Let free enterprise solve climate change (with the accountability that only government can provide)

Conservatives can dramatically improve President Biden’s climate infrastructure package. By supplying the border-adjustable, carbon-pricing mechanism we can fulfill America’s destiny as the indispensable nation in solving climate change. Roads and bridges and charging stations are great, and the focus on environmental justice is crucial. What’s needed is a larger, worldwide vision that harnesses the power of free enterprise.

Climate change is a worldwide problem of economics that has environmental consequences. The problem is that we don’t see the whole cost of the burning of fossil fuels. Those costs aren’t reflected in the price of the things that we buy. Rather, those costs are “externalized” away from those products and dumped on neighbors near and far.

If we fix the economics through a border-adjustable carbon tax, we can fix the problem worldwide. If we limit our ambition to domestic policies, we’ll improve local air quality, but we won’t be solving the global challenge of climate change.

So far, it looks like Biden is thinking globally and acting locally. That’s the mantra we’ve all learned, but climate change turns it on its head. To solve climate change, we’ve got to act globally and think locally. Conservatives can be the ones who come forward with the worldwide, economy-wide answer. We can help get this right before big government gets it wrong.

There are three ways to address climate change: regulate emissions, incentivize new technology, or price-in the negative effects of the burning of fossil fuels.

Regulations

Conservatives aren’t so big on the expansion of the regulatory state. Even if that weren’t our orientation, we’d see the obvious limit of the regulatory approach. It’s American-only. We can’t regulate emissions in China. Worse, if we regulate here and they don’t regulate there, regulated firms will pick up and move there. Once there, they’ll emit more than they’re emitting here because America is more energy efficient than those non-regulating countries. This leakage problem may make the regulatory answer worse than doing nothing. Of course, it’s possible that those non-regulating countries would respond to our moral signaling, but that has yet to work for us on basic things like human rights. Why would it work on climate?

Incentives

Incentives for clean energy are attractive to politicians on the right and on the left. Tax expenditures (credits, exemptions and deductions) are always easier to support than direct expenditures (appropriations) even though they both produce similar budget deficits. Unfortunately, incentives carry the same American-only weakness as regulations because our American tax incentives don’t apply abroad. Proponents counter that incentives can kick-start new technologies, and that’s true, especially where there’s a mass market for a product like cell phones. But in smaller markets — for something like power production equipment — the cost may remain too high for worldwide penetration. As a result, incentives may help us clean up local air without delivering a worldwide climate solution.

Pricing

Climate impacts can be priced into products by taxing carbon dioxide at the mine and at the pipeline. This accountability would cause sooty energy to lose out to solar, wind, hydro and nuclear power and better batteries — not because government favored them, but because consumers begin to see that the cleaner fuels are actually cheaper when all of the costs are considered. Let the liberty of enlightened self-interest and good economics drive innovation — not fickle tax incentives, clumsy mandates or intrusive regulations. Redress the harm that would be done to poor people in the regressivity of a carbon tax by reducing payroll taxes or by a dividend of all of the carbon tax revenue back to the citizenry. Apply the tax to imports coming from countries that don’t have the same price on carbon dioxide. Win China’s challenge to that border adjustment by appealing to precedents in the chemical industry that permit the application of content taxes. Use the prize of access to the American market to make it in the interest of our trading partners to follow our lead. Dispense with the need for complicated international agreements and bowing and scraping at the United Nations.

The pricing solution places a great deal of faith in the free enterprise system, and not everyone shares that faith. It must be admitted, though, that free enterprise and government, acting in concert, have produced amazing results. The development of the coronavirus vaccine in record time is an example. The development of the internet and the PC is an example. Let’s make consumer-driven clean energy the next example.

Inglis represented South Carolina’s 4th District as a Republican from 1993-1999 and again from 2005-2011. He directs republicEn.org, one of the growing number of ecoRight organizations that care about climate change.