Right Jab, Left Hook- Two Experts Talk Climate Change

The Fighting Temeraire

Editor’s Note: Presented are opposing arguments addressing climate change from someone affecting policy in D.C. and another working directly in clean tech. As with any topic, whether you agree with their arguments or not, it is valuable to understand the positions of key stakeholders. Akash Chougule was formerly the Directory of Policy at Americans for Prosperity and now works in Washington D.C. as a staff member for the U.S. House of Representatives. James Newhouse is a Senior Business Development Analyst at EVgo, America’s largest electric vehicle charging network.

Akash Chougule: Perhaps the greatest achievement in the history of mankind is the ongoing near-elimination of extreme poverty worldwide over the past thirty years. After centuries of little progress, today’s poor live better than kings lived not long ago. What have been the driving forces behind this miracle? While charity and foreign aid have helped make material poverty less miserable, they do not create wealth. It is the spread of capitalist concepts such as property rights, free trade, the rule of law, and – yes, the use of fossil fuels – that are driving the spread of global prosperity, especially in the world’s poorest regions.

Access to abundant, affordable, reliable energy is a must to improve quality of life for the poor. Thus far, coal has been unparalleled in its ability to help the poor heat and light their homes and cook their food. That is why countries like China and India – working to lift billions from poverty – continue to expand their use of coal.

Undoubtedly, there is some environmental effect of doing so. But just the same, curbing those environmental effects will necessarily mean changing the behavior of India and China, and doing so will mean harming those countries’ poor. Nevertheless, ideologues in the United States continue to insist that America “do something” and “be a leader” on this issue fully aware that absent action in Asia, prescribed solutions will be all economic pain for no environmental gain.

A long-standing proposal to address the issue has been to price carbon, most often in the form of a carbon tax. While from a free-market standpoint this suggestion is logical, advocates cannot seem to agree whether a carbon tax is a means to price economic costs, or merely another method to grow the government to fund a litany of other left-wing political goals. This is precisely why environmental groups opposed a revenue-neutral carbon tax proposal that failed badly in Washington State. If this idea is to gain traction nationally, leftists must figure out its actual goal.

Another common suggestion is for government to grant privilege to “clean” energy sources by providing billions in subsidies to wind and solar. In any other industry, the Left would rightly decry this as corporate welfare. That is precisely what it is – government giving taxpayer dollars to politically-favored private businesses. We have seen this fail miserably before, leaving American taxpayers on the hook. To this day, renewable energy receives far more in subsidies than coal, oil, and natural gas. Until and unless renewable energies can compete on a level playing field in the free market, they will not be competitive or viable, and the government should not give them an advantage at taxpayers’ expense. Making lower- and middle-class Americans foot the bill to enrich California billionaires is wrong and unnecessary. If the hope is that private capital markets will lead the way without government pressure, environmentalists must realize the onus first lies on the providers of that technology before it lies with financiers.

Fortunately, there is good news: the free market, not government control, is solving this problem. US carbon emissions have been plummeting for years without a carbon tax or socialist controls, while they continue to increase in Asia. Better yet, in the US they continue to fall faster than they are in Europe, where our betters insist America is the problem. The biggest driver of this decline in emissions has been the expansion of fracking, which has greatly expanded the use of natural gas and thus weaned dependence on coal.

Shockingly, the free market solves problems when free people place value on solutions and are left to their own devices.

Finally, in discussing this issue, not only must we be realistic about the environmental impact of climate change (for which predictions have been laughably inaccurate), but also the economic costs. The government’s own report stated that the “worst-worst case” scenario of climate change would reduce the average annual economic growth rate by just 0.05 percentage points. There is no economic catastrophe coming from climate change – unless environmentalists impose one on us.

James Newhouse: As I read Akash’s response, I was reminded of Bill Nye’s remarks on CNN last year. Nye, a longtime climate change mitigation advocate, criticized the network for giving equal air time to climate skeptics. By my count, Akash’s piece contained 16 misleading claims ranging from topics about the effects of climate change, concerns about the global poor, and the definition of socialism. I was not surprised by this tactic, as special interest groups have used climate denial to obstruct federal climate change policy. And this is exactly the problem. Whereas Reagan and Bush acknowledged that climate change is a problem and John McCain even ran his 2008 presidential campaign on being more active on climate than Barack Obama, many elected officials today deny that climate change will negatively impact the U.S. economy. This effort by special interest groups has been tragically successfully; as of 2017, 180 congressmen and women deny climate change and have received >$82 million in funding from fossil fuel industries, in direct contrast to the beliefs of their constituents.

