What Should We Really Be Doing About Global Warming? A Freakonomics Quorum

We have blogged occasionally about different pieces of the global-warming puzzle (see here, here, and here), and we touched on the subject briefly in a New York Times Magazine column. It is an extraordinarily interesting issue, to say nothing of its importance and complexity, in part because there are so many foundational economic principles at play: not just supply and demand, but the presence of externalities, unintended consequences, etc. We will address a couple of those issues in our next Magazine column, which comes out this weekend. (BTW, all of our earlier Times columns are now available for free here.)

In the meantime, we thought it would be a good idea to host a Freakonomics Quorum in which we asked a few smart people a very straightforward two-part question: What should the U.S. government be doing about global warming, and what should individuals be doing? Here are their answers; many thanks for their time and thoughtfulness.

Ben Ho, an assistant professor of economics at Cornell’s Johnson Graduate School of Management and former energy and transportation economist for the White House Council of Economic Advisers:

Two crucial points are regularly overlooked in the debate about climate change:

1. Not all responses are equally cost effective.

2. Only a global response has any chance of stabilizing carbon in the atmosphere.

It should be obvious that for any problem, some solutions are more effective than others. Despite what some fearmongers may have you believe, it is not the case that anything we do to reduce greenhouse gas emissions is worth the cost. We could, for example, ban all oil and coal use worldwide. That would halt emissions, but few would believe the resulting economic fallout in terms of poverty and starvation to be justified. Economists have estimated that any policy intervention that costs more than about one penny per pound of carbon dioxide saved is probably not cost effective. (As a point of comparison, burning a gallon of gasoline emits about 20 lbs. of carbon dioxide.) If saving a gallon of gasoline will cost you more than 20 cents in time or effort, there are better uses of your time that would do more to combat global warming. Policy makers should heed the same guideline.

Another crucial point on which most experts will agree is that the U.S. will account for only a tiny fraction of emissions in 2050. Chinese greenhouse gas emissions have already surpassed those of the U.S. Recent E.P.A. estimates suggest that in order for global carbon dioxide emissions to stabilize, three quarters of future reductions would have to come from developing countries like China and India. Many advocates argue that a carbon tax or carbon cap in the U.S. would lend the U.S. the moral authority to persuade the rest of the world to follow. However, history has shown that moral authority alone is insufficient to cause countries like China to act against their own interests.

One policy that is potentially both cost-effective and global in its impact is the advancement of technology. Nearly all emissions of greenhouse gas come from either oil for transportation or coal and natural gas for heat and electricity. As an energy economist for the White House Council of Economic Advisers, I was exposed to hundreds of magical inventions for harnessing renewable energy. One firm has developed algae that can transform carbon dioxide from smoke stacks into ethanol for your car. Another produces electric cars that get the equivalent of 100 miles per gallon but drive like sports cars. More exotically, inventors have imagined generators that harness electricity from the aurora borealis or from tropical storms. Some are already in limited production, but none are yet cost-competitive for global deployment.

While none of these technologies are projected to significantly replace fossil fuels any time soon, forecasters are notoriously myopic when it comes to revolutionary shifts. While hoping for innovation may be an improbable dream, it is no more improbable than hoping that diplomats will be able to convince other countries to slow their development by voluntarily curtailing emissions. On the other hand, further innovations could make renewable power so cheap that China, India, and the rest of the world would find renewable fuels more attractive than fossil.

While my exposure in government to the multitude of energy innovations has heartened me, the same experience has also taught me that politicians and bureaucrats are not suited to judge which technology among the hundreds is best. The proper role of government is not to pick technologies, but to create the right market environment for innovation to flourish. Thus far, the U.S. has fostered innovation impressively. Going forward, the U.S. has to maintain the right mix of research centers, smart regulation, education, targeted taxes, and targeted subsidies to make sure our engine of innovation does not falter.

Colin Camerer, professor of business economics at Caltech and a leading light in behavioral economics and neuroeconomics:

Government? Climate warming is certainly the mother of all externalities, both global and intergenerational. It is also a perfect storm of behavioral economics phenomena: the culprit has no face. (Perhaps a feverish, angry Mother Nature on Oprah would help.) Loss aversion and habit formation? Nobody wants to give up anything. The change, if it’s occurring, is slow and invisible. (Think frogs dying in slowly boiling water, except it’s us ribbitting.) Judgments of reasonable sacrifice are instinctively self-serving: rich people have earned their Hummers; poor countries grasping the bottom rung want their one-channel MTV.

One argument which I have found surprisingly absent is the apocalyptic version of Pascal’s wager: if there is a genuine strong change, we should move swiftly to combat it, and if there isn’t, swift movement to cut carbons would not be so bad (it could spur innovation, etc.). If you think the evidence is unclear, that’s not an argument to do nothing unless the evidence will become clearer soon — which it won’t. As such, your view is still an argument for doing something nowm because the cost of a false alarm is small and the cost of a missed threat is large. Big reforms are like an insurance policy: you pay insurance for peace of mind, but you also hope your money is wasted, and there is a small irreversibility from having sacrificed up front.

