I was recently asked to interview with a student seeking different viewpoints on political aspects of climate change and alternative energy. Here’s what we talked about… (my answers are in italics)
1. With concern to the energy industry, where do you stand on the argument that free markets will provide the most economically efficient solution possible?
Libertarians agree with this argument. Knowledge is distributed in society, and thus it is logically impossible to consolidate it into a central planning authority that can make right decisions. Only with a pricing system free from government constraints can an economically efficient solution emerge.
2. It has been argued that intervention in markets, through the imposition of subsidies, results in misallocation of resources and wastes taxpayer money. Is this true with regard to the energy industry? Why or why not?
This is absolutely true. There is no exception for the energy industry that allows it to circumnavigate the problems of economic interventionism. Thus, libertarians advocate the deregulation of the energy industry to allow for free competition, stricter enforcement of property rights to de-incentivize pollution by companies (i.e. full restitution of damages), and abolition of all industrial subsidies whether for alternative energy or traditional energy companies.
3. In regard to economic welfare and prosperity, is there a distinction to be made between what is beneficial from a social and environmental perspective, and what is beneficial from a business perspective?
There is no distinction to be made, because on a truly free market actors operate to harmonize other actors needs with their own. This is the essence of trade — that we voluntarily exchange goods and services with each other and thereby make our lives better. The social and environmental problems that arise are primarily the result of governments not enforcing property rights, such as permitting pollution that hurts people or stealing people’s rightfully owned property with eminent domain.
4. In economic language a good is said to have a negative externality when the private cost to producers or consumers do not reflect the total social costs resulting from the production or consumption of the good.
a) Would you consider climate change to constitute a negative externality tied to the production and consumption of energy?
b) If so, what is your position regarding the efficacy of alternative energy subsidies in dealing with the problem of climate change?
c) Are there alternative solutions to the problem of climate change and the externality problem more generally?
Assuming that climate change is anthropogenic (you’ll have to forgive me, as a scientist I am inherently skeptical), it is indeed possible for it to constitute a negative externality, but as with all negative externalities it is caused by a lack of adequate property rights protections. See my recent peer-reviewed work on transportation pollution.
Given that climate change is a negative externality, that still does not indicate that the government should tax either corporations or individuals in order to provide monies for alternative energy subsidies. If climate change truly is an issue of property rights violations, than this provides a super-incentive for energy producers to be investing into alternative energy research from the outset, and need no subsidies to motivate them.
Finally, as many scientists have noted, especially Bjorn Lomborg, climate change may have positive externalities as well as negatives. How are you going to determine which to focus on?
The most general solution that I can proffer, and that I promote in my peer-reviewed article, is to get back to strict property rights enforcement via nuisance laws and pollution laws. In other words, damage someone’s property and you pay them restitution.
5. Can alternative energy incentives be an effective tool for reducing dependence on foreign oil? Why or why not?
If by incentives you mean subsidies, then I would say NO. Subsidies tend to discourage competition on the free market for such goods and services.
6. A separate solution to subsidizing alternative energy would be to tax carbon dioxide emissions. The implementation of a “carbon tax” could bring the private costs of CO2 intensive energy more closely in line with total resulting social costs, and thus make alternative energy more competitive with conventional production methods. Where do you weigh in on the implementation of a carbon tax as opposed to subsidization of alternative energy or reliance on the free market?
On the carbon tax question, I would answer absolutely not! Given the hazards of interventionism as outlined above, carbon taxes are completely and utterly useless toward actually accomplishing anything given politicians and the laws of economics. Carbon taxes will not work and never will work.
7. Which values have served you best, in your analysis of whether financial incentives for alternative energy are desirable?
I’m not entirely sure what you mean in this question, but if you are asking what informs my views the most on this issue then I would say economic law. Trying to circumvent the laws of economics in this arena is like trying to defeat gravity by throwing things up in the air. It is patently impossible.