Common Tragedies

Thoughts on Environmental Economics

Questions for Will

Posted by Daniel Hall on August 5, 2008

Will Wilkinson has a hypothesis:

Here is a thumbnail sketch of my position on the sustainability of economic growth. What do you think is wrong with it?

(a) energy is not scarce; the historically most efficient sources (oil, coal, etc.) are;

(b) a well-functioning price system will shift energy consumption to (cleaner) alternative energy sources as prices for historical extracted sources of energy rise;

(c) the initial high price of alternative energy will temporarily slow growth, but competition and technological progress will eventually push prices below the historical trend and even asymptotically approach zero, increasing average rates of growth;

(d) environmental quality is a global public good, but;

(e) this is most likely to be secured as a consequence of growth — as a consequence of the technological innovation that both creates and is created by growth — together with the rising scarcity and prices of the most environmentally degrading energy sources.

So,

(f) there are no meaningful limits to growth from either the scarcity of energy, or from negative environmental externalities from economic production, since in the medium run, those externalities are positive.

He asks what is wrong with his position. My response:

  1. Fossil fuels are scarce? Yes, fossil fuels are non-renewable, but what is the relevant metric for scarcity? Even if we are at peak oil we have decades of use left. And coal is not scarce on time scales I would call relevant. The U.S. and China have enormous reserves. Coal will certainly last more years into the future than we have used it so far. I remand Will to the Energy Information Administration or the International Energy Agency to obtain facts on energy reserves.
  2. What is Will’s evidence for (b)? Because to date, while alternative energy sources have gotten cheaper over time, the cost of conventional energy sources has fallen even faster. Evidence please.
  3. What does Will mean by a well-functioning price system? Most economists would consider unpriced externalities to be evidence that a price system is not functioning properly. I do agree that a price system which included a charge for the societal cost of greenhouse gas emissions would shift consumption to cleaner sources. But in (f) Will concludes that externalities from environmentally destructive economic production are positive in the medium term. This suggests we should be subsidizing, not taxing, conventional polluting sources of energy. How does Will square (b) and (f)?
  4. What does Will mean by medium run? In the last century alone we have managed to run carbon dioxide concentrations in the atmosphere up by about a third. They are now higher than at any point in the history of modern man. But if we burn all our “scarce” fossil fuels then CO2 concentrations will be at least quadruple (and maybe ten times or more) preindustrial levels. This would be unprecedented in near geologic history (tens of millions of year). Most scientists who study the impacts of warming agree this would be a disaster.

Here is Felix Salmon with more. Tyler Cowen largely sides with Will.

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