The problem of climate change or global warming is the most serious environmental problem confronting humankind today. This is now generally recognized, and politicians in countries throughout the world are attempting to address this problem in a serious manner.
Attempts are being made by regulatory agencies and by citizens themselves to directly reduce the demand for fossil fuels. Examples of policies and activities in this category include the installation of better insulation, the use of incentives to discourage driving and switching off the "standby" mode in a whole host of electrical devices.
Efforts also are being made to utilize existing energy resources more efficiently. The use of fluorescent light bulbs, variable-speed electric motors and the encouragement of intelligent energy management fall in this category.
Finally, major efforts across the world are currently underway to move away from the use of fossil fuels by encouraging the use of "green" energy derived from wind, water, the sun and biomass.
The common element in all the initiatives is that they represent demand-side policies and activities. The intent in every instance is to reduce the demand for fossil fuels by directly or indirectly encouraging consumers of fossil fuels to alter their behavior. However well-intentioned, demand-side policies alone will do little to address the serious problem of global warming in a meaningful way. To see why not, let us consider the findings of recent research by the economist Hans-Werner Sinn and others concerning the so-called "green paradox."
This line of research contends that the increasing calls for demand-side policies and activities to deal with the problem of climate change have alarmed resource owners in countries such as Saudi Arabia and Russia. Faced with the realistic prospect of a significant future curtailment of their markets for fossil fuels as a result of those policies and activities, these resource owners have expanded their production capacities and have increased their extraction rates in order to sell their resources before it is too late.
As a result, more fossil carbon has been brought to the markets at declining prices, has been burned and has entered the earth's atmosphere. In other words, the credible announcement of intentions to fight global warming with demand-side policies has made the world warm even faster. This is the green paradox.
This paradox tells us that it is not particularly useful to fight global warming by focusing only, or even primarily, on demand-side policies. To be effective, we need to focus on both demand- and supply-side policies. We should have learned this from our now decades-long and ongoing war on drugs, in which we have focused almost exclusively on supply-side policies.
There are many supply-side policies one could pursue to fight global warming, but one meaningful one would be to use so-called "source taxes." The basic idea is straightforward: If resource owners convert their natural capital (oil) into financial assets too quickly, then steps ought to be taken to make their natural capital in situ more attractive or, equivalently, to make their financial assets resulting from the conversion of natural capital unattractive. A tax on such financial assets or, equivalently, on the capital income from such assets ought to provide the appropriate incentives to leave more of this natural capital in the ground.
A source tax of the above sort is not a flawless instrument, but it squarely addresses the point that, in order to effectively fight the problem of climate change, we cannot afford to focus only on demand-side policies. Credibility in our fight against the scourge of global warming requires us to explicitly acknowledge that it is manifestly better to fight with both hands than with one alone.
Batabyal is the Arthur J. Gosnell professor of economics at the Rochester Institute of Technology, but these views are his own.
No comments:
Post a Comment