Voluntary demand-side reduction at a large international scale won’t work. Besides the problem of free-riding, people (and countries) who are helpfully cutting back get annoyed when others aren’t. You see this clearly in lab experiments on contribution to public goods in “commons dilemmas” — people help out at first, then get mad that others aren’t helping, and express their anger by not helping. One useful tool is a serious carbon tax (choose your favorite number, double it, hope for something in between, and find a politically popular way to earmark some of the revenue to R&D that won’t be supplied privately).

Even better is an international permit trading system (and yes, it should be international, since local systems won’t equalize the cost across countries). Get past the moral indignation of issuing licenses to pollute. Firms and governments that will pollute will do so whether you like it or not, but at least a trading system rewards the good guys. Trade-able permits also put a sharp price on the value of reducing carbon, which is a good way to monetize the valuation of carbon-reducing technology, and hence to make the value of innovation clear and encourage it.

Individuals? If you feel great about reducing your own carbon footprint, please do. But unless you are a symbolic individual whose behavior influences others through a newsy social process — thanks, Brad Pitt — yours is a small contribution. Do that, but also read the news, educate your neighbors, crusade, organize, and vote.

Adam Grosser, a general partner at the venture capital firm Foundation Capital:

The U.S. government has the opportunity and challenge to dramatically recast its role in the energy consumption life cycle. Two major roles for leadership are quite obvious — one short-term, and one long-term. (Sadly, as we all are painfully aware, motivating legislators to commit to a national goal longer than a single election term is ferociously difficult.)

In the near-term, the government needs to mandate conservation targets, and then assist the population in successfully reaching them. For example, according to the Department of Energy, up to 30 percent of America’s additional electricity needs for the next decade can be met through advanced conservation techniques such as Automatic Metering Infrastructure or Demand Response Programs. More progressive countries such as Canada have legislated that these available technologies be deployed in less than two years.

More importantly, the government has a moral responsibility to dramatically increase the funding of basic research that will lead, over some period of decades or centuries, to fundamental changes in primary energy generation. Private industry can only afford to innovate at a scale or time frame that will lead to incremental change — unless someone is hugely lucky or un-statistically insightful. It is the purview of the Federal government to exert leverage against monumental and seemingly intractable challenges.

At the individual level, the most important activity is to be critical and observant. Ask a lot of questions: Do I need to drive to the store for a lemon? Do I need to have all the lights on in rooms where I’m not? Can the kids ride their bike to soccer? Become educated: Is your primary dwelling as efficient as it can be? Am I driving a vehicle that demonstrates my commitment to efficiency? Is solar an option? Can I better understand my family’s personal energy profile? Educate your kids. It’s a seemingly intractable problem, and it will take several generations to fix this mess. It’s really important that your three-year-old is energy conscious and aware. We’ve been profligate — and can only repent so much. It will be up to youth to innovate and atone for our consumption.

Jason Pontin, editor and publisher of the M.I.T.-owned Technology Review:

I don’t have very much to say about what individuals can do about climate change; indeed, I am skeptical that individuals can do very much by themselves.

Carbon dioxide emissions, which are responsible for anthropogenic climate change, are what economists call a negative externality — that is, a harm done when the parties to some transaction do not bear its full costs, and a socially undesirable good is overproduced.

Put more simply: until carbon dioxide has a cost, it will always be cheaper for coal companies to emit it than to capture it.

What can we do? Negative externalities can be addressed only by governments, through policies and international agreements. But what policies would best support a long-term energy strategy is a topic much debated by environmental economists. Limits on carbon dioxide emissions have disadvantages, even if supplemented with a system for trading emission credits. Such regulations are inflexible and often technologically ill-conceived, and they offer energy producers little incentive to reduce emissions below the levels allowed. So far, they have not worked very well in Europe.

An attractive alternative is a Pigovian tax, in which policymakers impose a price on a negative externality. Such a tax would create a cost for carbon dioxide where none existed, and so provide energy producers with an incentive to reduce emissions. Pigovian taxes have been used to reduce pollutants and discourage “sinful” behaviors like smoking, but they have one obvious disadvantage: because there is no exact mechanism for valuing a negative externality, it is possible to tax an undesirable good so much that levels fall below what is socially optimal. (After all, we will need carbon dioxide-emitting energy sources for the foreseeable future.) Still, Pigovian taxes on carbon dioxide emissions would have signal advantages over any alternatives: they would respond to changes in the production costs or price of energy, and they would generate government revenues.

The details of an international energy strategy are all still to be determined. But we have the means to save our civilization. As for what individuals can do to forestall climate change, the answer is simple: they should demand that their governments put some price on carbon dioxide. Oh, and they should consume less stuff.

