Pricing Externalities

I will start with James Hansen again because he is an exemplary scientist who follows evidence regardless of where it leads and I applaud him for it. It's complex, not so complex that it should not be read, but for those short on time the takeaway from Global Warming in the Pipeline is that our climate models use an unmeasured parameter, aerosols. These are tiny particles in the air from burning different types of fossil fuels but also include cloud cover. We could and should measure it from space, but we don't, so we have to estimate the impact of aerosols. The problem is that the Intergovernmental Panel on Climate Change (IPCC) models fit reality with either a little warming and little aerosol cooling or significant warming and significant aerosol cooling. In the humble opinion of your correspondent, our collective unwillingness to measure aerosols will be one of our greatest errors in addressing climate change.

The people who work in companies that make decisions based only on the direct cost of a profit opportunity and not the indirect costs of pollution are ignoring the externalities. One of the few downsides of the corporate structure is how separated individual accountability is from corporate accountability, and so uncosted externalities persist. The government is there to solve problems that individuals can’t solve for themselves and there is an appropriate role for the government here to create a ubiquitous price for pollution at the nation-state level. On the battlefield of the global economy, the U.S. is well positioned to benefit from early adoption of such a measure, but oddly reluctant to proceed. My sense is that we have conflated pricing pollution with a tax, but the Foreign Pollution Fee Bill recently introduced in the Senate leverages all the other advantages of pricing pollution without the tax by imposing it on other countries. This is more in line with our history and may sit more comfortably with most Americans and the sentiment of our times because it rewards low emission companies and penalizes countries that make little attempt to reduce emissions. I will leave the Senator for Louisiana, Bill Cassidy, to sell its virtues, but the thing that really caught my attention was the national security waivers and exemptions for products considered to be within 50 percent of U.S. pollution intensity produced in countries with whom we have trade agreements. In a perfect world, the West and classical liberalism would be strong enough to set the stage the same for all but we have already given too much away and while we remain the largest economy and cling to our democracy, we must remain strong. While wrapped in good climate intent, Europe’s Carbon Border Adjustment Mechanism (CBAM) and climate disclosure rules also reward the efforts of European companies to reduce emissions and the US and Europe need to get our collective house in order quickly. Since the EPA was created in 1970, not nearly enough has been done to reduce emissions, but what has been done was not without cost. The result is what economists call a competitive advantage. I suggest we use it while we still can.

Positive Notes

A House Energy and Commerce subcommittee advanced 11 bills backed by both Democrats and Republicans that included measures to increase U.S. production of high-assay low-enriched uranium, accelerate licensing of new nuclear power plants, and lower costs for advanced nuclear developers. This is a rare example of bipartisan committee behavior. The bills are useful and will help if and when they are reconciled with the Senate's ADVANCE Act, but a lot more will be needed to restart a nuclear industry, let alone building durable economic and strategic relationships around the world. That said, credit should be given to the committee as this was done while the Speaker chaos was unfolding.

The Action …

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We Need Industries, Not Projects