the sense that laws and regulations recognize that new opportunities will emerge to do things better and cheaper. I think this is what Bob Inglis is focused on at what I read as the climax of Bob Inglis’ essay, “What if we believed in the power of free markets?”

Indeed, what if?

What I believe he means by this simple, evocative phrase is that in a market economy, choices about energy use (and hence global warming pollution) should result from individuals making decisions as buyers and sellers. And conversely, those choices about resource allocation should not be made according to some central authority (i.e., government).

A week-long series on free market solutions to climate change

Over the next four days, I will share some observations about what might be meant by using the “power of free markets” to help solve climate change. I’ll begin tomorrow with a focus on how economists agree we can provide both certainty and flexibility in a policy to reduce greenhouse gas emissions.

Then we’ll look to a couple of key challenges to a purely”free market” solution.

One challenge is that price signals don’t always work. There are aspects of our economic system which make it impossible for price signals to drive economically efficient behavior. And the solution is to use regulation and other forms of intervention to help price signals connect with consumers in an effective way.

Another challenge is that energy subsidies are essential to energy resource development because government support is nearly always a major driver of innovation. We’ll take this one step further, and recognize that subsidies, regulation, and tax policy are a big part of the market: price signals and subsidy reform occur in a market that is not “free” in many respects.

For these reasons, applying the free-market vision to climate change requires an embrace of more than just using price signals and ending government subsidies. A comprehensive strategy requires coordinated energy efficiency programs, thoughtful energy subsidies, and attention to energy market reform.

Bob Inglis is on the right track, I think. He puts his concern about the future first. But a deeper look at the energy “market” shows that a free-market vision is not a simple or even well-defined strategy. And for this reason, we’ll take a look at some of the complexities in the energy “market.” It is time to rebuild a consensus around solutions to climate change, and the free market vision may just be the best place to start.

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