I want to write about infrastructure finance and not get bogged down addressing the flaws in Akash’s argument, so I will keep my response to Akash brief. Climate change is happening. It threatens human progress through a variety of ways, including but not limited to: natural disasters, floods and drought, decreased GDP, deadly heat waves, mass migration, and loss of biodiversity. All of this is already happening. And it will disproportionately affect the poor in the global and U.S. south.

With that out of the way, I want to address infrastructure finance and investment-spurring regulation. Free market neoliberalism cannot solve climate change. Only public-private partnerships and government-created market signals, which are rejected by neoliberal economic theory, can spur the infrastructure overhaul required to decarbonize our entire economy.

Neoliberalism fails because it propounds a capitalism that is apathetic to sustainable growth. Investments are awarded to companies that provide high internal rates of return (IRRs) and returns on investment (ROIs). These metrics fail to account for the social benefits of decarbonization. Without accounting for this benefit and without government intervention, clean infrastructure projects valuations are terrible, as these projects are capital-intensive, in nascent markets, and often never see positive returns. The resulting IRRs and ROIs paint a clear, unprofitable picture for private investors whose primary focus is earning a return on their investment.

And this should be investors’ focus. That’s how capitalism works. But because infrastructure is expensive, government must introduce policy that improves the IRRs and ROIs on these projects and thereby attracts investors. Policy measures such as infrastructure subsidization, consumer rebates, cap-and-trade programs, and tax breaks improve supply and demand dynamics for infrastructure. For example, Tesla could not have attracted >$19B in post-IPO investment without the existence of California’s zero-emissions vehicle mandate, which required a portion of every automaker’s business in California come from electric vehicles. In the nation’s largest auto market, this gave Tesla a huge advantage over its competition.

This argument is not controversial. Infrastructure subsidization has existed throughout U.S. history. In fact, we have the Republican party to thank for the transcontinental railroad, the Morrill Land Grant, the Hoover Dam, and our interstate highway system. None of these would be profitable enough for private investment without government intervention. This is not socialism, it’s regulation. Today, infrastructure spending is supported by 75% of Americans, the entire Democratic Party, and even President Trump. It’s just the GOP platform, which is influenced by neoliberal special interests, that prioritizes market growth at the expense of sustainability. The solution, of course, is to elect officials that support climate change policy. That means politicians that aren’t married to special interest groups.

Akash Chougule: My friend James’ argument relies on several tried-and-true tactics of central planners that all distract from the folly of their ideology and public policy goals.

The first is to simply paint those who disagree with their proposed policies as “climate deniers.” In my initial post, I explicitly did not deny the existence of climate change, or even human impact on it. Quite the contrary, I noted how human innovation is helping reduce carbon emissions in the United States, something climate activists strangely never applaud – perhaps because it is happening as a result of the free market, without massive government intervention.

The second is placing blame for people’s democratically-elected representatives’ failure to adopt leftists’ preferred policies on evil fossil fuel companies pumping millions of dollars into political campaigns. Except, fossil fuel companies are nowhere near the biggest donors in our political system. Strangely, leftist activists never level similar complaints about labor unions or environmental groups, both of which are scattered throughout the list of the top 20 biggest donors. Also unmentioned are the campaign donations to politicians advocating for “green energy” policies from those who stand to profit off those policies (investors, entrepreneurs, researchers, etc).

Liberals seem to have a problem with issue advocacy, organizing, and campaign donation only when it goes against causes and candidates they support. More broadly, there seems to be a reluctance to accept the simple fact that many of the radical environmental left’s ideas are simply unpopular with the American people. One only need look at the backlash after House Democrats passed cap-and-trade legislation in 2009 for recent evidence of this.

Finally, there is seldom acknowledgment of the fact that the United States cannot solve climate change on its own. India, China, sub-Saharan Africa and the rest of the world would be required to act, too, and would never agree to any plan to seriously reduce carbon emissions for the reason stated in my original post – fossil fuels are fueling a reduction of poverty around the world. For those serious about curbing emissions quickly, the Paris Climate Agreement’s expectations of China were laughable. Their “goals” were little different than what they were already doing, and they were continuing to increase carbon emissions anyway.

Nevertheless, on government financing to combat climate change, it seems James made two different kinds of proposals, but they share the same problems: infrastructure financing (such as building roads, or in the case of what many environmentalists prefer, light rail systems) and financial incentives for favored market actors (such as tax breaks for Tesla).

