Why 3508 Economists Are Probably Wrong About Climate Change

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In the latest issue of the Brooklyn Rail, political scientist José A. Tapia reflects on a statement published in the Wall Street Journal a few months ago and signed by 3508 prominent economists. The statement acknowledges that climate change is a “serious problem” and calls for the implementation of a carbon tax to correct “a well-known market failure” and harness “the invisible hand of the marketplace to steer economic actors towards a low-carbon future.” Tapia notes that by the low standards of the economics profession, this is a bold statement. But he goes on to argue that the carbon-tax scheme called for here wouldn’t work in the way these economists imagine, mainly because of the effect the tax would have on that sacred measure, “economic growth.” Here’s an excerpt:

Leaving aside the merits of the proposal or the prospects that it will be implemented in the near future, it seems to me these economists are likely to be mistaken in one aspect of their statement. The economists say that a “sufficiently robust and gradually rising carbon tax” not only will replace the need for less-efficient carbon regulations but “will promote economic growth.” In my view, this is very likely, wrong. Let me explain why.

“Economic growth” refers to the growth of gross domestic product, GDP, a number that measures the aggregate economic activity in money units. Since data has been available, CO2 emissions and GDP have been strongly linked, both in each country and in the global economy. Overall emissions tend to follow GDP very closely: when GDP rises emissions are generally higher and when GDP decreases during recessions, emissions decline. Though the correlation is not absolute, the link is very strong and observable in the data of past decades for basically all countries and the world economy. There are indeed a few countries in which emissions have declined at the same time that GDP has increased, for specific reasons such as deindustrialization or nuclearization, but these nations are exceptions that prove the rule. Because of this strong link, it seems quite clear that something that shrinks emissions will also shrink GDP.

Image via Wall Street Journal.

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This comment seems to get the correlation the wrong way. “[E]missions tend to follow GDP very closely[.]” – That implies that an increase in GDP – for shorthand, an increase in production of value – involves the use of more fossil fuel energy. Obviously, this can be a result of production but also of consumption practices. More generally, it can be the result of value circulating through the system and emerging in carbon based lifestyles. Carbon emissions are not clearly the driver here. They are the results, it would seem, of increased production using carbon based energy and of increased usage in carbon based lifestyles.

What the comment should point to is the need to join carbon taxes to alternative energy production and to dismantling carbon based lifestyles, piece by piece. Then it might be possible that drawing down carbon based energy use could be detached from carbon based growth in value circulating through an economy.

So the economists might be faulted in not providing a full picture, but the piece they do advocate is not useless and it is important not to derail important attempts to regulate the economy. Doing so will take a lot of work, and we need, pragmatically, to get started – provided we do not lose sight of all the other things that need dismantling and reconstructing and changing.