Whether you think it will stop climate change, reverse the acidification of the ocean, or help nations achieve energy independence, the political momentum to raise the price of fossil fuel appears unstoppable.
With that as a given, then, the current debate should focus on what mechanism should be used, how much the price should be raised, and how the resulting funds should be allocated—all of which boil down to choices between practical environmentalism and emotional environmentalism, head vs. heart.
If we’re to adhere to Nobel laureate Al Gore’s “pledge,” for example, we must stop burning coal within 20 years — this despite the fact that coal is the cheapest and most abundant fossil fuel on Earth, that nearly 25% of all energy produced on the planet comes from coal, and that the U.S. Energy Information Administration predicts coal’s use will increase by 74% between now and 2030 (mostly in countries like China, which will do whatever their economic interests dictate, despite anything the IPCC has to say about the matter). It would take huge price increases to price coal out of existence within 20 years, and it would require the cooperation of every major nation on earth—tough challenges.
That’s why trying to precipitously phase out coal rather than simply clean the emissions from it while making an orderly transition to alternative fuels represents a policy agenda that’s deeply flawed. Accept for a moment that anthropogenic CO2 is the cause of global warming and that global warming is going to become a serious problem for humanity. If these assumptions are true, there’s little we can do at this point. As Rajendra Pachauri, chairman of the IPCC, has said, “The inertia of the system that we have is such that climate change would continue for decades and centuries even if we were to stabilize the concentrations that are causing this problem today, which means that adaptation is inevitable.”
So think about this instead: If the funds collected through taxes and carbon offset payments assessed on CO2 emissions were used to adapt to the effects of global warming rather than to attempt to eliminate global warming altogether, the amount spent would equal a fraction of what it would cost to halt global warming. The Danish economist Bjorn Lomborg in his 2007 book Cool It: The Skeptical Environmentalist’s Guide to Global Warming calculated the costs of mitigating global warming and came up with a premise that’s hard to challenge: Pouring money collected from a carbon tax into the development of the economies of the equatorial nations would make these nations wealthier—and in turn enable them to afford to mitigate the negative impacts of global warming.
High-tech entrepreneurs who are hoping to fund their companies through carbon taxes now have a vested interest in global warming—and suddenly public policy rather than product superiority has become the key to success. These entrepreneurs, after all, don’t stand to benefit if policymakers determine that a tax of just $2 per ton of carbon will fund economic development throughout the world and enable everyone, everywhere to adapt to global warming. These high-tech entrepreneurs should remember their roots: Silicon Valley did not change the world by fomenting or condoning irrational panic and feeding at the tax trough; it did so by innovating and providing superior products that responded to real customer needs.
Another issue to debate as we contemplate raising the price of energy is whether the source of that increase should take the form of a tax or be based on a “cap and trade” mechanism. With cap and trade, energy producers that emit CO2 are required to spend a designated amount per ton to finance projects that facilitate CO2 absorption. This means that if you were to operate a coal-fired power station, for example, you’d pay to plant hundreds of square miles of forest. But there are huge problems with cap and trade: As it turns out, exactly what constitutes a CO2 “offset” is grossly subjective. European CO2 offset credits, for example, created a market for biofuel imported from the tropics that in turn unleashed a devastating wave of ongoing rainforest destruction to grow oil palms and other fuel crops. Tropical deforestation to grow biofuel is a global catastrophe and has probably contributed as much to climate change as CO2 from fossil fuels ever will.
Environmentalism is multifaceted: There’s what one might call practical environmentalism, which supports policies designed to eliminate pollution and other toxic hazards as well as to preserve and protect reasonable amounts of wilderness and endangered species, and then there’s emotional environmentalism. Occupying the latter category are many of today’s environmentalists. Overly driven by ideology and emotion, they’re well meaning but fanatical, and they engage in an unwittingly cynical and synergistic dance with all kinds of powerful forces with hidden agendas.
To wit: Restricting energy production enriches the cartels that produce and sell most energy (since prices and profits go up). Declaring nearly all land to be protected “open space” makes housing prices skyrocket (thereby raising property taxes and building fees, and enriching public sector entities). And cap-and-trade schemes enrich not only traders on Wall Street but also every private company (or cash-strapped public entity) who can sell (to public sector regulators and environmentalist nonprofits tasked with vetting these plans) a project to produce an “offset” and collect a fee.
Environmental organizations enjoy tax-free status. They also employ litigious attorneys who tie economic development and private entrepreneurship up in knots: For these folks, the growing alarm over global warming represents the best financial windfall they’ve ever witnessed. Environmentalism, as we’ve seen, delivers huge benefits. But when it goes too far—as it often does—the costs are staggering.
Green-tech entrepreneurs need to decide what version of environmentalism they want to believe in—practical or emotional, market driven or government mandated. Hopefully they’ll embrace the same rules that made the Silicon Valley great, winning in the competitive market with solutions people choose to buy, and not through lobbying, litigation, and government subsidies. If rationality and market competition are left intact, the global economy and the global environment will both be better off as we manage the transition to clean and renewable energy.