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Climate economists are coming around to the idea that a carbon tax isn't enough

"What's that out there? It looks like ... a world!"
"What's that out there? It looks like ... a world!"
(Shutterstock)

The journal Nature has published a new commentary from a set of six (mostly) economists, called "Push renewables to spur carbon pricing." It is notable not so much for the argument it makes as for the wider changes it augurs.

The argument goes something like this:

  1. Carbon pricing is key to any serious, comprehensive effort to address climate change.
  2. It is politically difficult to implement carbon pricing — especially to implement a price as high as what's needed. (No extant carbon pricing system has a high enough price.)
  3. The declining cost of renewable energy, which has been accelerated by policy, lowers political barriers and makes carbon pricing an easier political lift.
  4. Therefore, economists and other fans of carbon pricing ought to support policies that further accelerate the deployment of renewable energy. (The piece mentions time-of-use pricing for utilities, modernizing grids, the Clean Power Plan, various renewable energy subsidies, and more.)

When I first read this, my reaction was, "Yeah, no shit." This is something clean energy activists and (some) analysts have been banging on about for a long time.

But I think it is significant. Lead author Gernot Wagner is a senior economist at the Environmental Defense Fund, which has championed carbon pricing since the 1990s. A few years ago, I would have pegged him as a pretty standard-issue climate economist (albeit a nice and very smart one), whose attitude toward climate policies that aren't carbon pricing hovered between disdain and hold-your-nose tolerance.

In his first book he argued, as many newly minted climate economists are wont to do, that economics can save the world, if only non-economists would shut up and listen. (Okay, that latter part is implicit.) However, his latest book (co-authored with climate economist Martin Weitzman) and the Nature commentary evidence a shift toward a more gimlet-eyed pragmatism.

The book focuses less on the kinds of damages that can be quantified and plugged into economic models than on degrees of risk, just as the commentary focuses less on blue-sky policy than on good-enough policy, measures that can get cultural and political momentum going, judged not against a theoretical alternative but against the real-world baseline of no policy.

In both cases, what we see is an economist grappling seriously with political economy, the trade-offs inevitably faced in a world where dangers are uncertain, time is short, and political change faces severe headwinds.

It seems to me — though I may be projecting, since this is also my fond hope — that Wagner's evolution is indicative of a broader shift in the community of climate economists and wonks, away from arms-length purity ("we're not like those activists, we have models") to a more jaundiced but realistic engagement with the social and political forces that shape policymaking. It is a welcome sign.

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