I wrote this piece at the end of February of this year, right after Al Gore won an academy award for An Inconvenient Truth. It was to appear in the Nation, but did not for some reason. Now that Gore has added a Nobel Prize to his list of honors, why not let these words see the light of day?
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Climate Change and People’s Capitalism
Be honest: who knew that climate change would go from the grumpy green fringe of American politics to the glitz and glam of the Oscar ceremony? Imagine the satisfaction of that small but determined band of scientists and economists whose warnings about our emerging climate problems were once the stuff of right-wing talk yacksters but is now the conventional wisdom of an ever-greener establishment. And who could begrudge Al Gore that slightly patronizing smile at his critics as he ponders his Nobel acceptance speech in Oscar’s golden light?
America’s corporations have dumped climate change denial like a nasty habit because the really smart people who run them know that green is the color of reason these days, as well as the color of money.
Corporate leaders, economists, environmentalists and policymakers know the basic economics of climate change: the only way to slow and then reverse the level of greenhouse emissions is by making this sort of pollution extremely expensive. But making greenhouse gases expensive means that everything from pumping oil and burning dirty coal to driving gas guzzling cars to heating and cooling suburban McHouses is going to be way more costly, and much less profitable.
This poses a delicate problem for liberals and the left: how can greenhouse emissions be made much more expensive without sticking it to ordinary people? The American dream has been built on the basis of cheap oil, and free greenhouse gas emissions. The climate crisis is with us because no one had any reason to think about how their carbon emissions might make Mother Earth hot, angry and hard to live with. The good news is that making greenhouse gases cost more gives us powerful reasons for finding cleaner ways to live, work and play – from new technologies to enduring changes in our energy habits. But the bottom line is simple: expensive greenhouse gases drive up the price of the American dream, thereby irritating a large chunk
of the voting public.
One sure way to cut down greenhouse gas emissions, and drive ordinary working people back into the arms of the conservatives, is to put a hefty tax on carbon emissions. Every economist will tell you that a tax on carbon emissions is the most effective, least complicated method for making us change our habit of dumping greenhouse gases into the atmosphere. Carbon taxes would yield an enormous amount of money, so much so that some bothersome taxes could be completely eliminated – like payroll taxes – while others, like income taxes, could be sharply cut.
But the economic pain of carbon taxes cannot be completely offset by cuts in other taxes or tax breaks or even subsidies. The people hit hardest by carbon taxes are regular working people who are already scared about losing their job to international trade or global immigration; who are already squeezed by skyrocketing health care, education and housing costs; whose savings are too low to permit an easy retirement and whose fears about Social Security solvency make it hard to sleep at night. The last thing these folks need is for green ways of living to price them out of the American Dream.
There is a better way to save the world without killing off the well-being of regular folks, if liberals and leftists are smart enough to turn Wall Street – that’s right, Wall Street – into a tool for environmental and social justice. The other way to cut greenhouse gases is to make polluters buy permits to emit carbon in a “cap and trade” system, where permits are bought and sold on financial markets like any other asset. Companies emitting greenhouse gases would purchase permits from other companies and financial institutions, thereby paying a price for their carbon “dirt” that reflects the harm that they do.
Cap and trade systems get badmouthed by liberals and leftists for two reasons. First, relying on financial markets to indirectly price carbon seems a bit slippery since the same sorts of shady doings on other asset markets would undoubtedly pop up in carbon permit markets. Second, many newly green corporations are eager for a permit system – which rightly makes green types of all political stripes very antsy – especially one where permits are given to companies for free.
The financial shenanigans objection is easy to deal with: bring back a strong and well-funded Securities and Exchange Commission and watch all types of chicanery disappear.
There is no reason to give corporations trillions of dollars in new wealth when a bit of ultra-radical popular capitalism is at hand: give the permits to the American people, or better, have Uncle Sam hold the permits in a collective trust fund on behalf of the nation. Corporations would buy carbon permits from dealers like they currently do Treasury notes, with the proceeds from the sale of permits flowing to ordinary people as regular checks distributed on a progressive basis. The permits as well as the income from emitting carbon would flow to the people, forever, with no chance that the ownership of carbon emissions could be concentrated among a smallish group of already wealthy people.
The beauty of a progressive and collectively owned cap and trade system is that it takes full advantage of markets while increasing the financial wealth of ordinary Americans. Government plays no role in this system aside from establishing the carbon emissions cap that gradually brings down greenhouse gas emissions and placing the permits with dealers. Then ordinary self-interest would take over, with many billions and even trillions of dollars in new wealth and income flowing down the class ladder.
We are talking about fairly big money here. For instance, Senators John McCain and Joseph Lieberman’s climate change legislation calls for the annual emissions to fall from their current level (about 7.4 billion metric tons) to 5.123 billion metric tons by 2015. With the market price of greenhouse gases hovering around $1.12 per metric ton on European markets in April 2007, permits would only earn around $5.6 billion by 2015 if prices did not move. We could put this tidy sum into sizeable savings for our kids (as proposed by Ray Boshara of the New America Foundation), or use it to help people buy “green” cars or live in “greener” homes. The people’s carbon assets will throw off much bigger money if prices rise to $10 per metric ton, as is likely.
One can already hear the objections from the usual right-wing talkers in the think tanks and the academy. “Socialism!” “Big Gubmint!” Nonsense: this is good old egalitarian capitalism where the owners of carbon emissions – the people – get paid for the use of a common resource that must be carefully managed if we are all going to survive.
“It can’t work!” Why not? It is the same system that we use to sell everything from corporate equity to government bonds to hog futures. Don’t these folks believe in free markets?
“Redistributing profits from corporations to the public will cripple capitalism by driving costs through the roof!” Please: greenhouse gas emissions must be brought down, so the profits earned by ignoring Mother Nature must go away. And since we want to do right by ordinary people and the environment, why not transfer profits gained by ignoring carbon to regular folks? Besides, innovators that find new and better ways to produce with fewer greenhouse gases are going to be ridiculously rich.
Recruiting Wall Street to be a green Robin Hood is a wild idea, though no wilderthan our nasty climate future if we do not act soon. Wall Street will rise to the challenge of pricing greenhouse gases and funneling the profits to the people if we make it profitable to manage the people’s money.