Common Tragedies

Thoughts on Environmental Economics

“She turned me into a Newt!”

Posted by Daniel Hall on November 13, 2007

Newt Gingrich has an interview in Salon in which he talks about his new book and his environmental philosophies. Here are a couple interesting bits:

What do you think are the most important environmental issues today?
My highest focus is on biodiversity because if you follow strategies that maximize the health of plants and animals on the planet, you’ve almost certainly got a very healthy environment in general. Second, there is a significant challenge in carbon-loading of the atmosphere, and third, there is a tremendous challenge with water around the planet, and how to develop it as a renewable resource, and how to protect it.

What do you think that the U.S. should do about global warming right now?

I think we should have a billion-dollar tax-free prize for a hydrogen engine that can be produced at a commercially available price. I think that we should have a substantial prize for developing the first engine that can be mass produced that gets 100 miles or more to the gallon of fuel. I think that we should have a substantial research program under way for dramatically better ethanol products than corn or cane sugar.

We should have a 100 percent tax write-off for investment in the technology needed to make composite-material cars…

Do you think that we should adopt a cap and trade system for carbon emissions?

I think that we’d get results dramatically faster if we adopted large tax credits for non-carbon systems, including nuclear power. …

Newt seems to be a big fan of increased energy technology R&D… great! On the other hand, he doesn’t seem to believe that pricing emissions will work — he wants to subsidize non-carbon technologies, but shies away from endorsing a cap-and-trade program that would internalize the externality from GHG emissions. This is problematic because subsidies won’t encourage any conservation or efficiency — they will make non-carbon technologies relatively more attractive for producers, but subsidizing energy will lower costs and lead to more consumption. There is also a knowledge problem here: it is difficult for regulators to know ex ante which technologies to subsidize and by how much, and so they inevitably pick winners. Pricing emissions, on the other hand, doesn’t require foreknowledge of which technologies will work. The price signal alters incentives and behavior throughout the entire chain of supply and demand and hence finds the lowest cost emissions reductions.

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