On infrastructure financing, James is correct that government plays a huge (and fairly obvious) role and has for decades. I’d be curious to hear specifically what kind of infrastructure environmentalists would prefer the government subsidize. But it would also be important to know how much it would cost (on top of what we already need to spend to repair roads and bridges), the tax hikes necessary to pay for it (and who will pay them), and – perhaps most importantly – what level of control they plan to exert on people’s freedom of choice to ensure that environmentally-friendly infrastructure becomes the default choice.

Just recently, California Democrat Governor Gavin Newsom cancelled plans for a high-speed rail system in his state, saying it would cost too much and take too long. Democrats recently introduced – and several presidential candidates endorsed – a so-called “Green New Deal” that would seemingly necessitate abolishing or at least significantly curbing the use of cars and airplanes. The resolution introduced in Congress lacked sufficient detail on how they plan to achieve their climate goals in terms of restrictions on choices and growth in taxpayer costs, but these are details worth knowing before we take these proposals seriously. Are these choices the American people are willing to make? Or must they be forced into making them? Would they elect politicians who would enforce this regime?

There are undoubtedly infrastructure investments that can be made, in lieu of other infrastructure choices, that would seemingly be better for the environment. But if the people’s elected representatives are to make these decisions, people deserve to know the pain they will have to endure and for what gain environmentally they will do so.

On the matter of increasing IRR and ROI for clean energy private sector ventures, such as Tesla, most environmentalists readily admit that this is a form of government picking winners and losers. This is corporate welfare that leftists rightfully decry in any other setting. They will obviously claim that climate change is a crisis for which it is worth setting aside their principled opposition to corporate welfare, but then, what else is worth it? When politicians get involved in making decisions for the economy, no single group gets to decide when or how they do so.

Are blatantly harmful tariffs that protect American steel companies justified because we have a crisis of economic mobility in the Rust Belt? Should we subsidize American shoe companies so that we don’t have to buy shoes made in China, our greatest geopolitical foe? These are all important matters that might theoretically result in politicians deciding to grant privilege (tax incentives, subsidies, etc.) to some mega-corporations over their competitors.

Are we prepared for more and more of the direction of our economy to be determined not by market signals (government does not create market signals…market actors create market signals) but rather on the whims of Washington politicians? The same politicians who can’t seem to perform the most basic tasks of governing?

What impact would that realistically have on the opportunity, choice, and innovation in our economy that has produced the wealthiest and most powerful nation on earth?

Moreover, as mentioned above we have seen this fail miserably before within the green energy space, leaving American taxpayers on the hook, and to this day, renewable energy receives far more in subsidies than coal, oil, and natural gas. How many more billions in subsidies do green energy companies need in order to satisfy the environmentalists?

How much much of our money and freedom of choice will it take to solve climate change?

The fact of the matter remains that climate change cannot simply be solved with a “carrot” for cleaner technology or the right kind of infrastructure. It will necessitate the “stick” of increased government control over personal choices and higher taxes to pay for it – including on the middle class. Environmentalists are free to make that case to the American people. But the American people deserve an open, honest, and full discussion of what that entails – not merely sloganeering and lofty promises.
Until they can do so successfully and be rewarded for it at the ballot box, we’ll have to settle for free-market innovations – the ones environmentalists are certain can’t address climate change – to keep driving down emissions.

James Newhouse: Perhaps the single greatest achievement of capitalism is the vast reduction of global poverty. Akash and I agree on that. The unfortunate reality, though, is that our economy runs on natural resources. Unlike renewable energy, these resources expire. Not only that, overconsumption of these resources threatens our entire system. That means continued reliance on these sources threatens the capitalist mantra of growth. Akash is a climate denier because he cited a Trump federal government study and American Enterprise Institute source that doubt the likelihood of this possibility.

Recently, economic mobility has decreased, inequality has increased, and credible sources (see the links I provided in my first response) consistently show that climate change will only exacerbate these troubling trends. Fortunately, Capitalism provides a solution: subsidize clean infrastructure (e.g. solar development and electric vehicle infrastructure). This is embraced by the Chinese, Europeans, and Californians. Republican governors Larry Hogan of Maryland, Charlie Baker of Massachusetts, and Phil Scott of Vermont also embrace this solution. This has seen slow uptake on the federal level because the oil industry enjoys outsized influence and because it requires an adjustment to the modern neoliberal over-embrace of free markets.

To ensure the sustainable growth of capitalism, both of these barriers to regulation must be removed. That doesn’t mean that everyone should vote Democrat. Multiple parties are good. They bring diversity of thought and checks and balances. But it does mean that we should actively support politicians that embrace this effort. To frame things in a capitalist mindset one final time, what is a couple billion dollars to safeguard against the existential threat of climate changes? Those billions may be the highest ROI risk-mitigation investment ever made.

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