• Wednesday, Jan 19, 2022
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A one-stop solution to climate change

  • Published at 10:07 pm January 4th, 2020
Carbon Tax
A carbon tax might just save the world Bigstock

Stick on a carbon tax and the problem will be solved

This newspaper tells us that businesses must be made to play its part in the battle against climate change -- which is, of course, correct. However, it’s the tactic of how we ensure this that matters given that we’re all already agreed upon the base strategy. 

And this isn’t done by hectoring business to change its ways, or by insisting that things other than just profit must be motivations of business actions. Instead, we need to co-opt what business is already doing -- pursuing profits -- as that thing which forces them to deal with climate change.

That is, once we change prices in the marketplace through the correct application of tax, then businesses will naturally do that very thing that we want.

We also need to dispel a certain misunderstanding here. It is true that a small number of companies have produced most of the fossil fuels that create our basic problem -- warming of the planet. 

But this does not mean that those companies are responsible for the warming, not at all. For while they might have produced the fuels, they’ve not been consuming them, therefore they’ve not been making the emissions either. Those are produced by you and me. 

It’s us who want our housing heated or cooled, it’s us who like cooked food, it’s us who desire transportation and all the rest. Thus, it’s us who are responsible for the emissions from the fuels having been used.

Fortunately, one policy will both change our ways and those of the companies that supply us -- we really do have a one action solution here.

The thing to note is that humans do less of the things which are more expensive, more of things that are cheaper. So, if we wish to reduce the amount of something that is done -- either fewer people or each of them doing less -- then we can raise the price.

This is as true of companies as it is of people, perhaps more so in fact. A business is set up so as to try at least to make a profit. This isn’t just that thing that Milton Friedman told us – it’s how businesses actually act with or without Friedman. 

They, therefore, react to changes in prices rather more swiftly than individuals do. We eventually get the messages from altered prices but as we don’t calculate each and every action of our own in monetary terms, it does take some time. Business is, by its very definition, rather more calculating about such things.

It’s also true that we’ll have no difficulty in persuading people that the capitalists who own and run businesses are greedy. Therefore they’ll react -- swiftly -- to changes in prices which threaten their profits.

So, tax them then and so is born the idea of a carbon tax. And here’s the thing about how to deal with climate change. It isn’t true that every economist in the world believes that it’s happening. I myself, along with many economists, mutter that it’s not going to be as bad as the wilder projections as well. 

But just about every economist -- and polls have been done with the “yes” answer gaining over 90% agreement -- will agree that a carbon tax, or the economically equivalent cap and trade system, is the answer if it is.

As all these economists have been saying these past 20 years or so, as William Nordhaus gained the Nobel last year for pointing out. Stick on a carbon tax and the problem will be solved.

For we consumers will use less of things that have now become more expensive. As companies like making profits, they will do their best to change production methods so as to not have to pay the tax -- and thus they can charge us consumers cheaper prices. 

Thereby, stealing customers from those manufacturers who don’t change and thus make greater profits. The insight here is that we already know what humans are like. 

We do less of more expensive things, capitalists are greedy. So, by taxing carbon emissions, we make these basics of human nature work for us in saving the planet.

There’s only one problem with the most excellent plan. Which is that other than economists, no one else likes it. But then that’s so often true. As has been noted, it’s when economists are most united in what the answer is that they have the least impact and effect upon public policy. 

Which is rather a shame here about climate change. We have a plan that really will solve the problem. Solve it in the cheapest and simplest manner possible -- carbon tax. 

The plan is all shiny and polished and ready to go, with Nordhaus it’s even been awarded a Nobel. The economic parts of the IPCC process laud it, it really is the solution. And yet, no politicians and few campaigners are ready to push it. 

Odd but there we have it, the economists’ lament. When they’re right, no one pays attention, when wrong every bad plan -- as with Marxism or socialism -- is implemented overnight and with vehemence. It’s almost like the general public just isn’t paying attention.

Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.

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