Warming Without Regrets: A Free-Market Approach To Uncertainty And Climate Change

Warming Without Regrets: A Free-Market Approach To Uncertainty And Climate Change

On Point No. 13
August 04, 1998

Vice President Al Gore proclaims that "people are sweltering," recent hot spells demonstrate that human-induced global warming is here, and the world must adopt an international global warming treaty to reduce emissions. The Clinton Administration and environmental activists demand urgent action.

Despite Gore’s pronouncements, the scientific jury is still out on whether global warming is a serious threat. And the remedies called for – massive restrictions on energy use – would be damaging to the economy, our environment, and the quality of our lives. It is true that economic growth and technological advance can pose environmental risks, but economic stagnation is hardly a safer course. Adopting regulatory controls to achieve the emission reductions in the Kyoto Protocol could cost as much as 2 percent of GDP, nearly doubling the annual cost of complying with all current federal environmental laws. Equally important, environmental regulations and other government interventions suppress economic growth and technological innovation, forestalling developments that will lead to a healthier and cleaner world.

Fortunately, there is an alternative. Rather than creating new government programs and restrictions on energy use, we should eliminate government interventions in the marketplace that obstruct emission reductions and discourage the adoption of cleaner technologies. Such an approach would provide economic and environmental benefits whether or not climate change is serious threat. In other words, while fear of global warming may prompt the enactment of these reforms, they merit implementation regardless of whether global warming is upon us. A free-market policy could include the following elements:

Removal of Barriers to Innovation. In competitive markets, companies and entrepreneurs are constantly seeking to reduce their costs. Energy use is a cost of production. Unfortunately, environmental regulations are often a substantial barrier to energy-saving innovation in the marketplace. As a recent study by the Environmental Law Institute concluded, "technology-based emission limits and discharge standards, which are embedded in most of our pollution laws, play a key role in discouraging innovation." Once a technology is anointed as the preferred pollution control method, there is substantially less incentive to introduce newer technologies, even if they would improve environmental performance.

Indeed, environmental laws such as the Clean Air Act explicitly target newer emission sources, effectively grandfathering older technologies. The result is that older, more-polluting facilities stay in operation for longer periods of time, increasing overall emissions. These problems are compounded by the substantial paperwork and uncertainty that is inherent in the permitting processes mandated under various environmental statutes. For instance, as the ELI report noted, "[t]he permitting process [under the Clean Air Act] can also discourage innovation by making the approval process for new technologies lengthier, more cumbersome, and less certain than for conventional approaches."

Environmental regulations are not the only barriers to emission-reducing innovations. For instance, allowing more direct flight patterns can substantially reduce the amount of energy required for air travel. Lessening the administrative burdens and delays in the introduction of transgenic crops can reduce agricultural chemical and fertilizer use, thereby lowering energy use and the consequent emissions as well.

2. Elimination of Energy Subsidies. While the Vice President and environmentalists rail against the use of fossil fuels, the federal government continually spends tens of millions of dollars every year subsidizing the use of fossil fuels. For instance, in fiscal year 1997, fossil energy research and development at the Department of Energy received $365 million. The Clean Coal Technology Program (CCTP), which subsidizes additional coal-related research has cost taxpayers approximately $1.5 billion since its inception (although it spent only $12 million in fiscal 1997).

Even worse, while costing taxpayers dearly, these programs produce minimal benefits. They should be abolished. The potential threat of global warming, whether it is real or not, is simply one more reason to remove this burden on taxpayers. Eliminating these subsidies makes economic sense, and would contribute to a "no regrets" approach to global warming.

3. Deregulation of electricity markets. Environmental groups consistently maintain that alternative energy sources are ready to compete in an open marketplace; deregulation will give them that chance. Indeed, in deregulated markets, alternative energy sources may well benefit from the willingness of many consumers to pay a slight premium for low-emission fuels sources. Companies such as Green Mountain Energy Resources and Enron are already offering consumers such a choice. Moreover, the opportunity to compete with more traditional fuel sources will spur greater investment in the development and marketing of alternative energy sources that are currently constrained in their ability to compete.

The Environmental Protection Agency and some environmental groups fear the deregulation of energy markets will increase the consumption of coal, thereby increasing greenhouse gas emissions. However, there are good reasons to believe that the long-term result of deregulation would instead be a greater reliance on natural gas-fired turbines and cogeneration systems. Natural gas is not only an increasingly cost-competitive source of energy, it produces substantially fewer greenhouse gas emissions than other fossil fuels.

The Safest Course. Regardless of whether global warming is a serious threat, the safest course is to reduce barriers to technological innovation and the adoption of cleaner technologies. Such strategy will reduce the threat of human-induced climate change while spurring technological innovation and economic development. This is the best insurance policy to an uncertain future.

_______________Jonathan H. Adler (jadler@cei.org) is Director of Environmental Studies at CEI.


1See, e.g., Richard Kerr, "Greenhouse Forecasting Still Cloudy," Science, May 16, 1997; Roy Spencer, "The State of Climate Science," inThe Costs of Kyoto: Climate Change Policy and Its Implications, J. Adler, ed. (Washington, D.C.: CEI, 1997).2Barriers to Environmental Technology Innovation and Use (Washington, D.C.: Environmental Law Institute, January 1998), p. 6.3Barriers to Environmental Technology, p. 9.