Just because you heard it at the Wall Street Journal does not make it wrong. Your truly (and a few lonely commentators of broadly similar view) have criticized the snake oil sold by the Green New Deal type and other Green Transition hopium peddlers as at least as dangerous as doing nothing. They hyped the idea that shifting to lower-carbon energy sources would generate jobs and not (or not unduly) raise energy costs and inconvenience business and consumers.
Now it is true that there is low-hanging fruit on the energy front, and a fair bit of that (like better home insulation) has not been pursue systematically enough. But arresting the freight train of rising energy use, including the difficulty of transitioning away from fossil fuels, the too frequent failure to consider the total energy (including infrastructure) and environmental costs of lower carbon, and the unwillingness to curb energy use (via pricing or bans) is pretty much impossible under our neoliberal system. We need more top down planning, not just on comparatively narrow issues like whether and how to get the grid and related charging stations in place to allow for greater EV use, but on bigger questions of city/residential design (would it be a big net energy savings to attempt reconfigurations, or would the building front-load too much in the way of CO2 costs?).
But a second problem under neoliberalism is a dearth of people capable of looking at problems like this in a broad-gauged enough way, and their lack of political credibility even if they did.
So after selling various schemes that relied on savings that often were not available across populations, and “build it and they will come” assumptions, the green transition is running into the reality that it will entail costs…something that was pretty much never conveyed to voters and consumers. And that’s before getting to the fact that the investments and behavior change needed to make a serious dent in the global warming trajectory is large and growing. We’ve repeatedly said that the only way to get there from here is radical conservation, as in going on a very big energy consumption diet. But again, how can you achieve that when most people in a neoliberal system need to sell their labor to survive, which means getting to work (usually entailing gas/diesel use), provisioning (again transportation energy), heating and cooling often free-standing, energy-inefficient homes?
The Journal focuses on more immediate issues, using the green energy programs in the Biden Inflation Reduction Act as a point of departure. As author Greg Ip points out:
This year the fantasy ended. With electric vehicle demand falling short of expectations, manufacturers are dialing back production and buying back stockinstead. Offshore wind developers have canceled projects. The S&P Global Clean Energy Index has fallen 30% this year. Ford’s market cap is down to $42 billion….
But the economics of getting to net zero remain, fundamentally, dismal: Someone has to pay for it, and shareholders and consumers decided this year it wouldn’t be them….
….the green transition is driven by public policy. It is “a negative supply shock, with an accompanying need to finance investments whose profitability cannot be taken for granted,” French economist Jean Pisani-Ferry wrote in a reportcommissioned by the French prime minister and released in English in November. “By putting a price—financial or implicit—on a free resource (the climate), the transition increases production costs, with no guarantee that the reduction in energy costs will eventually offset them, while the investments it calls for do not increase productive capacity but must nevertheless be financed.”…
He notes the transition involves hefty capital spending today to replace fossil-fuel consumption in the future. Pisani-Ferry estimates a middle-class French family would spend 44% of annual disposable income for a heat pump, and 120% for an electric car. These investments boost demand, but don’t leave families better off since they simply do the same thing as what they replace. And if taxes rise to pay for these investments, families will be worse off, financially.
The article then depicts a carbon tax or cap and trade as the most efficient way to shift investment and consumption away from fossil fuels, and how Europe has implemented some of these approaches, only to get Gillet Jaunes protests and other resistance.
The problem is that any taxation scheme is inadequate and it’s misleading to equate taxation and quantitative restrictions are similar (there is the separate question of whether the carbon tax is set high enough and whether cap and trade schemes have set limits low enough and are sufficiently comprehensive). Andrew Haldane summarized Martin Weitzman’s classic approach to how to select the right policy approach, taxation or prohibition. From Haldane’s The $100 billon question:
Public policy has increasingly recognised the risks from car pollution. Historically, they have been tackled through a combination of taxation and, at times, prohibition. During this century, restrictions have been placed on poisonous emissions from cars – in others words, prohibition. This is recognition of the social costs of exhaust pollution. Initially, car producers were in uproar….
The taxation versus prohibition question crops up repeatedly in public choice economics. For centuries it has been central to the international trade debate on the use of quotas versus subsidies. During this century, it has become central to the debate on appropriate policies to curtail carbon emissions.
In making these choices, economists have often drawn on Martin Weitzman’s classic public goods framework from the early 1970s. Under this framework, the optimal amount of pollution control is found by equating the marginal social benefits of pollution-control and the marginal private costs of this control. With no uncertainty about either costs or benefits, a policymaker would be indifferent between taxation and restrictions when striking this cost/benefit balance.
In the real world, there is considerable uncertainty about both costs and benefits. Weitzman’s framework tells us how to choose between pollution-control instruments in this setting. If the marginal social benefits foregone of the wrong choice are large, relative to the private costs incurred, then quantitative restrictions are optimal. Why? Because fixing quantities to achieve pollution control, while letting prices vary, does not have large private costs. When the marginal social benefit curve is steeper than the marginal private cost curve, restrictions dominate.
The climate change application of this approach is that the social costs of climate change (flooding, mass migration, disruption of agricultural production) are so high that prohibitions/output restrictions are the sound policy approach. But the “private” costs are also high and there are plenty of who are also disproportoinately affected.
But the US isn’t prepared to require sacrifice. Again from the Journal:
U.S. leaders have rejected any federal tax or fee on carbon. Biden’s solution is to not ask consumers to pay for the green transition…..
Subsidies can play a vital role by giving green energy time to scale up and innovate until it is competitive with fossil fuels. But the IRA has been undermined by extraneous conditions such as made-in-America requirements, and by green tech inflation—a byproduct of the IRA itself, which helped fuel demand…
For years, the cost of wind and solar plummeted, but since 2021 they have risen…..
Many developers can no longer economically supply power at the rates previously agreed to. Denmark’s Orsted, the world’s largest wind developer, took a $4 billion charge in early November for pulling out of two projects off New Jersey. The company today is worth 75% less than in early 2021.
ClearView Energy Partners estimates about 30% of state-contracted offshore wind capacity has been canceled, and another 25% may be rebid….
The financial appeal of EVs has similarly faded….For most drivers, the trade off still doesn’t work—even with subsidies.
True, the IRA has spurred a boom in EV and battery factories. But a successful green transition requires that those factories be profitable, and Detroit’s automakers are still losing money on every EV they sell….
In a sobering report this week, Morgan Stanley auto analysts estimated the average nonfinancial company in the S&P 500 spends its market cap in capital expenditure and research and development in about 50 years. GM and Ford spend theirs in 1.9 and 2.6 years, respectively. “This cannot continue, in our view.”
This sorry outcome is in no small measure the result of not making the dangers of climate change tangible and visceral enough to most people, and conveying the impression that the green transition would be rainbows and unicorns. That is not to say it would have been easy to get broad social support for concerted action. But no serious attempt has been made.