Climate Stabilization is Impossible so Let the Free Market Work

Environmental issues prove that Republicans are the worst thing to happen to the free market since Vladimir Lennin. Since they've abdicated any real economic arguments to play the political game, almost every environmental issue has become warped into what's been called the “New Ecological Paradigm” -- which frequently opposes technological progress, property rights, and individual freedom (Liere). The natural environment should be governed -- by prices -- but you can't trust a Republican politician to know that let alone deliver on it. There is a falsely-portrayed tension between the physical reality of global climate and laissez faire values and this comes mostly from the GOP’s near-complete rejection of climate data. GOP politicians correctly argue that energy markets will be disrupted by climate change “mitigation" (i.e. the belief that carbon emission reductions are the only possible or desirable approach).Yet both the GOP politicians and their pundits are generally unable to deploy the theory of the free market to show why “climate stabilization” is an impossible fantasy. Central planning to reduce the damages and extent of climate change would be less effective that allowing price to govern because climate change is already occuring and it is impossible to reliably model what effects it would have on the long-run economy, if any. In a longer version of the argument, I discussed these free market reasons to contest global warming policies given that climate change is real, anthropogenic, and a serious threat (potentially a global catastrophic risk). Conservatives and libertarians don't need to resort to so-called “climate denial.”

The first step in in a new perspective is to understand why -- even under ideal conditions -- an optimum carbon dioxide (CO2) level cannot be rationally dictated. As is, the environmental-political climate is poisoned by knowledge problems on both sides. Republicans completely sever the ideological connection between laissez-faire competition and technological progress by adhering to anti-scientific viewpoints. In reaction, Democrats felt an obligation to justify carbon mitigation which led to Energy Keynesianism with many subsidies and tax credits. Advancing liberalization in energy markets and throughout broader liberal society necessitates a new mentality in which the impossibility of global climate policy calculations is clearly and systematically explained.

At least four distinct premises must be true to justify the classical environmentalist case for some sort of carbon policies: (1) average global temperature is rising, (2) the rise in temperature is anthropogenic, (3) the CO2 level is reaching a tipping point, and (4) carbon austerity alone can prevent catastrophic damages. Different people can believe different combinations of these 4 premises. This results in widely varying environmental policy conclusions. Most American Progressives affirm all four. Many conservatives reject all four, although some accept premise (1) which rejecting (2). All four may be true but it would still be impossible to design a system where a given global temperature were legislated into reality.

Let's play make-believe with environmental institutions.

Imagine a super-national agency perfectly effective at instituting global carbon management. Call this the Global Carbon Authority -- GCA. For simplicity, assume that every country has voluntary become a party to GCA, has agreed to a global system of carbon trading permits, and the GCA will establish a supply of global CO2 “cap-and-trade” permits because they have the least daunting information requirements. With a cap and trade the number you decide is how much carbon to allow, which is simpler than deciding a tax targeting that amount. GCA starts off with an assumed benefit of the doubt vis-à-vis the laissez faire alternative (Palmer et al.).

The minimum task of GCA is threefold:

(1) Select an efficient, allowable stock of atmospheric CO2 (i.e. "What is the maximum amount of CO2 we will allow for safety/human health/environmental health, etc.?)

(2) Amortize the allowable number of CO2 permits across the 21st century

(3) Give the countries of companies of the world an “efficient” or “fair” share of the number of permits. Contrary to what mitigation advocates may assert in their typical oppositions to climate denial, this set of decisions is not based purely on scientific data.

In the imaginary construction of GCA’s flawless execution, a highly efficient green energy economy comes into being. GCA first calculates the present value of all climate change damages for all possible levels of atmospheric CO2 in the 21st century and discounts them at the market rate of interest. It performs numerous cost simulations for the global economy for the corresponding levels of cap-and-trade quotas given all amortization schemes under consideration. These calculations yield a total benefit function (where the cost of climate damages is the benefit to reducing the CO2 level) and a total cost function. Taking the derivatives of these and setting the atmospheric concentration from the benefit function equal to the cap-and-trade target in the cost function yields the globally efficient level of mitigation. We can just assume it's “a single mind” and works perfectly (Use of Knowledge).

