UN Warns Climate Change May Doom Us, but Nobel Committee Suggests Taxing Pollution Might Save Us
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The United Nations has sternly warned civilization to end its addiction to fossil fuels within a decade or so to avoid a long “or else” list that includes submerged coastal cities, acidic oceans, devastating cycles of drought and flood upending agriculture and ... oh come on, how long does the list need to be for you to get the picture?
The report by the UN’s Intergovernmental Panel on Climate Change is the latest and shrillest -- or perhaps just the least understated -- of periodic IPCC scientific assessments issued since the 1990s. However, and perhaps not entirely coincidentally, the same day as the depressing IPCC report was issued the Nobel Memorial Prize in Economic Sciences was awarded to two U.S. economists, William Nordhaus and Paul Romer, who have argued for many years that economics is both the cause and the cure of the global environmental crisis.
Nordhaus, 77, has taught and researched economics at Yale University since 1967. He built the first economic model that combined data and theory from chemistry, physics and economics that “describes the global interplay between the economy and the climate,” according to the Swedish academy. Norhaus was the first person to advocate for taxing carbon emissions to combat climate change, an idea now widely embraced by economists (if not politicians).
Romer, 62, has worked for decades modeling the interplay of economic growth and regulation. According to the award statement, “Romer showed that unregulated markets will produce technological change, but tend to underprovide R&D and the new goods created by it.”
Governments can offset this tendency through “well-designed government interventions, such as R&D subsidies and patent regulation. [Romer’s] analysis says that such policies are vital to long-run growth, not just within a country but globally. It also provides guidelines for policy design: patent laws should strike the right balance between the motivation to create new ideas, by giving some monopoly rights to developers, and the ability of others to use them, by limiting these rights in time and space.”
Although the two economists work separately, the prize committee awarded them jointly because, in the words of committee member Per Krusell, a Swedish macroeconomist, they are both thinking about “long-run, global” issues.
Taxes, regulations and even the science of climate change (and perhaps science generally) are currently far out of vogue politically in the U.S., but a carbon tax is broadly favored by business leaders. One idea advocated by the fossil fuel industry is a U.S. carbon tax with the proceeds refunded directly to taxpayers. The proposal has been met with suspicion by climate activists because it would also end the many lawsuits that have been (and likely will be) filed against the coal and oil industry for damages from climate change, eliminate regulations on the theory they are redundant and preclude government using the revenues for crucial R&D, infrastructure upgrades and everything else needed to adapt to higher oceans and extreme weather.
What does all this mean for entrepreneurs? Tough to say, though a few things are good to keep in mind, not least is that millennials are deeply concerned about climate change. It also seems increasingly clear that taxes are not invariably bad and that the market won't solve every problem, including most obviously those that are not profitable. On the other hand, there is considerable evidence that taxes and policies that treated climate change as an existential threat would create huge new industries and save trillions of dollars in avoided damages (to say nothing of social upheaval from forced migration). It might be that for entrepreneurs, climate change is more a question of what to do as a citizen than as a business person.