1 September 2015

Capitalism, not government, can cure climate change

By Julian Adorney

The EPA recently passed sweeping new carbon regulations designed to stave off the threat of global climate change. But if we’re serious about preventing climate change, we need laissez-faire capitalism, not more regulation.

The new EPA rules set state-specific goals for cutting carbon pollution and increasing America’s use of renewable energy. The goal is to reduce emissions to 26-28 percent below 2005 levels by 2025, and to make renewable energy 28 percent of total energy usage by 2030. These rules are designed to usher in a new era of clean energy and stave off climate change.

The EPA’s rules would cost the economy tens of billions of dollars by killing jobs and raising energy prices. As well as being costly, the rules are unnecessary.

Free markets have allowed humanity to transcend existential threats many times before.

In the 19th century, for instance, the specter of famine loomed as populations rose. But instead of letting people starve, entrepreneurs discovered a way to harvest nitrogen (first from bird poop, and then from air and methane) that dramatically boosted wheat production. Influential voices continued to predict worldwide famines throughout the 20th century, but each time they were proven wrong. Innovations like dwarf wheat and golden rice have expanded our food capacity, with the result that 7 billion people are consuming more calories per capita than 1.7 billion consumed in 1900.

We’ve seen the same story play out with pollution. The worst pollution comes from biofuels, such as the burning wood and dung for fires. This causes severe health issues, especially when done indoors. Wood and dung were the fuels of choice before the Industrial Revolution, but then England discovered vast reserves of coal. This not only fueled the Industrial Revolution, it helped the world move to a safer and cleaner fuel source. Pollution laws in the 20th century helped reduce pollution, but the primary driver was entrepreneurship.

Breakthrough’s Michael Shellenberger and Ted Norhaus note that innovation has done much more for the climate than government regulation. Coal’s monopoly on energy, for instance, was not broken by laws banning coal but by the discovery of fracking. They note that the move to cleaner burning fuels, and more efficient energy technology occured mostly “for purely economic reasons.”

Why do free markets enable us to innovate our way out of disaster? Matt Ridley, author of The Rational Optimist, argues that it’s because, “scarcity drives up price; that encourages the development of alternatives and efficiencies.”

In this sense, free markets enable us to sidestep the controversy over how much the climate will change in a few decades. What matters is not computer models, but on-the-ground reality. If (for instance) coal becomes scarcer, then entrepreneurs will innovate a solution. Government regulation may be a band-aid, but markets have historically proven to be a cure.

When the EPA sets explicit rules about how much of the nation’s energy must come from X or Y source, they’re inhibiting this process. Matt Ridley argues that the innovations that create a greener future will be those that we can’t even predict today, just as innovations in the past have been unpredictable. When the EPA requires that 28 percent of our energy come from renewables, it encourages states to subsidize renewable energy at the expense of other sources. Government subsidies and regulations become just another barrier to entry to energy forms that we cannot imagine yet.

There’s another advantage to keeping government out of the energy business: energy regulations hurt emerging countries. The EPA’s decision was made partly to give President Obama leverage in the upcoming climate talks. These talks, by imposing EPA-style carbon rules on emerging economies, could hurt economies like China and India, whose growth is driven by CO2 emitting energy sources.

Energy sources like coal are affordable, which puts middle-class energy usage within reach of millions of Chinese people. Coal, as Joe Lassiter notes, is driving their economy and raising standards of living. Expecting them to switch to more expensive energy renewable energy would leave them once more in poverty.

Encouraging free-market innovation—not through more subsidies and boondoggles but through reducing regulation and letting the market work—is both more effective and more humane than letting governments regulate our energy needs.

Julian Adorney is a Young Voices Advocate and economic historian. His work has appeared in FEE, The Hill, Townhall, and Lawrence Reed’s latest anthology Excuse Me, Professor.