Saturday, August 22, 2015

Fiorina’s Climate Change Proposal

David Roberts brings us 4 minutes of Carly Fiorina lying to Katie Couric on the climate change issue. David does an admirable job of identifying and rebutting her 8 lies in just 4 minutes including this:
"The answer to this problem is innovation, not regulation". This is another recent Republican favorite — Jeb Bush has been testing it out as well. In practice, it typically means tax breaks for favored industries like natural gas and "clean coal." (If any Republican has a broader plan to spur clean-energy innovation, I haven't seen it.) Innovation is a big and arguably undervalued piece of the climate policy puzzle, but there is no credible analyst on the planet who thinks that it will be possible to reduce emissions enough, or fast enough, purely through subsidizing R&D. On its own, it simply isn't a credible answer. In reality, of course, it's not an either-or.
I would argue as long as fossil fuels do not pay their full social costs, the incentive to innovate is just not there. If we did internalize these costs through regulations, carbon taxes, or cap-and-trade, the incentive to adopt green technologies increases. Joshua Meltzer recently argued:
The article explains how U.S. climate change policy has begun to grasp this opportunity by supporting clean technology R&D using measures such as grants, subsidies, and low interest loans. Pricing carbon will complement these government policies and further drive green technology development. A price on carbon would also have a range of implications for clean technology innovation and international trade. For instance, a carbon price will lead to growing U.S. demand for green technologies to reduce CO2 emissions, which will incentivize greater levels of global R&D into such technologies. But to maximize the benefits to the United States and globally from the impact of a carbon price on R&D will require a complementary trade policy that lowers barriers to trade in climate change goods and services. At the same time, a carbon price will raise domestic concerns in the United States about carbon leakage and a loss of international competitiveness that is likely to lead to domestic pressure on the government to raise trade barriers on goods from countries not pricing carbon. Effectively managing the global impact from a U.S. carbon price on international trade will determine whether pricing carbon supports trade liberalization and drives greater levels of innovation and R&D or whether it becomes a reason for raising barriers to trade that reduce U.S. and global welfare.
Greg Mankiw favors carbon taxes but adds this bit of politics:
Skeptics of Pigovian taxes on the right sometimes argue that such taxes are good in principle but in practice the left will co-opt them and, rather than using the revenue to reduce other taxes, will use it to fund ever larger government.
He had to concede a rebuke from John Whitehead:
The standard textbook treatment of a Pigouvian tax is agnostic on what happens to the revenue. It could be used efficiently to finance other projects (if the benefits of these other projects exceed the costs), reduce distortionary taxes or reduce government debt (and avoid the macroeconomic problem of crowding out). Mankiw's last paragraph strays far from the economics and is one-sided in its condemnation of those on the political left ... know of no empirical evidence to suggest that there is only one efficient use for Pigouvian tax revenue.
John also threw in his version which included the snark:
And those on the right will need to convince those on the left that the tax is not a trojan horse for a tax cut for the rich.
After Mankiw’s update, John added more:
I'm no expert in practical politics. Indeed, I have no idea how I would advise a politician how to answer this Republican debate question: “I want to know if any of [the candidates] have received a word from God on what they should do and take care of first?” When a word from God is an important issue isn't it a little bit ridiculous to wonder what God would advise on Pigouvian tax revenue?
I have no expertise on how God would address the distributional issues but we now know how Jeb Bush and Carly Fiorina would – more income for the very rich!


Sandwichman said...

"I would argue as long as fossil fuels do not pay their full social costs, the incentive to innovate is just not there."

What if those "full social costs" are, in principle, incalculable? What is your "discount rate" for costs to future generations? Does that discount rate also apply to reparations for uncompensated past costs?

Wouldn't it be less equivocal to admit that "the incentive to innovate is just not there. Period."?

ProGrowthLiberal said...

Sandwichman makes some good points. The closing question is one that Robert Waldmann made over at Brad DeLong's place.