Environmental Econ 101: Krugman Explains How Economics Can Save the World


Photo via Onearth

Simply put, Paul Krugman's piece in the upcoming New York Times magazine, Building a Green Economy, is a must-read. I know that yesterday I exhorted everyone to read Kolbert's brief synopsis if you were only going to read one piece on climate issues. But I must retract that statement. You must read two--Krugman's article, though vaguely titled, is by far the most readable, comprehensive look at the economic solutions to the climate issue you're going to find. And though you really, really must read the piece (yes it's long, but nonetheless), I've compiled a few of its pithier truth-blasts here.And just what is a truth-blast, one might ask? Here's one:

The casual reader might have the impression that there are real doubts about whether emissions can be reduced without inflicting severe damage on the economy. In fact, once you filter out the noise generated by special-interest groups, you discover that there is widespread agreement among environmental economists that a market-based program to deal with the threat of climate change -- one that limits carbon emissions by putting a price on them -- can achieve large results at modest, though not trivial, cost.
As one of the nation's preeminent economists, he should know . . . Also, replace the same goes for climate science itself--once you factor out the noise, there are few real doubts about that either . . .

Another point that should seem obvious: "economic activities that impose unrequited costs on other people should not always be banned, but they should be discouraged. And the right way to curb an activity, in most cases, is to put a price on it." Read, a factory dumping toxins into a river where people get their drinking water, or a coal plant whose pollution emissions cause nearby residents to get asthma.

And here's an interesting take on free market advocates' odd opposition to pricing carbon:

this extreme pessimism about the economy's ability to live with cap and trade -- is very much at odds with typical conservative rhetoric. After all, modern conservatives express a deep, almost mystical confidence in the effectiveness of market incentives -- Ronald Reagan liked to talk about the "magic of the marketplace." They believe that the capitalist system can deal with all kinds of limitations, that technology, say, can easily overcome any constraints on growth posed by limited reserves of oil or other natural resources. And yet now they submit that this same private sector is utterly incapable of coping with a limit on overall emissions, even though such a cap would, from the private sector's point of view, operate very much like a limited supply of a resource, like land.

Which leads to this compelling point:

And in general, what the models do not and cannot take into account is creativity; surely, faced with an economy in which there are big monetary payoffs for reducing greenhouse-gas emissions, the private sector will come up with ways to limit emissions that are not yet in any model.
And here, finally, I'll leave you with this:
The truth is that there is no credible research suggesting that taking strong action on climate change is beyond the economy's capacity. Even if you do not fully trust the models -- and you shouldn't -- history and logic both suggest that the models are overestimating, not underestimating, the costs of climate action. We can afford to do something about climate change.
But do go read the whole thing if you're keen to understand the feasible ways to solve climate change with economic incentives--and let's be honest here. If we do manage to get our act together to confront climate change, the solution is going to involve pricing carbon.

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