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How to Think about Climate Policy
Photo by Markus Spiske / Unsplash

How to Think about Climate Policy

Conservative attitudes on climate change are shifting, but both parties are in a rut when it comes to optimizing public policy for cleaner energy. Francis Fukuyama's latest.

Francis Fukuyama

Attitudes towards climate change are shifting, but they are still stuck in some old ruts, and not moving fast enough.

On the right, climate skepticism is disappearing amid rising temperatures, out-of-control wildfires, and melting glaciers. Donald Trump said that climate change was a hoax, and pulled the United States out of the Paris Agreement. This attitude is still prevalent in MAGA world, where concern about global warming is seen as a manifestation of intolerable wokeness. But, as you may have noticed, Trump and his wing of the Republican Party are in decline and (hopefully) unlikely to set the agenda for the future.

The shift in attitudes on the moderate right was exemplified by New York Times columnist Bret Stephens, who, after being taken on a tour of Greenland, admitted that warming was a colossal reality. The subhead of the piece was, however, that markets rather than governments should be the main way we deal with the problem.___STEADY_PAYWALL___

This strikes me as a fallback position by which he can defend his conservative credentials while conceding the underlying reality, a bit like the Germans slowly retreating from Stalingrad during World War II. Other conservative friends of mine will admit carbon emissions are a problem, but they will immediately jump to promoting nuclear power, or point to intermittency and storage problems, or complain about the gaming of subsidies, or simply change the subject because it’s not anywhere near the top of their priorities.

Many conservatives are surprised to learn that alternative energy already comprises more than 20 percent of total electricity supply in the United States, and is rapidly rising. Yes, this process was aided by government subsidies, but the real driver of this trend has indeed been market forces. Wind and solar power have been walking down a cost curve very rapidly, and are now highly competitive with fossil fuels as new marginal sources of electricity. As I mentioned in my last post, Texas and Oklahoma—both centers of the American oil industry—host gigantic wind farms built with private money.

So conservative attitudes are changing, but they are not changing fast enough.

The progressive narrative on climate change is also stuck in some old ruts. The vast majority of writing on climate change remains what I would label mobilizational: it is meant to scare people about the reality of climate change and what it will mean for them and their children. Some of this literature was highly apocalyptic, predicting the end of the human species later in the century as climate warmed some 4-5 degrees Celsius. As David Wallace-Wells of the New York Times has written, this narrative has been undercut by actual improvements in renewables and energy efficiency. Many experts now expect that warming can be held to a range of 2-3 degrees with proper policies in place. This will still produce catastrophic results, but it will not be a species-ending outcome.

The bigger failure on the progressive side is its failure to think realistically about solutions and how to implement them. The biggest obstacles to climate mitigation are only partly technological, but much more about incentives and the political economy of policy implementation. And yet, the vast bulk of talk about climate governance issues centers around international agreements like the COP (Conference of the Parties) process that held its last COP27 meeting in Sharm el-Sheik, Egypt, last year.

The initial focus on international agreements was understandable. Mitigating carbon emissions is a wicked problem because it imposes high upfront costs to the nation implementing change and delivers dispersed and delayed benefits that accrue to everyone else. There is a huge free rider problem here, and failure to act on a national level can always be blamed on some other country’s inaction. International agreements were meant to reliably commit parties to mutual implementation. There were also issues of “climate justice,” where rich countries were asked to fund the mitigation and adaptation costs faced by poor ones.

At this point, it is safe to say that the COP process has failed. It may have had some positive effect in raising consciousness about the reality of climate change, but the pledges made at the COP meetings have been regularly violated. The most recent round of pledges on carbon neutrality are projected 20, 30, 40 years into the future, when no living politician can be held accountable. Nor has there been any substantial transfer of wealth between rich and poor on account of climate.

The real obstacles to mitigation lie at a national level, where governments have to trade off short-term costs against long-term interests like jobs and economic growth. There are two separate problems here: first, how do you convince voters (or governments, in authoritarian countries) to prioritize emissions reductions over other social goods, and second, how do you actually implement a decision once taken?

With regard to the first issue, some learning has taken place. There seems to be general recognition that punitive policies to reduce emissions don’t generally work.  This is why cap-and-trade was implemented in Europe and in US states like California in preference to the economists’ favorite carbon tax solution. Last year’s Inflation Reduction Act, the first major piece of climate legislation passed in the United States, follows this logic by providing only positive incentives for doing the right thing rather than new taxes or penalties for wrong behavior. This makes both economic and moral sense: emissions reductions provide a public good while imposing private costs; those costs ought to be compensated by the public sector.

This is why Bret Stephens' fallback position of relying primarily on market forces won’t work in the end. As noted earlier, market forces are playing a huge role today in the energy transition. It is private companies that are innovating and building new infrastructure at scale. But they need to be helped along by governments that understand the public goods nature of the transition, governments that are willing to subsidize R&D and help companies and individuals to move more quickly down the cost curve.

In a subsequent piece, I’ll talk about the second issue, which is implementation of policies once they have been decided on.

ClimateEnvironmentEuropeUnited StatesFrankly Fukuyama