Essay by Eric Worrall
Putting a price on carbon only works if there are emissions reductions which can be made.
What economists just don’t get about climate change
The case against cheap climate policy
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The Trump administration has gutted federal climate policy. Meanwhile, the Biden administration’s signature climate law sidelined the market-based measures, like carbon pricing, that economists have long recommended.
But we should also point our fingers at the mirror. The trouble is that economists and climate advocates are often talking past each other. …
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The goal is not to reduce current emissions a little but instead to reduce future emissions a lot. …
…However, carbon prices are limited tools for driving large emissions cuts cost-effectively. …
But large-scale vehicle emissions reductions are a different project that requires getting Americans to switch from internal combustion engine vehicles to electric or other alternative-fuel vehicles.Subscribe
In principle, a carbon price could drive that shift, too, by raising gasoline and diesel prices so high that drivers switch to EVs. But, in addition to the political challenges of imposing high carbon prices, that approach is likely to cost more than other strategies. Alternatives could rely somewhat less on gasoline price hikes and somewhat more on policies like zero-emission vehicle standards or “feebates” that encourage the purchase of cleaner vehicles.
To see why, imagine two extremes. In the first, EVs are near-perfect substitutes for gasoline vehicles, identical to drivers in virtually every way. Then, a zero-emission vehicle standard that gradually mandates more EV sales costs almost nothing, because buyers are indifferent. In contrast, a carbon price could shift those new-car decisions only by jacking up gasoline prices for the entire existing fleet, taxing millions of drivers who own gasoline-powered cars they won’t replace for years, all to influence the far smaller group choosing a new vehicle today.
In the second extreme, there is no viable alternative to the gasoline engine at all. Now the standard would be impossible to meet, while the carbon price would at least capture the changes from nudging people to drive less and to buy more efficient vehicles.
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Read more: https://www.theargumentmag.com/p/what-economists-just-dont-get-about
There is also a problem that most economists have no idea how the economy actually works, particularly the rural economy.
For starters, driving a lightweight vehicle on rural roads, especially an EV, is insanity. The risk of animal collision means you basically need to drive a armoured personnel carrier, if you want to survive. I almost lost my life colliding with a big red kangaroo while driving a Tucson, luckily a glancing blow. Lucky I took the hint and upgraded. My current vehicle, a fuel guzzling heavy duty 4WD, kept me safe when I collided with a feral hog in 2023 while I was doing 65MPH. The left side of the vehicle lifted 30º from horizontal from the collision, but the crash bars on the front, the quarter inch steel smash plate on the bottom, and the heavy duty suspension of the 4WD not only saved my life, it also protected the vehicle from damage.
Even a EV SUV subjected to that kind of punishment – colliding with that hog was still a huge impact which shook the whole vehicle. And we all know how much EV batteries like to be knocked about.
Or take farming. There has been a push lately to try to convince Aussie farmers to go electric. The reception has been less than enthusiastic. My farmer friend in Orange NSW uses 1000 litres of fuel per day in peak season, along with tons of other high carbon inputs such as fertiliser and agricultural chemicals, and he only owns a small farm which he uses for secondary income. I’m not sure how many batteries it would take to replace thousands of litres per day of fuel, and what kind of infrastructure would be required to supply the gigawatts of electricity required to power rechargers for all that equipment, but I’m guessing its not going to get built anytime soon.
Industry is in the same boat. When I’m operating my low end trade pneumatic toolkit which cost thousands of dollars but which makes metal work as easy as woodwork, my equipment consumes around 3000 watts. Real manufacturing processes consume far more power per worker.
There is no cutting back on these energy demands. Economists might draw fancy demand destruction graphs which show if they price carbon people will innovate and find ways to reduce emissions, all that actually happens is people cut back on economic activity. If you want to shift large amounts of dirt or smelt or work steel or produce concrete or plastic or all the other things city economists take for granted, you’re going to need to use a great deal of energy. And in many cases, the only viable way of delivering that energy is in the form of fossil fuel.
Of course if governments persist anyway with their foolish carbon pricing measures, or absurd efficiency standards, they may pick at the edges of their imaginary problem, but by far the easiest way to reduce CO2 emissions is to close the factory or abandon the farm. You don’t have to look far for evidence of business owners making such decisions.
The EU even has a name for it, they call people abandoning the EU because of emissions pricing Carbon Leakage.
Australia also suffers this absurdity. Our political obsession with CO2 emissions has led to a 50% collapse in our manufacturing industry. More than ever Australia now ships coal and raw materials to Asia, then accepts finished products in return, and pretends this exercise reduced Australian emissions, when all that really happened is the emissions happened somewhere else.
California is also suffering a loss of heavy industrial jobs to other states. To an extent California can ignore this loss, their lead in high tech manufacturing and AI has provided a buffer against the economic harm of their energy policies. But as all those data centers being built outside of California demonstrates, data centers which service Californian tech giants, California’s emissions policies haven’t reduced emissions significantly, they’re just relocated those emissions.
On a global scale, you can see from global CO2 measurements at the top of this article, all the emissions reduction policies ever attempted, have achieved nothing other than to enrich China. Relocating emissions is always cheaper than reducing emissions, even if you have to pay a carbon border adjustment tax.
Until there is a significant technological breakthrough, like bucket size Mr Fusion devices which can power anything you can imagine from a few pieces of plastic or organic scrap, any attempt to reduce emissions in a meaningful way simply hurts the economy which is dumb enough to make that attempt, and transfers those emissions somewhere else.
