Is climate change government-made? For some years, I have been saying to my colleagues that climate change is real. Nonetheless, I am not an alarmist and I do not believe that stating that there is a problem is a blank cheque for any policy. Unlike many of my colleagues who believe that climate change is “anthropogenic”, I argue that it is “statogenic” in the sense that government policies over the last few decades basically amplified the problem.
Obviously, there is a social cost to pollution – an externality not embedded in the price system. On that basis, many have proposed the need for a carbon tax to “internalize the externality”. The logic is that anything that brings the “market price” closer to the “social cost” is an improvement.
Rarely do they consider the possibility that governments have “pushed” the market price away from the “social cost” (Note: I really hate that term as it has been subverted to mean more than what economists use it for). Consider the example of road pricing. In my part of Canada (Quebec), road pricing was eliminated in the 1970s. By eliminating road pricing, the government incentivized the greater use of vehicles and, basically, the greater burning of fossil fuels. Thus, by definition, the return of road pricing would bring the market price and the social cost closer together (and it might do so more efficiently than a carbon tax). Thus, there can be “statogenic” climate change because governments encourage indirectly the greater use of fossil fuels.
How big is that “statogenic” climate change? I think it is pretty “yuge.” For the last few months, I have been involved in a research project with Joanna Szurmak and Pierre Desrochers of the University of Toronto regarding environmental indicators in the debates between Paul Ehrlich and Julian Simon (see Joanna’s podcast with Garrett Petersen here at Economics Detective Radio). In that paper, we mention the fact that roughly a quarter of the world consumption of fossil fuels is subsidized directly or indirectly (through price controls setting local prices below world prices). That is a large share of total consumption and, according to an OECD paper, 14% of the effort needed to attain the most ambitious climate change mitigation plan could be made by eliminating those subsidies.
Now imagine that estimate was made in 2011. These policies have existed since the 1970s! One paper from the World Bank from the 1990s argued that eliminating them back in the 1980s would have reduced greenhouse gas emissions by 5% to 9%. Imagine a level lower by 9% (just for the sake of illustration) and imagine that the growth rate of greenhouse gases would have been reduced by 9% as well. Using CAIT data, we can see how this oversimplified scenario (which is by no means a general equilibrium scenario – which is the only way to measure the overall lower levels) means in terms of lower levels of GHGs. Relative to the observed data, a 9% drop back in 1990 with a 9% reduction in the growth rate of GHGs mean that the level of GHGs in 2012 in a world without subsidies would have been more than 12% lower relative to what they were in a world of subsidies.
Again, this is an oversimplification. However, it works against my claim. The use of sophisticated methods is likely to yield much larger differences over time. Think about it for a second – alone the policy of fossil fuel subsidies explains a lot even with the oversimplification. Now, imagine adding the fact that many countries do not practice road pricing; that some countries tax the resale of used goods forcing the production of more goods; that they discourage construction in urban environments forcing a greater population sprawl; that trade barriers in agriculture prevent us from concentrating production where it is the most efficient; and the list goes on!
When people say “anthropogenic” climate change, I hear “incentives-driven” climate change or “statogenic.”