13 November 2018

Central planners won’t solve climate change


Experience gives us more than a little squeak of a warning that grand government plans don’t work. The centralised planning of the Soviet system produced a lot of planning and not much of anything else. Ploughing Africa to produce groundnuts produced hardly any groundnut.

A Nobel prize was even awarded to Friedrich Hayek for his insight that the central planner can never have enough information in time to be able to direct in detail.

This is something we should perhaps have thought of before deciding to insulate millions of homes. As a result of the botched energy-saving scheme, by some estimates as many as a million homes are so badly insulated that they’ve got mushrooms growing inside them.

Sure, British housing isn’t well insulated. And climate change means that it makes sense for them to be better insulated. But while getting from A to B is desirable, central planning isn’t going to do that.

One problem is that those leaky British homes were designed to be leaky – you can indeed have near 100 per cent insulated houses but you’ve got to design them that way from the off.

The warning signs were there all along. There was the example of the Australian scheme, one that worked so badly they had a Royal Commission to look into why. Apparently spraying money at every chancer in pursuit of a national target – ignoring local knowledge – isn’t the way to do it. We could say “Who knew?” but then we did know. Australia admitted to making a mistake before we even started our scheme. There are those who insist lessons were learned but apparently not.

Thus we should be looking at these grand plans, the Green Deal, the carbon army to climate proof the nation’s housing stock, with more than a slightly jaundiced eye. Not because climate change isn’t real – leave that argument for another day – nor because we shouldn’t be doing anything about it. Not even because better homes might not be a bad idea. But because having the grand plan directed from the centre isn’t the way to do anything.

We’ve direct experience of — proper empirical proof of — the idea that an airy wave of the hand plus an open chequebook from Whitehall just isn’t the way to do it.

We were even told this more than a decade ago in the Stern Review on the economics of climate change. Nicholas Stern didn’t just make the case for action on climate change, but the sort of action that would actually work. In the solutions section it is made very clear indeed that we should use cap and trade, or a carbon tax, not plans and politicians. Jamming a crowbar into the price system means that all that local knowledge – which houses can be usefully insulated and how perhaps – comes into play and we gain the most efficient method of that beating climate change itself.

Efficiency isn’t just some economists’, or accountants’, insistence on doing things cheaply. As Stern himself notes, if we do this inefficiently then we’ll avert less of that warming. The more resources we devote to growing mushrooms the fewer we’ll be able to expend upon the real problem. The more you worry about global warming the more you should be pushing for the most efficient solution — market forces properly incentivised — and the further you’d like politicians from the subject.

That, unfortunately, is not how things have worked out. The biggest problem with the climate change debate is that those most insistent that something must be done are those most insistent that the wrong something is done. That isn’t quite the way we’d hope to deal with the greatest threat to our civilisation. Or even the manner we’d like to deal with any problem at all.

Now that we’ve made the mistake of trying those centralised plans, can we get on with solving that climate change problem? Stick on the carbon tax and allow market forces to chew through the problem? As Hayek would have told us to, as Stern actually did insist, as the manner we’ve splashed the cash so far tells us we should have done.

Tim Worstall works for the Adam Smith Institute and the Continental Telegraph.