Hayek asked that planners “seriously consider the practical aspects of [the] task” (Road to Serfdom, page 124). Even with all existing information, the marginal benefit function does not exist. Environmentalists themselves invoke the “uncertainty” of climate change as a primary motivator for a “precautionary principle” (Borsuk and Tomassini) -- which implies that do not know much about how areas will change nor by how much. Then, translating a statement like "Climate change will triple tornadoes in Kansas within 50 years at 550 ppm  of C02" into a statement like, "Climate change will cause $5 billion dollars per year in damage to Kansas within 50 years" is similarly unrealistic. These damage estimates rely on a number of unclear climate predictions and economic dynamism. Where will climate catastrophes strike? Once models of regional fluctuations are estimated, they would be further applied to predictions of economic change. The entire economy will be changing if climate change has noticeable impacts. What we want to invent will change, for example. The question of 'What will the value of destroyed assets be at given times and given places?' is basically unanswerable. For example, imagine that sea level has been gradually rising toward my beach-front property for 30 years. I will most likely have incurred significant property devaluation before then as part of the process of relocating the housing industry. There will be changes to the productivity of agriculture and new trade patterns and transportation pathways – even benefits such as a summer Northwest Passage (Business Green). In Catallactics of Warming, I further illustrated these complications by drawing attention to the longstanding debate between economists Robert Mendelsohn and Sir Nicholas Stern. Mendelsohn has aptly contended that the shape of the benefit function depends heavily on the degree of adaptability throughout the climate-sensitive industries (Commission on Growth). The infamous Stern Review produced calculations entirely silent on potential for adaptability (HM Treasury, UK). It assumed that farmers continue planting vulnerable crop species in spite of expected destruction. Consumers refused to engage in culinary substitution, and the world’s people took no actions to fortify themselves from intense heat waves and cold snaps (Mendelsohn, Cato). These researchers have produced valuations an order of magnitude apart - $2 trillion from Mendelsohn and $22 trillion from Stern.

If an efficient atmospheric carbon stock were selected, the challenge of amortizing carbon permits would intensify all of the above criticisms by internalizing dynamic modeling errors from both climatic and economic simulations. Official U.N. documents reflect an intention to control CO2 such that temperatures never rise by more than 2°C. This appears increasingly unrealistic given the present concentration at 400ppm and many amortization schemes would likely overshoot this goal (Geden). Recognizing this, environmental hysterics contend that drastic, immediate reductions are necessary to avert catastrophic Arctic methane bursts (AMEG). Whether this or other positive feedbacks are likely to be triggered would greatly influence the decision governing inter-temporal permit allocations. Yet models by Mendelson and William Nordhaus justify a “climate policy ramp” wherein mitigation begins at a low level and rises significantly after 2050. All sorts of macroeconomic data are required for these Dynamic Integrated Climate-Economy (DICE) models (Flemming).

GCA’s third decision, international distribution, is a political-economic disaster all its own. Were it not for the impossibility of agreement on the aforementioned calculations, the need to allocate carbon permits to the U.S. at the cost of allocations to China would eliminate the possibility of a GCA alone. Moreover, James Shakwati, the Kenyan libertarian economist, has scathingly opposed the climate regime on grounds that CO2 austerity delays inexpensive, fossil-fuel based development throughout the third world (Modern Ghana). Distribution concerns pertaining to indigenous peoples have fostered fierce distribution-based resentment between environmental groups themselves (Gibson). Even the existing, national carbon management regimes have bred international antagonism and created significant concerns of future environmental trade wars (Hufbauer and Reinsch). If the scale of climate planning were advanced to super-national preeminence, ensuing chaos could only result in greater dangers (Road to Serfdom, page 224).

Hayek’s objections to centralized decision making are as true in the context of climate planning as they were in opposition to the German “scientific planning” movement (Road to Serfdom, page 200). Given the political one-sidedness of climate policy debates, the notion that government must act to “stop” global warming has unfortunately become a generally accepted principle. With attention firmly fixated on scientific knowledge, environmentalists contend that the global scale of climate change requires concerted action from the world’s governments. This clamoring for a new “scientific organization” of society gains political support in absence of a viable demonstration of the inadequacies of central authority and calculation. This error comes from assuming that natural and social science decisions both need simple information from experiment. Mitigationists are often aware of the obstacles they face in international diplomacy. Even the most generous and dramatic simplification of the global climate decision by a central authority would not have adequate information.

