But Will the Planet Notice? How Smart Economics Can Save the World by Gernot Wagner
This is a great book by Environmental Defense Fund economist Gernot Wagner. Right off the bat—starting with the book’s title—Wagner asks exactly the right and most important question: How do we scale up environmental initiatives so they really move the needle and have a measurable impact on the planet?
Wagner is an economist who more or less believes what you’re taught in Econ 101. He spends a good amount of the book helping readers understand externalities, focusing especially on climate change. Of course he respects market power, so he lays out a powerful case for putting a significant price on carbon. Take taxes, for example. Economists have always agreed: We should tax activities we want to discourage, not encourage. But in the United States today, we tax income. We tax (i.e., discourage) work and jobs. Why not deal with our fiscal deficit challenges instead by taxing carbon? If we did, we’d discourage use of the fossil fuel-based energy that is cooking the planet. And we’d move toward leveling the playing field so that clean forms of energy could better compete.
We did this once. Well, to be precise, OPEC did it to us. I’m old enough to remember the OPEC oil crisis in the 70s. I remember the lines at gas stations in my high school days. By reducing oil supply, OPEC sharply raised gas prices. It was as if OPEC imposed a carbon tax. Except in this case, the tax revenue went to OPEC, not us. What happened when the tax (i.e., the price shock) was imposed on U.S. consumers? At first it was quite a shock to the U.S. economy, and growth stalled. But after a very short adjustment period, consumers changed their behavior. Faced with sharply higher gas prices, both business and man-on-the-street consumers quickly focused on energy efficiency and materially reduced their energy consumption. Fuel-efficient cars, for example, became the rage. And economic growth in the U.S. quickly resumed. Once OPEC faded, we could have kept the country on this energy-efficient trajectory through a carbon tax (but we would have kept the money this time).
Instead, we did the politically expedient thing, allowed gas prices to fall, and set up the opportunity for SUVs and Hummers. We could still address this challenge today—that was the core idea behind a carbon tax or cap and trade. But instead, we (perversely, in my view) subsidize the use of fossil fuels.
Please excuse this rant (essentially mine). But Wagner provides an interesting framework for thinking about issues like this and the role of market forces in guiding environmental actions. He does so in a very clear style, while showing off his great sense of humor and excellent writing. Who says economics needs to be the “dismal science?”
—Reviewed by Mark Tercek, president and CEO of The Nature Conservancy