Time for Smart Capitalism : Make Pollution Expensive

Beyond ideology, these facts raise two deeper questions.

• First, are individuals ready to make sacrifices in their consumption to reduce CO2 emissions? The answer is no. Thus the solution is what economists call "carbon pricing". I believe that a price on carbon should be somewhere between 40 € and 80 € per ton of CO2.
   
• Second, how should capitalism be adapted to induce individuals, corporations and public institutions to perform any abatement action whose cost is lower than the carbon price? The answer to that question is to send the right price signal to all economic agents. This can be done by either imposing a carbon tax, or a market for emission permits. This is as simple as that. Both economic solutions are the most transparent, the least costly, and give a value/sense to our responsibilities towards future generations. The application of this polluter-pay principle restores the efficiency of capitalism without impeding freedom of choice.

Are you rather optimistic or pessimistic on public decision-makers' capacity to enforce change? What role should companies play?

Andrew McAfee

The last fifty years make me optimistic that governments can act on pollution. Even now in countries like China, the air is much cleaner than before. We have accumulated clear evidence that governments have the ability and the necessary effectiveness to implement positive change through policies. Still, they can choose not to take action.

Why would they? Because the status quo is very powerful and some governments are experiencing heavy pressure not to take action. The "Yellow Vest" movement in France created in response to Emmanuel Macron’s decision to increase gas prices is a clear example of the kind of pressure governments are facing.

In a nutshell, we know how to deal with climate change but we are not yet taking action on a practical level. What is the solution then? We have to work on our communication in two directions:

• First, clearly express the immediate urgency to fight global warming.
   
• Second, advocate for the good solutions and for the actions that have worked in the past. Student strikes are great initiatives for building momentum, but they need to be combined with advocacy for smart policies like a carbon dividend and support for nuclear power.

Christian Gollier

Economists tend to be pessimistic about Humanity’s ability to fight climate change. This global externality is a perfect example of the free-riding problem: a country that would decide to be ambitious to abate CO2 by implementing a large carbon price in its economy would bear 100% of the costs of the policy. At the same time, it would reap none of the benefits. Economists and game-theorists predict that at equilibrium, all countries would do nothing. Frankly, one should recognize that this dismal prediction is validated by the observation. After 25 COPs, we continue to see an acceleration of global CO2 emissions. Politicians such as Trump and Bolsonaro are enthusiastic free-riders.

So, the Plan A of a universal carbon price imposed by responsible governments has failed. Plan B would be to rely on responsible corporations and consumers. There are some actions there. Many firms have implemented an internal carbon price for their day-to-day and strategic decisions. The financial sector on both sides of the Atlantic is contemplating the possibility to divest from brown industries. This has some (marginal) effect on the cost of capital of these industries, which may serve as an incentive to reduce further their CO2 emissions.

At the end of the day, the key factor that will determine whether Humanity will fail or not in the face of climate change is technological. A high carbon price should provide the right incentive for economic agents to innovate.

What is the state of the political debate around climate change in the U.S. and in France? Is there any political equilibrium possible?

Andrew McAfee

At the level of national politics in the U.S., climate change is really on the table, in part because Donald Trump does not believe in climate change. The President even stated it was a "Chinese hoax".

Regarding the state of the debate in France, I am less qualified to speak. Yet, the debate is obviously more intense as climate change is, and rightly so, at the very top of the political agenda. However, once again, we are still not advocating for the good solutions.

Christian Gollier

As a growing segment of the population becomes frustrated by the political inaction, some leaders, from Greta Thunberg to Alexandria Ocasio-Cortez, are pushing towards more climate activism. I am skeptical about the outcome of these emerging dynamics. Many concerned citizens believe in the utopia of a happy energy transition.

As seen in France, most "Yellow Vests" who were not ready to pay for energy transition were at the same time condemning actively the government for its climate inaction. Today in Europe, there isn’t a single politician who does not play with this green utopia. The perfect example is the Green New Deal, in its European and American versions. I don’t think we can win the World War against climate change on the basis of this big lie, but we have no Churchill at hand anymore.

Copyright : OLI SCARFF / AFP