Whether put in place by a GCA or the national governments, CO2 austerity is an insult to consumer sovereignty in both its demand management and production subsidy forms. Hayek would adamantly contest CO2 mitigation because while only controlling a portion of production the climate-economy planning state may indirectly control almost everything – especially when it begins with energy, the “master resource” (Road to Serfdom, page 103). Policy results would include not only impoverishment and antagonism but also a slowing of individuals’ natural inclinations to adapt when signaled by the price mechanism. In other words, if government mitigates CO2, leading to the belief that climate change has been dealt with, producers and consumers will be less on-the-lookout for ways to shield their assets and opportunities from climate disruptions. The exact consequences of this have been addressed extensively in other works (Ben-Ami). Toward furthering the case for so-called “free market environmentalism,” economists should strive to show that individuals and firms have information and incentives to adapt to different climatic situation. The necessary changes, such as sea walls, must not be disallowed by economic planners. The appropriate climate management strategy is to let prices change for both consumption and production goods while allowing geoengineering technologies to come online if deemed efficient by actuarial calculations.

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Related Works

Ben-Ami, Daniel. Ferraris For All: In Defence of Economic Progress. Bristol: The Policy Press, 2010. Print.

Borsuk, ME, and L. Tomassini. “Uncertainty, imprecision, and the precautionary principle in climate change assessment.” Water Science Technology 52.6 (2005): 213-25. Print.

Bradbury, Danny. “Climate Change Opens Up Northwest Passage to Commercial Shipping.” Business Green Oct. 2013: n. pag. BBusiness Green. Web. 13 Oct. 2013. <http://www.businessgreen.com/bg/news/2297739/climate-change-opens-up-northwest-passage-to-commercial-shipping>.

Flemming, James. Fixing the Sky: The Checkered History of Weather and Climate      Control . N.p.: Columbia Studies in International and Global History, 2012.      Print.

Geden, Oliver. “Warming World: It’s Time to Give Up the 2 Degree Target.”      Spiegel Online. Der

Spiegel, 7 June 2013. Web. 14 Sept. 2013.      <http://www.spiegel.de/international/world/      climate-change-target-of-two-degrees-celsius-needs-revision-a-904219.html>.

Gibson, Shannon. “Transnational Environmental Activism: The Rise of Radical Environmentalism Against Climate Change, 1995-2010.” Dissertation in International Studies - University of Miami (2011): n. pag. Print.

Gordon, Richard L. “Hicks, Hayek, Hotelling, Hubbert, and Hysteria.” The Energy Journal 30.2 (2009): 1-15. Print.

Hayek, Friedrich August. The Road to Serfdom. London: University of Chicago      Press, 2007. Print.

Hayek, F.A. “The Use of Knowledge in Society.” Online Library of Liberty. Liberty Fund, 6 Jan. 2009. Web. 13 Oct. 2013. <http://oll.libertyfund.org/title/92>.

Hernandez, Sean J. “On the Catallactic of Global Warming and Environmental Futurism.” SDAEonline. Society for the Development of Austrian Economics, 15 Sept. 2013. Web. 13 Oct. 2013. <http://www.sdaeonline.org/wp-content/uploads/2013/09/Hernandez-Global-Warming.pdf>.

Hufbauer, Gary, and William Reinsch. "Climate Change: Competitiveness Concerns and Prospects for Engaging Developing Countries." Statement before the House Committee on Energy & Commerce Subcommittee on Energy & Air Quality:  n. pag. National Foreign Trade Council. Web. 24 Apr. 2012.  <http://www.nftc.org/default/Press%20Release/2008/ClimateTestimony.pdf>.

Liere, Kent D. (04/01/1983). “Cognitive Integration of Social and Environmental Beliefs”. Sociological inquiry (0038-0245), 53 (2-3), p. 333.

Mendelsohn, Robert. “Climate Change and Economic Growth.” Commission on Growth      and Development Working Paper No. 60 (2009): n. pag. Print.

Mendelsohn, Robert. “A Critique of the Stern Report.” Cato Institute Jan (2007): n. pag. Print.

Palmer, Karen, and Dallas Burtraw. “Cost Effectiveness of Renewable Electricity      Polices.” Energy

Economics 27 (Nov. 2005): 873-894. Science Direct. Web. 22      Apr. 2012.

Shikwati, James. “Climate Change Eschatology Confusing for Poor Nations.”      Modern Ghana. N.p., 18 Dec. 2009. Web. 9 Sept. 2013.

Stern, Nicholas. “Stern Review on the Economics of Climate Change.” HM Treasury.      UK Natinal Archives, 30 Oct. 2006. Web. 22 Apr. 2012.      <http://webarchive.nationalarchives.gov.uk/+/http:/www.hm-treasury.gov.uk/      sternreview_index.htm>.

“Why Emergency.” AMEG. Arctic Methane Emergency Group, n.d. Web. 13 Oct. 2013. <http://ameg.me/index.php/emergency>.