In his latest book, William Nordhaus of Yale University gives the reader a tour of everything that matters to him about climate change. It is the sort of book for which it is better to read a review than to read the full thing yourself. It is full of abstract charts, and sometimes reads more like a textbook than a work of nonfiction (he invites the reader to “suppose that” about 30 times). That said, it is an important contribution from one of the world’s most accomplished climate-change economists.
The book is, in part, based on the lecture that Nordhaus gave when he co-won the Nobel Prize in Economics in 2018.1 So what he says matters. In it he takes the reader through the history of environmental economics, making a clear argument for what he thinks needs to happen to stop global warming in its tracks.
He opens with a brief but interesting history of sustainability. Environmentalism, as we know it today, was born in the 1800s. The ideas of people like Gifford Pinchot, though, “attracted limited attention” until after the Second World War. It was a book by a conservation biologist, Rachel Carson, in 1962, which changed all that. Silent Spring outlined the problems faced by societies which relied heavily on chemicals such as DDT. President Kennedy loved it; companies threatened to sue to prevent the book’s publication.
Nordhaus traces this history to the present day. Though there is more interest in sustainability now than in the past, he seems to believe that thinking about it remains just as flawed. Nordhaus is critical of many of the proposed solutions to the climate crisis. In particular, he seems unconvinced about the role that private companies can play, in two ways.
One is technology. He seems sceptical that progress on sustainability innovations such as wind and solar power will be fast enough to decarbonise the economy any time soon. While “miraculous technological breakthroughs might conceivably be discovered that can reduce the costs [of reducing CO2] dramatically, experts do not see them arriving in the near future,” he says. But is that true? To put it mildly, the world already has many of the technologies needed to make a net-zero transition. And how can we expect a net-zero world without net-zero technologies?
A second problem, as he sees it, are the attempts by private companies to deal with global warming themselves. In an interview with the Washington Post about his book, he argued that “the movement to have companies measure and disclose their emissions is just an enormous waste of time.”2 This effort, he says, “takes away valuable analyst time from other more fruitful activities such as pricing fossil fuels at the proper social costs.”3 Another way of viewing it, though, is that large companies have the scale and global reach to effect serious sustainability advances. Carbon is also a serious investment risk.
What does he propose instead? Nordhaus is a big fan of a carbon price (or a carbon tax), whereby people and companies would be charged for the right to burn fossil fuels. Green taxes are, he says, “one of the most promising innovations of recent years.” Researchers have worked on models suggesting that a carbon price of around $40 a tonne would help limit global warming to around 3 degrees Celsius above pre-industrial levels. More ambitious targets would require a higher tax. The current effective global carbon tax is around $2-3 a tonne.4 Countries such as Russia and America do not have one at all (though many American states do).
Carbon taxes would indeed be useful. The big question is how they would work. A global carbon tax is necessary, of course, and all countries would need to abide by it. But it is always tempting for one country to “free-ride” on the efforts of others, failing to cut its emissions or enforce a tax even as it benefits from a more sustainable climate.
To prevent free-riding and enforce good behaviour, Nordhaus proposes a “compact of nations.” He imagines something along the lines of the World Trade Organisation (WTO), which, he says, has been a “success” in enforcing global trading norms.
And here lies the problem. It seems inconsistent to criticise the efforts of private enterprise for being unrealistic, and then to suggest that governments can be persuaded to decarbonise by a WTO-like organisation. Many economists believe that the WTO does not work very well at all; countries are constantly violating its terms and getting into scrapes with one another over trade policy. Moreover, when president, Donald Trump nearly destroyed the organisation. With climate change, with so much more at stake, why would it be any better?
The right approach seems to be embracing all solutions. It is not enough to rely on government action, as useful as that can undoubtedly be. In addition, the world needs the efforts of private companies, both in terms of developing technologies and instilling better norms in how they do business. The world, in sum, needs to pull out all the stops.
- It is not clear how a carbon tax, Nordhaus’s preferred solution, might be imposed if companies were not practised in reporting their emissions.