CAPITALISM MAY SOLVE THE CLIMATE PROBLEM BUT ...
ADAM SMITH DIDN'T LIKE BIG INTERNATIONAL COMPANIES
I sometimes describe myself as a very, very, very left-wing supporter of the capitalist system. Not because I like capitalism per se but because its power gives one of the few chances the world has got (but I'm not too sure what exactly "world" means here).
My views are close to those of Adam Smith, whose ideas have been captured by apologists for crony capitalism
. He disliked the power and influence of large international companies
Such companies, in Smith’s view, had corrupted and captured many European and non-European governments and undermined their societies’ ability to engage in peaceful transnational affairs and equitable self-rule.
CARBON TAX - WHAT TO DO WITH THE PROCEEDS?
I care a bit less about what happens to the proceeds of a carbon tax than the actual carbon price but I disapprove of cutting corporate taxes too much: the non-markets benefits given to corporations (e.g. bankruptcy and patents) should be paid for but reduced corporation taxes might be a price worth paying to get a carbon tax accepted. Similarly with income tax: it pays for the service government gives to citizens but if a reduction helps the cause so be it.
I welcome the redistributive effect of Hansen's scheme: It taxes those with high carbon pollution (basically, the rich and affluent) and rewards those with low levels of pollution (the poor). Ideally this should be on a world wide basis as in World Wide Carbon Fee and Dividend
A few week ago, I attended a conference run by the LSE, Economics of innovation, diffusion, growth and the environment
. One of the interesting themes of the economists was to study how government support for innovation transferred into patent. One message I remember is that is is much more effective to spur green innovation with government grants than to spend it on subsidising green energy.
DON'T TRUST GOVERNMENT'S SPENDING BUT ...
My reading of computer software projects
gives me the gut feeling that governments (or government officials) are bad at picking winners
. However, our modern microchip economy started with government support. The FT said
“All of modern high tech has the US Department of Defense to thank at its core, because this is where the money came from to be able to develop a lot of what is driving the technology that we’re using today,” said Leslie Berlin, historian for the Silicon Valley Archives at Stanford University.
The early railways in the USA also had government support
The massive amount of capital investment (over $100,000,000 in 1860 dollars) needed to build the railroad was obtained by selling government guaranteed bonds (granted per mile of completed track) and railroad company bonds and stock to interested private investors.
I also believe that the governments of the good guys (if there are any) should be spending much more on a kinder, fairer version of military force and diplomacy. I suppose that's a bit of a fantasy but we probably do need lots more government expenditure.
CARBON PRICE SHOULD PROBABLY BE VERY HIGH: $1000
As to a carbon price, it probably needs to be much greater than most presume. I remember being at the Westminster Carbon Counting Conference in 2008, where, as I remember, one of the speakers said to make enough difference in construction a carbon price would need to approach £2000 ($3000) a tonne of CO2e. That seems a bit high but if a new house in the UK has embodied carbon of about 100 tonnes CO2e
, £1000 a tonne CO2e might only add 30% on the price
Given the uncertain effects of a carbon price, an empirical approach might be best: Start with $100 a tonne CO2e now and increase this by $100 a tonne until the climate looks safe. My guess is that safety might be about the $1000 a tonne CO2e that Hansen once suggested - if Timothy Worstall has reported this correctly
But taking a lesson from the LSE conference, government should invest in innovations that allow the development of low carbon lifestyles, with different shadow prices for carbon: e.g. $500, $1000, $2000 per tonne.
PROTOTYPING NEW LIFESTYLES
This probably means constructing new settlements
, where the way of life has few cars, substantial production of food for local consumption and low embodied carbon. The residents would be constrained to have low carbon footprints through the carbon price mechanism.
I would be surprised if such settlements (if designed well) could not attract residents. Many would love to get away from the expense, rush an pollution of "modern living" just as train passengers in the UK voted with their feet when they were able to separate themselves from the smokers
The current urbanisation story, that most people will move into cities must be questioned. In the carbon intensive way they are built now, this will be a disaster
But exactly what do we mean by "city" anyway?
VENICE OR LA?