Graham Hill, founder and CEO of Treehugger.com, and his TreeHugger team:

TreeHugger would propose that the government not look for a silver bullet, but rather silver buckshot. A successful ecosystem is one in which flora and fauna evolve with millions of different strategies to pass their genes onwards, achieving healthy competition and an overall balance.

We need to take a similar approach with global warming, and work against the human tendency for large, one-size-fits-all, Hail Mary approaches. Rather, we need to create the right conditions for a wide variety of locally adapted solutions to emerge, even if we can’t know in advance what the most successful ones will be.

People often talk about saving the planet. But really, the planet will be just fine without us, and the issue is more whether our species will be smart enough to survive the climactic and biological changes we are wreaking on ecosystems. A successful virus needs a host to be able to replicate its genes. Humanity is risking killing the golden goose, and therefore risking its chances for long-term survival.

At TreeHugger, we do not claim to have a perfect understanding of the political and financial systems that govern our world, but we suggest that the following rules of the road would help us get ourselves out of this predicament.

In short, incentivize the good, disincentivize the bad, and make the important metrics extremely visible. This will align people’s self-interests with those of nature, and instead of constantly asking people to pay more and sacrifice to do the right thing, even those who don’t care will make the right choices because that will be what is less expensive and more convenient.

1. Carrot.

Create Opportunity for the Good: the government needs to help jumpstart various industries by making it appealing for them to do so. We need to incentivize R&D in many areas such as renewable energy and transportation, high efficiency buildings, less impactful agriculture, energy conservation technologies, and many more. This would only be fair since the government has helped the fossil fuel industry at its beginning.

Make the Good Cool: social mores are critical in changing behavior. In the 1970s, it was considered acceptable to litter; now it isn’t. Why? Fines, great public service announcements, and the fact that people could see and/or were educated about the declining state of the environment. Programs that help to highlight heroes in this area and promote respect for people that live greener than others should be supported. We might even propose an Apollo-type program to rally people around an inspiring common goal.

2. Stick.

Make the Bad Cost More: one of the problems with our current system is that the true costs to humanity are not built into the pricing of things like gasoline. We need to “internalize” those costs back into the market system to disincentivize consumers and corporations from consuming and investing in environmentally degrading technologies, fuels and habits. In the short term, the bare minimum is to stop subsidizing harmful practices.

Make the Bad Uncool: the government should support efforts to cause more and more environmentally negative actions to be looked down upon. In the same way that someone who litters on the street or in a park is looked down upon or confronted, we need things like private jets, gas-guzzling cars, monster homes, wasteful companies etc., to be shunned.

3. Metrics.

We’d also propose that metrics are very important. In management they say, “what gets measured, gets done,” and we support this idea. We believe that putting a major focus on metrics such as carbon emission levels and who is helping and who is hurting could help galvanize the movement. Imagine if all media would regularly report on our recent carbon emissions and how we are doing according to a master plan, as well as recent successes and failures.

What should individuals be doing? This is a more difficult question, as it depends a lot on your specific situation. In the same vein as above, here are some suggested rules for the road:

Understand the Landscape: take the time to use a carbon calculator and understand where your big impacts are such that you can be strategic about where you place your efforts. Turning that business trip into a few conference calls may make a bigger difference than recycling for a year.

Send a Message to Business and Government: vote with your dollars by researching the best environmental option for as many purchases of products or services as you make (after concluding that you actually need to make the purchase). Look for sustainable organic food and other consumer items that at least are trying to have a smaller carbon footprint and are moving the needle in the right direction. Use your consumer voice to let businesses know that you want environmental products and services.

Small is Sexy: as a general rule, going small will be good for the environment and likely your pocketbook. Think small cars, small houses, products and packaging made with less materials.

Know your Real Needs: too many of us rarely stop to think about what we really need, and we end up making wasteful choices that are also more costly. If you haul heavy loads once or twice a year, why drive a big truck the remaining 364 days? Why not rent or borrow when you need it? The beauty is that once you cut the things you don’t need out of your life, you realize that maybe you don’t need such a big house, and you have more money left over to spend on organic food, high efficiency appliances, solar panels, etc.

Keep Resources in Closed Loops: many projections show the future Earth’s population stabilizing at around 10 billion people. With that many of us, we can’t afford to single-use resources. We need to recycle materials and compost biological matter. As individuals, we need to reduce as much as possible what we send to the landfill, and as a society we need to move toward designing everything with disassembly and recycling in mind.

Create Community, Share Information: everybody likes clean air, clean water, clean soil and a stable climate. When people are informed about the issues and know that solutions exist, they are likely to take positive action. Always keep learning, share what you know with friends, and consider joining local organizations, national movements or online communities. Climate change can’t be solved with a top-down approach only, so the more people join in, the closer we get to the green tipping point.