Sunday, August 21, 2016

Tol: The Structure of the Climate Debate

I can't recommend a paper from Richard Tol highly enough - I think on content, but communication style might be part of the appeal.
Abstract: First-best climate policy is a uniform carbon tax which gradually rises over time. Civil servants have complicated climate policy to expand bureaucracies, politicians to create rents. Environmentalists have exaggerated climate change to gain influence, other activists have joined the climate bandwagon. Opponents to climate policy have attacked the weaknesses in climate research. The climate debate is convoluted and polarized as a result, and climate policy complex. Climate policy should become easier and more rational as the Paris Agreement has shifted climate policy back towards national governments. Changing political priorities, austerity, and a maturing bureaucracy should lead to a more constructive climate debate.
The full paper (.pdf) is worth the full read. Some of my favourite sections (stripped of those clumsy references academics clutter papers with):
Economists have been reluctant, however, to write much about the climate debate itself and apply their tools of analysis to the question why participants in this debate behave the way they do. This paper makes a first attempt.
A number of things stand in the way of a reasonable debate on international climate policy

First, the presentation of climate change is often a discourse of fear... There is a demand for an explanation of the world in terms of Sin and a Final Reckoning... Although many Europeans are nominally secular, fewer are in practice. The story of climate change is often a religious one...: emissions (sin) lead to climate change (eternal doom); we must reduce our emissions (atone for our sins). This has led to an environmental movement (a priesthood) that thrives on preaching climate alarmism, often separated from its factual basis. Environmentalism further offers an identity..., a tribe to belong to, and an opportunity to feel better than outsiders. In order to maximize their membership and income, environmental NGOs meet the demand for scaremongering and moral superiority...
Second, climate policy is perfect for politicians. Climate change is a problem that spans the world and lasts for centuries. Substantial emission reduction requires decades and a degree of global cooperation. This offers the opportunity for politicians to channel their inner Bruce Willis and make grand promises about saving the world. At the same time, most of the burden of actually doing something – and hurting constituents – can be shifted to a successor. There are convenient foreigners to blame for current inaction. Climate policy is an ideal case to overpromise and underdeliver.
Bureaucrats are a third reason why the climate debate is so convoluted. Emissions are best reduced through a carbon tax. A carbon tax is an excise duty. The legal, regulatory, administrative and logistical apparatus to levy excise duties is already in place, both in the governments that set the levies and in the companies that administer them. A carbon tax can thus be implemented with minimal effort. Bureaucrats, however, like to create new bureaucracies and expand existing ones... – and climate policy has provided an opportunity to do exactly that. Climate policy has been a political priority for about two decades. Emissions have hardly budged, but a growing and by now vast number of civil servants have occupied themselves with creating a bureaucratic fiction that something is happening.
Bureaucrats are not alone in their desire for complications in climate policy. A uniform carbon tax is cost-effective as it minimizes friction in the economy. Market distortions imply rents... Some distortions are there to create rents for political allies, other rents may instill a sense of gratitude towards the politician who distorted the market. Politicians can also use climate policy to give subsidies or grant tax breaks that support certain households or companies, to impose technical that favour particular companies, and to steer grandparented emission permits preferentially towards specific emitters. Complications in climate policy thus serve the interests of rent seekers as well as the interests of policy makers who use rent creation to reward allies... 
A fifth reason why climate policy is more complicated than needed is that it has been used to promote other agendas. Greenhouse gas emission reduction is a global public good... The costs of emission abatement are borne by the country that reduces the emissions. The benefits of emission reduction are shared by all of humankind. It is thus individually rational to do very little, and hope that others will do a lot. As every country reasons the same way, nothing much happens... 
Because climate change is such a prominent issue, champions of other worthy causes too have joined the bandwagon. Climate policy is about gender..., about development ..., about fair trade..., about labour rights and employment..., and so on and so forth. The ultimate goal of climate policy – decarbonisation of the economy – is thus obscured...
The final issue complicating climate policy ... People may not support the causes that have jumped on the climate bandwagon. And, of course, rents for some imply losses for others. Those people may of course propose a climate policy that is simpler and has an exclusive focus on greenhouse gas emissions. Alternatively, climate policy itself may be attacked.
Read the full paper.

I will note I am not as confident about the first best policy being a carbon tax - although I believe it's far better than alternatives produced by political elites thus far.

There's an old joke where a patient says to a doctor, "it hurts when I do this"
and the doctor replies, "we need to tax doing that."

no - sorry. I'm getting it wrong.
that's not the joke.

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